In line with changes to the Finance Act 2023, the Treasury has published final rules outlining the valuation methodology for non-resident and resident investors under the new angel tax regime.
Angel tax (income tax rate of 30.6%) is payable when an unlisted company issues shares to investors at a price higher than its fair market value. Previously, it was only levied on investments by resident investors. However, the 2023-24 Budget proposes to extend angel tax to non-resident investors from April 1, 2024.
In addition to the discounted cash flow (DCF) method for resident investors, the new regulations also provide for five methods regarding stock valuation for non-resident investors. It is stated that if a company receives any consideration for issue of shares from a non-resident entity notified by the Central Government, the price of the equity shares corresponding to such consideration can be deemed to be the fair market value (FMV) of the equity shares by both resident and non-resident investors.
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Likewise, resident and non-resident investors will be price matched with reference to investments in venture capital funds or specific funds. It is recommended that a valuation report provided by a commercial banker under these rules be acceptable if it is dated not earlier than 90 days before the date of issue of the shares that are the subject of the valuation.
In addition, considering that exchange rate fluctuations, bidding processes and changes in other economic indicators may affect the valuation of non-listed equity in multiple rounds of investment, it is recommended to provide a safe harbor of 10% fluctuation. value.
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Previously, in May, the ministry had said that governments and government-related investors such as central banks, sovereign wealth funds, international or multilateral organizations or institutions, including entities controlled by the government or in which the government directly or indirectly owns 75% of the equity or more Will be exempted from new angel tax provisions. Apart from these banks, insurance companies, SEBI registered Category 1 foreign portfolio investors, endowments related to universities, hospitals or charities, pension funds and broad pooled investment vehicles or funds with 50 or more investors are also will be exempted. category.
It also clarified that the new norms will not apply to “remuneration received from any person by a start-up registered with the Department for Promotion of Industry and Internal Trade (DPIIT)”.