Qualifying Business Tax Credit

The Investments in Qualifying Businesses tax credits, along with the Community-Based Seed Capital Funds tax credits, were created to enhance the quality of life for citizens of Iowa by increasing the availability and accessibility of venture capital, particularly for ventures at the seed capital investment stage, which encourages the creation of wealth through high-paid, new jobs while promoting industrial development and innovation. The Qualifying Business tax credit program is designed to encourage venture capital investment at the seed capital stage. The total amount of tax credits available to be issued for investments in Qualifying Businesses and Community-Based Seed Capital Funds (Angel Investor Tax Credits) is $2 million per fiscal year. 

Tax Credit Details

  • Investors receive tax credits equal to 20 percent of the investor’s equity investment in a Qualifying Business.
  • Investors must invest in the form of cash to purchase equity or near-equity in a Qualifying Business.
  • Tax credits are awarded on a first-come, first-serve basis.
  • The maximum amount of a tax credit per investment by an investor in any one Qualifying Business is $50,000. The maximum amount of tax credits per investor equals $250,000 (5 investments in separate Qualifying Businesses x $50,000 per investment).
  • Tax credit certificates are eligible for redemption three years after the investment in a Qualifying Business.

Eligibility Requirements for a Qualifying Business

  • The principal business operations of the business are located in Iowa;
  • The business has been in operation for six years or less, as measured from the date of the investment for which a credit is claimed;
  • The business must have an owner who has successfully completed one of the following:
    • An entrepreneurial venture development curriculum, such as programs developed by a John Pappajohn Entrepreneurial Center, or a holistic training program recognized by IEDA, which generally includes the following areas: entrepreneurial training, management team development, intellectual property management, market research and analysis, sales and distribution development, financial planning, and management and strategic planning;
    • Three years of relevant business experience;
    • A four-year college degree in business management, business administration or a related field;
    • Other training or experience sufficient to increase the probability of success of the qualifying business;
  • The business cannot be a business engaged primarily in retail sales, real estate, the provision of health care services or other services requiring a professional license;
  • The business must have a net worth of $5 million or less as of the date of the investment for which the credit is claimed; and
  • Within 24 months from the first date on which the equity investments qualifying for investment tax credits have been made, the business shall have secured total equity or near equity financing equal to at least $250,000.
  • See the Administrative Rules for more information about the tax credit.

How to Apply:

  • Eligible businesses must submit a verification application and required documents to the Iowa Economic Development Authority within 180 days of receiving the first investments. The business must be verified and registered as an eligible Qualifying Business before individual investors can be approved to receive a tax credit.
  • Investors must submit an application by March 31 of the year following the calendar year in which the investor made the equity investment. 

To learn more:

kristin.hanks-bents@iowa.gov
Phone: 515.725.0440

Resources
PDF
IAC Chapter 261.115