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NEW DELHI: The government on Friday proposed changes to tax levied on angel investors in unlisted entities and expanded the scope of valuation methodologies, a move that is expected to help startups deal with the current “funding winter”.
The proposed amendments to rule 11 UA linked to angel tax, if implemented, will allow additional valuation methodologies to be available to the assessee as opposed to only book value or discounted cash flow. “This will allow diverse businesses to be valued as per the appropriate valuation methodology for their business model,” said Siddarth Pai, founding partner at 3one4 Capital.
A notification issued by the finance ministry said the price matching for resident and non-resident investors would be available with reference to investment by Venture Capital Funds or Specified Funds. A key issue of the interplay of angel tax and FEMA was the price differential between resident and non-resident investors. FEMA did not allow a non-resident to acquire securities below fair market value and angel tax did not have any scope for a company to issue shares above the fair market value.
Now, price matching with venture capital funds will be taken as fair market value, experts said. Also, from the previously unspecified time period, it has now been proposed that the valuation reports will have a tenure of 90 days.
“The government’s notification on angel tax offers relief to startups suffering under the current funding winter. Some terms such as a broad based fund of 50 people will be tough to enact as large venture capital funds tend to work only with select investors. This will help the startup industry out, but excluding funds and managers regulated by IOSCO (International Organisation of Securities Commissions) member regulators will help attract foreign capital and serve as a sound safeguard,” Pai said.
The government proposed to provide a safe harbour of 10% variation in value.
The proposed amendments to rule 11 UA linked to angel tax, if implemented, will allow additional valuation methodologies to be available to the assessee as opposed to only book value or discounted cash flow. “This will allow diverse businesses to be valued as per the appropriate valuation methodology for their business model,” said Siddarth Pai, founding partner at 3one4 Capital.
A notification issued by the finance ministry said the price matching for resident and non-resident investors would be available with reference to investment by Venture Capital Funds or Specified Funds. A key issue of the interplay of angel tax and FEMA was the price differential between resident and non-resident investors. FEMA did not allow a non-resident to acquire securities below fair market value and angel tax did not have any scope for a company to issue shares above the fair market value.
Now, price matching with venture capital funds will be taken as fair market value, experts said. Also, from the previously unspecified time period, it has now been proposed that the valuation reports will have a tenure of 90 days.
“The government’s notification on angel tax offers relief to startups suffering under the current funding winter. Some terms such as a broad based fund of 50 people will be tough to enact as large venture capital funds tend to work only with select investors. This will help the startup industry out, but excluding funds and managers regulated by IOSCO (International Organisation of Securities Commissions) member regulators will help attract foreign capital and serve as a sound safeguard,” Pai said.
The government proposed to provide a safe harbour of 10% variation in value.
#Angel #tax #unlisted #cos #change
