8 Tax Benefits & Incentives for Investing in Virginia Businesses

To support business growth and encourage the creation of start-ups, the state of Virginia offers numerous incentives for qualifying businesses. In addition to local incentive programs and a stable corporate income tax rate of 6% since 1972, Virginia state business incentives include financial assistance, facilities development grants, and tax credits and exemptions. Here are eight Virginia business development credits and incentives: 

1. Major Business Facility Job Credit
2. Major Research and Development Tax Credit
3. Qualified Equity and Subordinated Debt Investments Credit
4. Refundable Research and Development Tax Credit
5. Worker Training Tax Credit
6. Green Job Tax Creation Credit 
7. New Company Incentive Program
8. Virginia Economic Development Incentive Grant

1) Major Business Facility Job Credit

Overview: 

Corporate income tax credit of $1,000 per full-time new job created by companies locating or expanding in Virginia beyond 50 jobs; or beyond 25 jobs for companies locating in an Enterprise Zone or economically distressed area. 

How to Apply: 

Complete the following forms, attach them to your Virginia tax return, and send to the Virginia Department of Taxation:

• Schedule CR, for individual and fiduciary returns
• Form 500CR, for corporate returns
• Schedule 502 ADJ, for pass-through entity returns
• Schedule 800CR, for insurance premiums license tax returns

Additional information: 

Major Business Facility Job Tax Credit | Virginia Economic Development Partnership   

2) Major Research and Development Tax Credit

Overview: 

An income tax credit equal to 10% of the difference between this year’s qualifying expenses and 50% of the average amount of the qualifying expenses for the 3 previous years. Only expenses related to research conducted in Virginia are eligible for the credit (see: 26 US Code § 41 – Credit for increasing research activities).

If a taxpayer did not pay or incur Virginia qualified research and development (R&D) expenses in any one of the three taxable years immediately preceding the taxable year for which the credit is being determined, the credit is equal to 5% of Virginia qualified R&D expenses paid or incurred by the taxpayer during the relevant taxable year.

The credit is allowed for the same calendar year in which qualified R&D expenses are reported on the federal income tax return, in accordance with the taxpayer’s accounting method.

How to Apply: 

• Apply to the Virginia Department of Taxation using Form MRD. This form and supporting documentation must be completed and mailed by September 1 of the calendar year following the credit year.
• The Department of Taxation reviews all applications for completeness and notifies taxpayers of any errors by November 1. If any additional information is required, it must be provided to the Department of Taxation no later than November 15 to be considered for the credit.
• All eligible taxpayers will be notified by The Department of Taxation as to the amount of credits they may claim.

Additional Information:

Major R&D Expenses Tax Credit | Virginia Economic Development Partnership 

3) Qualified Equity and Subordinated Debt Investments Credit

Overview: 

An income tax credit equal to 50% of qualified business investments made during the taxable year. A “qualified investment” is a cash investment in a qualified business by buying their stock or other ownership interest, or in the form of subordinated debt. An investment cannot be qualified if the taxpayer, or any of the taxpayer’s family members or affiliated entities, has received compensation from the qualified business in exchange for services within one year before or after the date of such investment. 

If total annual requests for the credit exceed $5 million for the tax year, the Department of Taxation will prorate the credit for each taxpayer.

The credit a taxpayer may claim per taxable year may not exceed the credit authorized by the Department of Taxation, $50,000, or the income tax liability on that year’s return, whichever is less. The credit is nonrefundable. Unused credits may be carried forward up to 15 years.

How to Apply:

Investors should complete Form EDC by April 1 of the year following the year of the investment. You will be notified 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.

Additional Information:

Business Development Credits | Virginia Tax 

4) Refundable Research and Development Tax Credit 

Overview: 

A refundable tax credit equal to: 15% of the first $300,000 in qualified expenses (or up to $45,000); or. 20% of the first $300,000 in qualified expenses (or up to $60,000) if the research was conducted in conjunction with a Virginia public or private college or university.

The credit is allowed for the same calendar year in which qualified research and development expenses are reported on the federal income tax return.

