“We will also continue to actively explore ways to promote African private sector growth and investment, especially for small and medium-sized businesses.”
Johnnie Carson, Assistant Secretary, US Department of State, Bureau of African Affairs, June 14, 2010
According to the Angel Capital Association, 21 US states offer tax credits to angel investors. A recent Inc. Magazine article suggests that the federal government should follow their lead. It compares U.K. tax policy in which angel investors are eligible for a 20 percent tax credit for investing in start-ups, offering an immediate return on an otherwise risky and illiquid investment. Inc. cited a May 2009 survey of U.K. angels found that 24 percent of investments in new businesses would not have been made without the credit.
Presently the U.S. does offer relief of capital gains taxes for investments in small businesses but the tax break isn’t widely used, because there are so many technical requirements that can’t be met.
Here is an idea – extend this tax break to those willing to invest in businesses in less developed countries. Our work in sub-Saharan Africa suggests there is a strong desire from financially successful members of the diaspora to invest “back home”. Investors with no blood connections might also seek investment opportunities in developing nations. These could be investments in new businesses they start themselves, or in existing businesses seeking equity support.
The two largest African diasporas are in the USA and the UK. Both countries could make changes to their tax codes to encourage entrepreneurial investment in places where entrepreneurship and resultant jobs are sorely needed.
Tags: Africa, angel, superangel, tax credits, tax policy
