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The world of venture capital (VC) is characterized by its high-risk, high-reward nature, fueling innovation and entrepreneurship on a global scale. While risk and return are traditional metrics in VC, taxation plays a pivotal role in sha** the landscape of venture capital, affecting entry into entrepreneurship, venture capital investments, and contracts between venture capitalists and entrepreneurs.
VC funds are usually structured as limited partnerships, where tax burdens fall on general partners (GPs) and limited partners (LPs), with LPs typically being institutional investors. While LPs in the USA tend to be tax-exempt institutions, such as pension funds, the role of taxes, particularly capital gains and carried interest taxation, is central to understanding the incentives of GPs, who are taxed as individuals.
The relationship between capital gains tax and VC is intricate. Even a small capital gains tax can have a significant impact,...
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References
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Barrios, J.M. (2024). Taxation in Venture Capital. In: Cumming, D., Hammer, B. (eds) The Palgrave Encyclopedia of Private Equity. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-38738-9_57-1
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DOI: https://doi.org/10.1007/978-3-030-38738-9_57-1
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