How to Apply:

• Complete Form RDC and send along with any supporting documentation to the Virginia Department of Taxation by September 1 of the calendar year following the credit year.
• The Department of Taxation will review all applications and notify taxpayers of any errors by November 1. If additional information is required, it must be provided to the Department no later than November 15 to be considered for the credit.
• All eligible taxpayers are notified as to the amount of credits they may claim by November 30.

Additional Information:

Refundable R&D Expenses Tax Credit | Virginia Economic Development Partnership 

5) Worker Training Tax Credit

Overview: 

Employers can receive tax credits for 35% of all classroom training costs for eligible worker training. Eligible worker training includes credit or noncredit courses that result in the employee receiving a workforce credential, or instruction that is part of an apprenticeship.

Beginning July 1, 2022, courses provided by any Virginia college, community college, or other higher learning public institution are also considered eligible training.

For eligible worker training, the credit is limited to $500 per qualified employee per year, or $1,000, and capped at $1 million in a taxable year. 

How to Apply:

• Individual and fiduciary filers, complete Schedule CR.
• Corporate filers, complete Schedule 500 CR.
• Pass-through entities, complete Schedule 502ADJ

Additional Information Regarding Eligibility and Process: 

Worker Training Tax Credit | Virginia Economic Development Partnership 

6) Green Job Tax Creation Credit 

Overview:

An annual tax credit of $500 for each new green job with a salary of $50,000 or more for up to 350 jobs. The credit is allowed in the first taxable year after the job has been filled for at least one year and in each of the four succeeding years provided the job is continuously filled during the respective taxable year.

How to Apply: 

• Register with the Department of Taxation before completing Form GJC. If not registered, complete Form R-1. Form GJC along with supporting documentation must be mailed to the Department of Taxation at least 90 days prior to the due date of the return. Businesses must apply each year of eligibility to earn credit for each job that is continuously filled (not to exceed five total years).
• Provide copies of W-2s for each eligible employee. Guaranteed payments: provide a copy of the Schedule K-1 (Form 1065) and a statement indicating if the payments were for services or the use of capital.
• Taxpayers may claim the allowable credit amount on the applicable Virginia income tax return and compute any carryover credit amount.
• Each pass-through entity files Form PTE with the Virginia Department of Taxation within 30 days after the credit is granted. Credit must be allocated among owners in proportion to each owner’s percentage of ownership or participation in the PTE.

Additional Information:

Green Job Creation Tax Credit

7) New Company Incentive Program

Overview:

Eligible companies interested in establishing a new presence in the State of Virginia are exempt from paying corporate income tax and have potential access to a grant or loan from the Commonwealth’s Opportunity Fund (COF) for up to $2,000 per new job created for six years. To be eligible, after January 1, 2018 but before January 1, 2025, a company must either: 1) spend at least $5M in new real property capital investment in a qualified locality and create at least 10 new jobs, or 2) create at least 50 new jobs in a qualified locality. Each new job must pay 150% or more than the Virginia minimum wage. 

To apply: 

• File an application with the Virginia Economic Development Partnership (VEDP) for certification or re-certification that the company is an eligible company. 
• Applications are accepted between January 1 – April 1 of the calendar year immediately following the taxable year for which certification is sought. 
• To remain an eligible company, certification or re-certification must be obtained annually.

Additional Information Regarding Eligibility and Process:

New Company Incentive Program | Virginia Economic Development Partnership 

New Company Incentive Program Information Packet

8) Virginia Economic Development Incentive Grant

Overview:

The Virginia Economic Development Incentive Grant (VEDIG) is a cash-bassed discretionary performance incentive used to assist and encourage companies to invest and create new employment opportunities by locating significant headquarters, administrative, or service sector operations in Virginia. The amount of each grant is determined by the Secretary of Commerce and Trade and is subject to approval of the Governor. There are no restrictions on how the grant proceeds are allocated. 

Additional Information on Eligibility, How to Apply and Resources:

Virginia Economic Development Incentive Grant (VEDIG) 

These are just eight common tax credits and incentives in Virginia—there are more! Access a complete list of Virginia Business Incentives and learn more about Virginia Tax Credits. 

We’re happy to discuss how your Virginia-based business may take advantage of Virginia State tax credits and incentives. To set up a consultation, please click on the button below to schedule a time that works best for you.