CHINA Law and Practice Contributed by: Alan Du and Yiwei Shi, King & Wood Mallesons
Preferential Tax Policy for Venture Capital Funds An additional preferential tax policy may apply to venture capital funds investing in scientific and technological enterprises that meet certain requirements. For a venture capital fund structured as a limited company, where the fund has directly invested in an eligible scientific and technological enterprise for more than two years, it can have a tax credit at 70% of the investment amount against the EIT. If the amount of the granted tax credit is not fully used, that balance can be carried forward to the following tax year. For a venture capital fund structured as a lim - ited partnership, a similar policy applies to the investors of the fund. Namely, a limited com - pany investor can claim a tax credit of 70% of the investment amount in the eligible scientific and technological enterprise against its income from the fund. An individual investor can have the same amount of tax credit against its income from the fund.
For those issues that the Securities Investment Fund Law does not provide for, the PRC Trust Law shall apply. Therefore, the authors tend to believe that the form of a public fund should be similar to a trust. Investors’ interests in a public fund are called fund units. Public funds can be operated as open-ended or closed-ended. After the first open-ended public fund was approved in 2001, open-ended pub - lic funds have become the most popular form of public fund. As of October 2024, there were 10,833 open-ended public funds, whereas the number of closed-ended public funds was 1,342. As a public fund is not a legal entity, the sub - scription or redemption of fund units will not trig - ger the registration process with the AMR, which suits the operation of open-ended public funds. Based on the list of public fund managers pub - licised by the AMAC, public fund managers are all structured as limited companies in the PRC. 3.1.2 Common Process for Setting Up Investment Funds The common process for setting up a public fund in the PRC includes the following steps. Setting Up a Public Fund Manager A public fund manager can be set up by doing the following. • Establishing a new public fund management company. • Obtaining a public fund manager licence for an existing asset management institution, such as for: (a) asset management subsidiaries of securi - ties companies;
3. Retail Funds 3.1 Fund Formation 3.1.1 Fund Structures
The law is unclear about the form of public funds – eg, a limited partnership, a trust or otherwise. Under the Securities Investment Fund Law: • a public fund is not a legal entity; • the fund manager is entrusted to manage the assets of the public fund; and • the assets of the fund are separate from the assets of the fund manager.
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