China’s Silicon Valley Offers Tax Breaks for Venture Capitalists

What’s new: China’s Silicon Valley will offer tax exemptions and tax cuts to investment companies that wait longer to exit from startups as part of the government’s efforts to bolster China’s independent technological capabilities.

Beijing’s tech hub, the Zhongguancun National Innovation Demonstration Zone, under a pilot policy will cut corporate income taxes for qualified venture capital companies by 50% if they hold equity stakes in startups for more than three years and if proceeds from the eventual sale of the holdings exceeds 50% of annual income.

If venture capitalists hold onto investments for more than five years, the proceeds from selling out will be except from income tax, the Beijing Municipal Bureau of Finance said.

The policy is designed to encourage “patience” of venture capital companies in long-term investments in startup technology enterprises and promote such businesses to grow bigger and stronger, the bureau said.

The background: Located in northwestern Beijing’s Haidian district among clusters of universities and research institutes, Zhongguancun has grown from a street for consumer electronics sales into China’s tech hub, home to more than 20,000 high-tech enterprises, including some of China’s biggest internet businesses.

The Zhongguancun demonstration zone, set up in 2009 as China’s first such zone, currently has more than 90 unicorn tech startups, accounting for half of the country's total.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

Related: Four Things to Know About China’s $670 Billion Government Guidance Funds

Support quality journalism in China. Subscribe to Caixin Global starting at $0.99.