Private equity taxation plans under fire

Draft measures to impose a floating profit tax on limited partnership private equity funds have been strongly criticised by economists and investors

The State Administration of Taxation is considering implementing rules imposing a floating profit tax. The Draft Implementation Measures of Income Tax on Partnership Enterprises and Partners《合伙企业及合伙人所得税实施办法》相关草案（下称“草案”）is still in the consultation stage with private equity (PE) practitioners and auditors, according to the website PE Daily.

 

The draft Measures propose a rate of around 35% to 40% of the added value, which is the difference between the price paid for the initial investment and the actual initial public offering (IPO) price. This is in contrast with the current 25% corporate income tax.

This means that investments made at an early stage will be subject to heavier burdens than those made during the pre-IPO period, when the fund is no longer open to public offerings.

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