On 19 April 2017, Premier Li Keqiang presided a State Council executive meeting (the Meeting) where a package of tax incentives was announced in the light of the government work report for 2017. In response to this announcement, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) together with other government departments jointly and separately issued four tax policies soon after the Meeting, including simplifying the Valued Added Tax (VAT) rate categories, increasing the percentage of Research and Development (R&D) expenses super deduction for Corporate Income Tax (CIT) purpose for small and medium-sized technological enterprises, extending the pilot Individual Income Tax (IIT) policy on commercial health insurance nationwide, and offering tax incentives to venture capital enterprises (VCEs) as well as angel investors (AIs).
Among the four tax policies, Caishui  No.38 (Circular 38) attracts most attention. According to Circular 38, for equity investments in start-up technological enterprises made by the VCEs (including both corporate VCEs and limited partnership VCEs) and AIs in pilot areas, a certain percentage of the investment amount can be used to offset their taxable income. Compared with the current tax incentives for VCEs, this new policy is a significant breakthrough which would encourage more investors to be actively involved in the venture capital market and also promote the development of China’s innovation-driven strategy. In this issue of News Flash, we will introduce the highlights of Circular 38 and share our observations.