Raising capital for your tech startup? Learn how BC's EBC tax credit program can help you attract investors.

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.

First things first: Is your company eligible for registration as an Eligible Business Corporation (EBC) under BC's Small Business Venture Capital Act?

To qualify for registration as an EBC, your company has to meet certain criteria:

  • It has to be registered to carry on business in BC and have a permanent place of business in BC,
  • It can't have more than 100 employees,
  • It has to pay at least 75% of its annual wages and salaries to employees in BC,
  • At least 80% of its assets have to be located in BC,
  • It has to be "substantially engaged" in one or more "qualifying activities", and
  • It has to have equity capital of at least $25,000.

What are "qualifying activities"?

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:

  • Manufacturing and processing of goods produced in British Columbia,
  • Destination tourism resort, tourist attraction, or a tourist service,
  • Research and development of proprietary technology,
  • Development of interactive digital new media product,
  • Community diversification by an EBC located outside the Metro Vancouver Regional District and the Capital Regional District,
  • Manufacturing and processing and/or research and development of clean technologies,
  • Advanced commercialization carried on by an EBC located outside the Metro Vancouver Regional District and the Capital Regional District, or
  • Scale-up activities carried on by an EBC that has been substantially engaged in one of the seven qualifying activities for the previous 2 years, and at least 2 years has elapsed since the EBC first raised tax credit supported equity capital.

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.

What do we mean by $25,000 in equity capital?

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.

How to register as an EBC

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:

  • a completed EBC Registration Application,
  • your business plan or executive summary of your business plan, and
  • your company's Central Securities Register showing $25,000 in equity capital

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.

Final Thoughts

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.