Income Tax Exemption for Individual Participation Investors (Angel Investors) Shall Be Applicable Until 31.12.2027
Last week, on the 9th of November, the Turkish Presidency passed an omnibus law, amending the Turkish Income Tax Law and certain other governmental decrees. In this regard, certain exemptions applicable under Turkish Tax Legislation have been either introduced, changed, replaced, or extended.
A significant advantage shall apply to Turkish individual participation investors, also named "angel investors" if referred worldwide. Thus, the below-referred tax advantage shall be applicable until 31.12.2027 which had been originally granted until 31.12.2017 and further extended until 31.12.2022 by the Turkish Minister of Council Decision Nr. 2017/11176.
We find it noteworthy to remember the content and application procedure of the income tax exemption granted to “angel investors” as referred to above. Please note that no exchange of shares is required in order to apply for this exemption as compared to the income tax exemption granted to individual shareholders if they would dispose of their shares after holding them for at least two years in hand.
Individual Participation Investors being full-fledged taxpayers and falling under the scope of Article 253 of the Turkish Presidency Decree Nr. 1, are entitled to decrease 75% of the share amounts that they have calculated according to the evaluation determined under the Turkish Tax Procedural Law. They will make such a decrease out of their revenue and incomes subject to their annual declarations as of the share subscription date. The pre-condition of the mentioned decrease is holding those shares for at least two years in hand beginning from their subscription date to the full-fledged taxpayer joint stock company established after the effective date of the relevant Turkish Presidency, 10.07.2018.
The exemption rate is 100% concerning subscriptions to institutions whose projects were incentivized in the last five years within the research, development, and innovation programs. These programs must have been determined by the Turkish Ministry of Industry and Technology, the Scientific and Technological Research Council of Türkiye, and the Governmental Presidency of Small and Medium Size Enterprises Development and Funding Agency.
The total annual decrease amount should not exceed TRY 2,500,000.- The part which could not be decreased from the relevant annual revenue shall in the following years be taken into consideration by increasing the same to the extent of the re-valuation fraction determined for those years as per the Turkish Tax Procedural Law.
If the pre-condition for holding the shares in hand for at least two years were not fulfilled, it would deem a tax loss incurred for the taxes that would generally impose in due time if the tax decrease would not be applied.
The statutory period for taxes and tax penalties not collected in due time shall commence from the beginning of the year following the date on which conditions requiring the occurrence of the tax or application of the penalty have emerged.
For individual participation investors to benefit from the tax incentives before they have subscribed to the shares mentioned above, they must obtain an individual participation investment ("angel investment") license. They can get this license only by applying to the Turkish Treasury and Finance Ministry and declaring the activities to be performed by the investments in whom they have participated.
Needless to say, the individual participation investors are not entitled to be a direct or indirect controlling shareholder or individually or collectively of the investment they participated in.
Furthermore, not any individual participation investor would be entitled to subscribe to institutions in which their spouses, themselves, or their spouse's descendants and ancestors, including their collateral descendants and their in-law relatives, would be directly or indirectly affiliated or control such institutions or they would do the same in terms of management, administration or share capital.