Angel Investor Tax Credit
Louisiana’s Angel Investor Tax Credit (AITC) encourages accredited investors to invest in early stage, small wealth-creating Louisiana businesses that seek startup and expansion capital.
Eligibility
The incentive is available to Louisiana businesses that are not involved in retail, real estate, professional services, gaming or gambling, natural resource extraction or exploration, or financial services, including venture capital funds.
A qualified investment may be in the form of equity, convertible debt, or other types of subordinate debt as approved by the department. Subordinate debt by its terms requires no repayment of principal for the first 3 years after issuance, is not guaranteed by any other person or secured by any assets of the LEB or any other person and is subordinated to all indebtedness and obligations of the LEB to its general creditors. The no repayment requirement for the first 3 years must be clearly indicated in each promissory note or convertible note agreement for all debt instruments.
Qualifying uses of investment funds include: Capital improvements, plant equipment, research & development and working capital
Non-eligible uses of investment funds include: Pay dividends, redeem shares, repay debt and repay shareholders’ loans
What qualifies as an LEB? The principal business operations are in Louisiana, with Louisiana as the primary place of employment for the employees of the business. The business must possess a fully developed business plan that includes all appropriate long and short term forecasts and contingencies of business operations, including research and development, profit, loss and cash flow projections, and details of expenditure of angel investor funding. The business must have a Louisiana Tax Identification Number. The business has either gross annual sales of less than $10 million or a business net worth of less than $2 million. The business employs 50 or fewer full-time employees. The business must demonstrate that it will create quality jobs in the state. The business is not primarily engaged in the business of retail sales, real estate, professional services, gaming or gambling, natural resource extraction or exploration, or financial services including venture capital funds. The business has a plan of progression through which more than 50% of its sales will be derived from outside of Louisiana.
Who qualifies as an Accredited Investor? An Accredited Investor shall meet the definition established by Rule 501 in Regulation D promulgated under the Securities Act of 1933.
Program Statutes and Rules:
All incentive program rules are in the Louisiana Administrative Code maintained by the Office of the State Register.
- View the Angel Investor Tax Credit Statutes
- View the Angel Investor Tax Credit Rules (Go to Part 1, Chapter 33)
Eligibility Scenarios
I have an angel investor that invested funds in my company earlier this year, before I became aware of the AITC Program. Can this angel investor take advantage of the AITC with the investments he made in my business earlier this year?
The investment must have been made before the 120-day proof of investment period lapsed, and no earlier than 30 days prior to the reservation of credits.
I am negotiating with a group of angel investors for a round of funding in my business. How do I know if they will qualify to receive tax credits under the AITC Program?
If the individuals that comprise the angel pool meet the net worth and income requirements for accredited investors associated with the Securities Act of 1933, they should qualify for the tax credits.
The Process
Getting Started
Submit a completed LEB application and supporting documentation to angelinvestor@la.gov.
Applications for tax credit reservations for a calendar year (application form on the LED website) must be emailed to angelapplications@la.gov on or after January 1 of the calendar year in which the investments are expected to be made in the business. Earlier applications will be rejected and must be resubmitted on or after that date.
An application fee shall be submitted with all applications for reservation of credits. The application fee shall be equal to 0.5 percent (0.005) times the total anticipated tax incentive for the investors with a minimum application fee of $500 and a maximum application fee of $15,000, payable to Louisiana Department of Economic Development.
After acknowledgement and receipt of reservation, applicant will have 10 days to remit the appropriate fee by mail. Should fee not be received within the allotted time, the reservation may be canceled.
After LED receives the application for certification as an LEB, which qualifies the business to possibly receive tax credits under the AITC, the following occurs:
- LED instructs the LEB to submit an AITC Reservation Application to angelapplications@la.gov requesting tax credits at a specific amount (25% or 35% of investment) be reserved.
- The applicant must also indicate whether it would be willing to receive a proration of tax credits and specify the lowest proration percentage of the investment that the company would be willing to entertain if the $7.2 million cap is exceeded on the day the reservation application is received by LED.
- LED forwards a letter to the LEB that states the requested tax credits in a specified amount have been reserved in the name of the LEB.
- The LEB has 120 days from the date of the reservation letter to provide LED with investor eligibility list and proof of investment; i.e., a Subscription Agreement as required by the Securities and Exchange Commission.
- If the LEB provides investor eligibility list and proof of investment by accredited investors to LED within the prescribed 120-day period, LED issues a tax credit certification letter which states the amount of the tax credit and the years in which it will be applied against Louisiana income tax and corporate franchise tax liabilities of the investor.
- The allocation of tax credits for all years will be administered on a first come, first serve basis until the annual $7.2 million cap is reached. However, on the day the annual cap is reached, all applications received that day will be treated as received at the same time and the credits remaining for allocation will be prorated.
- The accredited investor submits the LED AITC certificate letter to the Louisiana Department of Revenue with his/her state tax return to apply the tax credits against Louisiana tax liabilities 24 months after the certification letter is issued by LED.
- Each year the LEBs can be recertified by providing updated information on the business to LED.
Angel Investor FAQs
Since the AITC is a state program, can out-of-state investors benefit from the program?
AITC tax credits can only be applied against Louisiana state tax liabilities. An out-of-state investor could benefit by transferring the AITC to a Louisiana taxpayer.
How many years must an investment be maintained in the LEB?
Three years.
When will the AITC become deductible from an investor's tax liability?
The tax credit available in the first year shall become deductible from tax liability in the taxpayers income tax year which occurs twenty-four (24) months from the date LED certifies the amount of the investment.
Are AITC applications, business plans, financial statements, etc, subject to a Public Records Request?
Yes. The company has the burden of defending against a Public Records Request in court. LED will notify the business of such a request.
What documents must be submitted as proof of investment?
The LEB must submit a subscription agreement as required by the Securities and Exchange Commission as proof of investment, in addition to copies of canceled checks and bank wire transfers as proof of funds transfer.