Angel Investor Tax Credit

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
• Working capital

Non-eligible uses of investment funds include:

• Pay dividends
• Redeem shares
• Repay debt
• 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.

To view SEC’s accredited investor definition in full click here.

Program Statutes & 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 I, Chapter 33

Submit a completed LEB application and supporting documentation to [email protected]. Applications for tax credit reservations for a calendar year (application form on the LED website) must be emailed to [email protected] 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:

1. LED forwards a letter to the company that states the La. business is a certified LEB under the AITC Program.
2. LED instructs the LEB to submit an AITC Reservation Application to [email protected] requesting tax credits at a specific amount (25% or 35% of investment) be reserved.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Each year the LEBs can be recertified by providing updated information on the business to LED.

Q: 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?
A: 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. 

Q: 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?
A: 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.

Q: Can a business participate in both the LED SSBCI Seed Capital/Venture Capital Program and the LED Angel Investor Tax Credit Program (AITCP)?
A: A business may participate in both the LED SSBCI Seed Capital/Venture Capital Program and the LED Angel Investor Tax Credit Program (AITCP).  However, any limited partners and/or members to the equity fund having used capital under the State Small Business Credit Initiative (SSBCI) Program from LEDC during an investment round are not eligible for AITCP.  If LEDC is a limited partner or member of a Seed/Venture capital fund and is investing SSBCI capital into the fund, it is referred to as a SSBCI Fund and must comply with all U.S. Treasury SSBCI Guidance. In order to comply, LEDC Investment shall be made on no less than the same terms and conditions, and with the same expected return on investment, as other private investors. LEDC, which is a department of LED, is a state entity that does not incur a state tax liability nor is eligible to earn state tax credits.  Therefore since LEDC is not eligible for AITC, any transaction that includes LEDC (with SSBCI capital) as a partner or member of the fund is deemed in-eligible for AITC.

Q: How does a business applicant become certified as a Louisiana Entrepreneurial Business (LEB)?
A: To become a certified LEB for participation under the AITCP, submit a completed application and supporting documentation to [email protected].

Q: Since the AITC is a state program, can out-of-state investors benefit from the program?
A: 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.

Q: How many years must an investment be maintained in the LEB?
A: Three years.

Q: When will the AITC become deductible from an investor's tax liability?
A: 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.

Q: Are AITC applications, business plans, financial statements, etc, subject to a Public Records Request?
A: Yes. The company has the burden of defending against a Public Records Request in court. LED will notify the business of such a request.

Q: Would an investor in an LEB in calendar year 2020 automatically be included in a tax credit allocation in calendar year 2021?
A: No. The LEB must submit an AITC Reservation Application in calendar year 2021 for an investor to be eligible for AITC tax credits in calendar year 2021.

Q: Do convertible notes qualify as an investment under AITC?
A: Yes. A Qualified Investment is defined as: a cash investment into a Louisiana Entrepreneurial Business by an Accredited Investor which may be in the form of equity, convertible debt, or other types of subordinate debt, as approved by the department. Only the initial principal amount of any debt investment is eligible for the credit.  *The provisions of the 2021 rule changes regarding a Qualified Investment shall apply to applications filed after the date of promulgation, detailed in the Louisiana Register published on August 20, 2021. *