If taxpayers have income attributable to an investment in a certified Virginia venture capital account made on or after Jan. 1, 2018, but before Dec. 31, 2023, they can claim an individual or corporate income tax subtraction. To qualify, Virginia Tax must certify the venture capital account prior to the investment being made.
To be certified as a Virginia venture capital account, an investment fund must employ at least one investor with 4 years of professional experience in venture capital investment, or substantially similar experience, and invest at least 50% of its investments in qualified portfolio companies that:
- Have their primary business location in Virginia;
- Engage primarily in the production, sale, research, or development of a product or service other than management or investment of capital; and
- Provide equity in the company to the venture capital account in exchange for a capital investment.
An individual or sole proprietorship cannot be a qualified portfolio company.
Registering and certifying a Virginia venture capital account
Prior to investing, the operator of the investment fund should submit Form VEN-1 to register the venture capital account with Virginia Tax. Once the investment has been made, the operator of the investment fund can submit Form VEN-2 to get the venture capital account certified in the state as a Virginia venture capital account.
The operator of the fund will receive a certification letter from Virginia Tax after the fund is certified. The operator of the fund then has to provide a copy of that letter to investors so they can claim the subtraction on their income tax returns.
Next, submit Form VEN-3 to provide investor information to Virginia Tax. Investors cannot claim this subtraction unless the investor is included on Form VEN-3. Certification is for one year; venture capital accounts must recertify annually.
For more information, please see Instructions for Virginia Venture Capital Account Investment Fund Registration and Certification Forms.
Claiming the subtraction on your Virginia income tax return
Taxpayers can claim the subtraction on their 2018 income tax return. You cannot use the same investment for a Qualified Equity or Subordinated Debt Credit, or a subtraction for long-term capital gains. Investments do not qualify if they were made in a company owned or operated by an affiliate or a family member of the taxpayer.
Next, complete the schedule of adjustments that is appropriate for the return type, and be sure to enter the certification number provided by the investment fund operator.