In June, 2010 Georgia passed a law known as the “Angel Investor Tax Credit”. This provides for a Georgia tax credit of up to $50,000 annually for investors of early‐stage, start‐up companies in Georgia. The purpose of the tax credit is to encourage direct investment from individuals in high‐tech businesses. This could help attract investment into our Georgia technology companies.
The credit equals 35 percent of the amount invested in the start‐up company and is available for investments made in 2011, 2012, and 2013. However, the credit cannot be used until the second year following the year the investment is made. For instance, an investment in 2011 will not create a credit until 2013. Investments can be made by individuals or pass‐through entities that have no business operations and manage less than $5 million in capital. The maximum credit an individual can take each year is $50,000. Any unused credit can be carried forward for five years.
In order for a business to qualify as investment eligible under the credit, it must register with the tax commissioner. Upon approval, the business is considered eligible for investment for the credit for 12 months.
To qualify, a business:
- Must be a corporation, LLC, or partnership located in Georgia
- Must be organized no more than 3 years before the investment is made
- Cannot be engaged substantially in retail sales, real estate and construction, professional services, gambling, natural resource extraction, investment activities and insurance, or activities where admission or membership is charged
- Must have its headquarters located in GA from the time the investment is made through the entire duration that an investor benefits from the credit
- Must employ 20 or fewer people at the time of registration
- Cannot have gross revenues that exceed $500,000 in any prior fiscal year
- Cannot have obtained more than $1 million in gross cash proceeds from issuing debt or equity instruments (does not include commercial loans)
- Cannot have utilized the GA film tax credit
An original application must be filed by the qualified investor by June 30 of the year following the investment. Additionally, the qualified investor must submit an application between September 1 and October 31 of the year for which the credit is claimed. During this period, the credits will be approved for taxpayers up to the $10 million annual limit. If the annual limit is reached, the credits will be allocated to all timely applicants on a pro‐rata basis.
It is important to note that investors receiving the credit must follow certain provisions after the credits are obtained. Credits must be recaptured if the investor transfers any of the securities or subordinated debt received in the investment to another person or entity within two years of the transaction. Recapture is not triggered if the investor dies, transfers to a spouse incident to divorce, or if a merger, conversion, or sale of the business occurs where the investor does not receive cash or tangible property. Additionally, the credit must be recaptured if the qualified business redeems the investor’s securities or pays principal on any subordinated debt within five years of the date the investment was made.
Finally, the qualified investor or his/her immediate family may not participate in any operation of the business for compensation within two years of the date the investment was made. Compensation does not include stock or stock options.
If you have any questions regarding this credit or need any additional information