One of the biggest challenges founders face in their entrepreneurial journey is getting access to capital. For many early-stage technology startups, securing operating capital from external investors is a crucial step in the development and growth of the business.
In the fiercely competitive market for startup capital, you need to find a way to make your company stand out in the crowd. What if you could offer your investors a 30% tax credit for their investment? Few investments can beat that guaranteed ROI! Read on to learn how you can take advantage of this tax program in your next financing round.
To qualify for registration as an EBC, your company has to meet certain criteria:
The raison d’être of this tax program is to incentivize investment in specific industries. So, to be able to register as an EBC, your company has to be substantially engaged in one of these qualifying activities:
What does it mean to be “substantially engaged” in something? It just means that the core or primary activities of your business should relate significantly to that activity.
Before you can register as an EBC, your company has to have equity capital of at least $25,000, not including convertible rights. This means the initial shares issued to the company’s founders at a nominal price aren’t going to cut it. Nor will any convertible debt instruments. But luckily, SAFEs are now eligible (subject to certain requirements), making it easier for early-stage companies to raise this initial equity capital without having to commit to a valuation.
Keep in mind that this initial equity capital is not eligible to receive the tax credits.
Once you’ve made sure your company meets the requirements above, the first step in registering as an EBC is to submit an application to the BC Investment Capital Branch. You can do this online through the electronic Tax Credit Application (eTCA) system by providing:
If your application is approved, you will receive an Equity Authorization setting out the amount of equity you can raise, between specified dates, under the program for the current tax budget year.
The EBC tax credit program is a great way for tech startups to attract investors by offering a 30% BC provincial tax credit on investments.
Keep in mind, though, that the EBC tax credit budget is limited and equity authorization amounts may be limited or not issued at all once the budget runs out. So, it’s better to get your application in as early in the tax budget year as you can. The tax budget year starts on January 1 and ends December 31.
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