During the process of starting a business, many founders choose to contribute intellectual property rights (such as patent rights, trademark rights, copyright, non-patent technology, new plant varieties, etc.) as a form of investment, which not only saves cash input but also rapidly enhances the company's value. However, intellectual property investment involves complex accounting standards, tax regulations and assessment requirements. A slight mistake may lead to financial and tax risks. Exclusive Easy Finance and Taxation will analyze the core points to note regarding intellectual property investment from the perspectives of accounting treatment, assessment requirements, corporate income tax, and personal income tax, helping entrepreneurs operate in compliance and master the essential financial and taxation survival guide - save money and comply!

What is Intellectual Property Contribution?

       Intellectual property investment refers to shareholders contributing non-monetary assets (such as patent rights, trademark rights, copyright, non-patent technology, new plant varieties, etc.) as capital into a company in exchange for equity. Compared with cash contribution, the core issue of intellectual property contribution lies in:

1. How to make a reasonable valuation? (Avoid overvaluation or undervaluation

2. How to record accounting entries? (Whether it complies with accounting standards

3. How to pay taxes? (Involving corporate income tax and individual income tax

 Four Core Points to Note Regarding Intellectual Property Investment

It must undergo professional assessment; otherwise, it may be adjusted by the tax authorities

       According to the Company Law and fiscal and taxation regulations, intellectual property contributions must be evaluated by professional assessment institutions. Otherwise, they may be identified by the tax authorities as "false contributions" or "unfair pricing", leading to the following risks:

▶ At the company level: Intellectual property rights with inaccurate assessment cannot be recorded normally, affecting the actual payment of registered capital.

▶ At the shareholder level: If the assessed value is significantly higher, it may be determined by the tax authorities to increase the value, and individual income tax or corporate income tax may be paid in return.

Case reference

       The founder of a certain technology company contributed his own patent as capital, valued at 5 million yuan and holding 50% of the shares, but no assessment was conducted. When the tax bureau conducted an inspection, it was determined that the market value of the patent was only 2 million yuan. The founder was required to pay an additional 20% individual income tax (600,000 yuan) on the difference of 3 million yuan (5 -2 million yuan), and a late payment penalty was also imposed.

Accounting Treatment: How to Recognize the Value of Intellectual Property Rights?

       According to Accounting Standard for Business Enterprises No. 6 - Intangible Assets, the key points of accounting treatment for intellectual property contributions are:

⏩ accounting at assessed value: The company recognizes intangible assets (intellectual property rights) and paid-in capital based on the assessment report.

⏩ Amortization affects profits: Intellectual property rights need to be amortized over a reasonable period (for example, patents are generally amortized over 10 years), which affects corporate profits and income tax

"Incorrect example:

       A shareholder of a certain start-up company contributed an investment of 10 million yuan with a "business model", but this "business model" could not be reliably measured and could not be recognized in accounting, resulting in the registered capital not being fully paid up and affecting financing and listing.

Corporate income tax: Technology equity investment can enjoy deferred tax benefits

       If an enterprise contributes technological achievements (such as patents, software Copyrights, etc.) as capital, it can apply the deferred tax policy

       Enterprise shareholders: They may choose to pay enterprise income tax in five installments (CAI Shui [2016] No. 101)

       Individual shareholders: They may choose to defer tax payment until the time of equity transfer (CAI Shui [2016] No. 101).

But it should be noted

       It must be a technological achievement. Ordinary trademarks and goodwill are not applicable.

       It must be clearly stated as "technology equity participation" in the investment agreement and filed with the tax authority.

Do individuals need to pay taxes when contributing intellectual property rights as capital?

        When an individual contributes non-monetary assets (such as patents, trademarks and Copyrights, etc.), the tax law regards them as two actions of "transfer + investment", and they need to pay individual income tax on the gains from the transfer of property at fair value (20%).

But it should be noted

        If the conditions are met, choose to defer tax payment (as mentioned above).

        Make a reasonable assessment to avoid overpaying taxes due to inflated prices.

Real Case: A certain company was fined for non-compliant investment in intellectual property rights

Case background:

        In 2021, the founder of a certain biotech company contributed 20 million yuan as an assessed value of "proprietary technology", holding a 40% stake. However, the tax authorities' inspection found that:

        The assessment report has flaws, and the actual market value of the technology is only 5 million yuan.

        The founder failed to declare individual income tax and was identified as tax evasion.

Penalty result

       Pay an additional individual income tax of 3 million yuan (20%) plus late payment penalties for the difference of 15 million yuan (20 -5 million).

       The registered capital of the company was required to be re-determined, which affected the financing process.

Summary: Three Key Steps for Intellectual Property Investment

       Assessment: Seek the issuance of an assessment report by a professional institution to ensure fair value.

      Accounting treatment: Intangible assets (intellectual property rights) are recognized in accordance with the standards and amortized reasonably. 

       Tax optimization: Enterprises can defer tax payment for technology equity investment. When making personal contributions, one should pay attention to individual income tax and make reasonable use of preferential policies.

       Intellectual property investment involves multiple dimensions such as law, finance and taxation, and assessment. It is recommended that entrepreneurs consult professional finance and taxation advisors before operation to ensure compliance and avoid subsequent risks