Qualified Equity and Subordinated Debt Investments Credit

This credit will expire January 1, 2026
You may qualify for this credit if

You make a qualified investment in a qualified business. The investment should be in the form of:

  • equity – purchasing the company’s stock or another form of ownership interest; or
  • subordinated debt – making a certain kind of loan to the business.

We’ll discuss equity and subordinated debt in more detail below. 

What is it?

An income tax credit equal to 50% of the qualified investments you made to qualified businesses during the year. You can claim a credit of up to $50,000 on your return, not to exceed your tax liability. Carry forward any unused credits for 15 years. 

Claim the credit against the following taxes administered by Virginia Tax:

  • individual income tax
  • fiduciary income tax
What is a qualified investment?

A cash investment in a qualified business by buying their stock or other ownership interest, or in the form of subordinated debt. 

If you, your family members (spouse, children, grandchildren, parents, spouse’s parents, or grandparents), or an entity that you’re affiliated with received compensation from the business within 1 year of the investment (before or after), your investment isn’t qualified. For the purpose of this credit, we don’t consider reimbursement for reasonable expenses as compensation.

What is a qualified business?

  • has annual gross revenues of no more than $3 million in its most recent fiscal year
  • has its principal office or facility in Virginia
  • is engaged in business primarily in or does substantially all of its production in Virginia
  • has not obtained during its existence more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions)
  • is primarily engaged in:
    • advanced computing, 
    • advanced materials, 
    • advanced manufacturing, 
    • agricultural technologies, 
    • biotechnology, 
    • electronic device technology, 
    • energy, 
    • environmental technology, 
    • information technology, 
    • medical device technology, 
    • nanotechnology, or 
    • any similar technology-related field determined by regulation by Virginia Tax to fall under the purview of this section.

Businesses must apply to be qualified annually. To apply, complete Form QBA and send it to us by December 31 of the year that you request qualification.

What is “equity”?

Equity means an ownership interest in the business:

  • For corporations, it’s their common or preferred stock. 
  • For a limited partnership, it’s a partner interest.
  • For an LLC, it’s a member interest.

When you make an equity investment, you’re buying 1 of these types of interests.

You must hold your equity investment for at least 3 calendar years after the year you were granted the credit. If the investment requires you to redeem it before 3 years have passed, or if it is subject to an option to redeem it before 3 years, it isn’t eligible for this credit.

What is “subordinated debt”?

A loan to the business that isn’t secured by any of the business’ assets, or guaranteed by anyone. This type of loan is repaid after the business’ other debts are satisfied. 

For the purpose of this credit, the terms of the loan can’t require repayment of the principal for 3 years after the loan is issued. 

Is there a cap?

Yes. We can issue no more than $5 million in qualified equity and subordinated debt credits per year. 50% of this cap is set aside for “commercialization investments” (investments in qualified businesses who take research developed at or with an institution of higher education and bring it to market).  If the total “commercialized” credit requests are less than $2.5 million, the unused portion of the cap will be allocated to the “uncommercialized” credit requests.

If the amount of applications exceeds $5 million, we’ll prorate the credit.

To apply for the credit:

Investors should complete Form EDC and send it to us. From EDC is due by April 1 of the year following the year of the investment. Late applications are not eligible for the credit. We will notify you of the amount of your authorized credit by June 30.

Businesses who wish to become qualified businesses should complete Form QBA by December 31 of the year that you request qualification.

Using the credit

Complete Schedule CR and attach it to your individual or fiduciary income tax return. 

We don’t finish authorization of these credits until June 30, after the usual income tax filing deadline. Most taxpayers will need to file during the extension period (see our When to File page for information about Virginia’s automatic filing extension). Or, you can file an amended return to claim the credit.

For more information, see Va. Code § 58.1-339.4.

Worker Training Tax Credit

What is it?

A tax credit equal to:

  • 35% of the costs of providing eligible training to qualified workers. Claim this credit against your individual income tax, fiduciary income tax, corporation income tax, bank franchise tax, and taxes imposed on insurance companies and utilities, or
  • 35% of the direct costs of providing manufacturing training or instruction to middle and high school students. Claim this credit against your individual or corporation income tax. 
What is eligible training?
  • Training courses that are part of programs from providers listed on the Commonwealth’s Eligible Training Provider list. Virginia’s Workforce Innovation Opportunity Act Title I Administrator maintains this list. 
  • Training courses provided by any Virginia college, community college, or other public institution of higher learning 
  • Instruction or training that is part of an apprenticeship agreement approved by the Commissioner of Labor and Industry.  For information on pre-approved apprenticeship programs, contact your Virginia Department of Labor and Industry apprenticeship representative. 
What is manufacturing training or instruction for middle and high school students?

Programs offered by manufacturers that:

  • provide orientation, instruction, or training in the type of manufacturing the business in engaged in,
  • are for students in grades 6 through 12,
  • are coordinated with the local school district, 
  • are held at the business’s plant or facility, or a public middle or high school, and
  • are certified by the Virginia Department of Education (VDOE).

These programs qualify for this credit beginning in taxable year 2018.

How much is the credit, and is there a cap?

Eligible worker training: 35% of all classroom training costs. The credit is limited to $500 per qualified employee per year, or $1,000 if the employee is considered a non-highly compensated worker. “Non-highly compensated” workers are those whose income was below Virginia’s median wage amount for the year prior to applying for the credit.

Manufacturing training for middle and high school students: 35% of direct costs associated with the training. No one manufacturer can claim more than $2,000 credit per year.

We are authorized to issue up to $1,000,000 of training credits. If total requested credits exceed this amount, we will prorate the authorized credits.

Is this credit refundable?

No. Your credit cannot be greater than your tax liability. You may carry forward any unused credits for 3 years. 

How to claim the credit
Other information

The amount of the credit attributable to a partnership, electing small business corporation (S corporation), or limited liability company must be allocated to the individual partners, shareholders, or members in proportion to their ownership or interest within the business entity using Form TCA within 30 days after the credit is granted.