Delaware passed the Angel Investor Job Creation and Innovation Act in 2018 to stimulate the startup ecosystem in Delaware, offering $5 million in tax credits annually. The tax credit is 25% of investments in qualified businesses with an annual cap of $250,000 for married couples filing jointly and $125,000 for individuals. Also, there is a $500,000 cap for tax credits awarded over all calendar years for one qualifying business. Below are more detailed guidelines.
Qualified Investment
- $10,000 minimum investment for individual, $30,000 minimum for fund.
- Credit is 25% of investment in qualified business.
- Total program funding is capped at $5 million annually.
- Sunset after 2021.
- Cumulative tax credit limit for qualified investors in one year is $250,000 for married couples filing jointly, $125,000 for individuals.
- No more than $500,000 in credits may be awarded for qualified investments in any one qualified business over all calendar years.
- Officers in a qualified business, or investors that control 20% or more of the business, are not eligible.
- Investors may claim the credit on their next Delaware tax return, so long as the investment has been held for at least six months.
Qualified Business
- Qualified high technology fields – aerospace, agricultural processing, renewable energy, energy efficiency and conservation, environmental engineering, food technology, cellulosic ethanol, information technology, financial technology, material sciences technology, nanotechnology, telecommunications, biotechnology, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar fields.
- Business is headquartered in Delaware.
- 51% of common-law employees and 51% of total compensation paid for work provided in Delaware.
- Uses proprietary technology to add value to a product, process, or service in qualified field; research or develop a proprietary product or process in qualified field.
- Fewer than 25 employees.
- Not in operation for more than 10 years (more than 20 if working on FDA approval for product).
- Has not previously received private equity of more than $4 million.
- Has not issued securities on a public exchange. Cannot issue securities on public exchange for 180 days after investment, and cannot have liquidation event within 180 days of qualified investment.
- Eligible invested funds must be used for “qualified expenditures.”
- These expenditures include: real property such as buildings, warehouses or factories in Delaware; personal property, such as equipment, machinery, or supplies, for use in Delaware; intangible property developed in Delaware such as copyrights, trademarks, or patents; and payroll and compensation paid for work performed in Delaware. This will include proof of concept/prototype manufacturing.
After the Investment
- The investment must be held for the entire calendar year of the investment plus two calendar years thereafter;
- If the investment is sold before three years the tax credit is revoked and must be paid back;
- If the business does not maintain the employment requirements for 3 years, the credit will be revoked and repaid based on a pro-rata repayment
How do I apply for the Delaware Angel Investor Job Creation Tax Credit?
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
