1. Amount of Earnings to be Exempted from Income Tax within the Scope of Young Entrepreneur Support has been Increased

The portion of 75,000 Turkish Liras of the income which is obtained by full taxpayer real persons who have been registered as income taxpayers for the first time due to their commercial, agricultural or professional activities and who have not completed the age of 29 as of the registration of the taxpayer, for three taxation periods starting from the calendar year in which the activity was commenced is exempt from income tax. Pursuant to the Law No. 7440 on Restructuring of Certain Receivables and Amending Certain Laws (“Law No. 7440”) published in the Official Gazette dated 12.03.2023, amount of earnings to be exempted from income tax has been regulated as the amount in the second income bracket of the income tax tariff; thus, for 2023, young entrepreneurs’ earnings up to TRY 150,000 are exempt from income tax.

2. Compliance Period with the Payment Services Regulations has been Extended Again

The Regulation on Payment Services and Electronic Money Issuance and Payment Service Providers and Communiqué on Information Systems of Payment and Electronic Money Institutions and Data Sharing Services of Payment Service Providers in the Field of Payment Services have been entered into force through their publication in the Official Gazette dated 01.12.2021 and numbered 31676. Institutions operating as of this date were obliged to comply with the new regulations until 01.12.2022. The compliance period with the new regulations has once again been extended until 30.04.2023.

3. Minimum Equity Amount of Payment Institutions and Electronic Money Institutions has been Increased

Pursuant to the Communiqué on Redetermination of Minimum Equity Amounts of Payment Institutions and Electronic Money Institutions entered into force on 30.06.2023, the minimum equity amounts of payment institutions and electronic money institutions shall be increased to (i) TRY 7,000,000 for payment institutions intermediating invoice payments, (ii) TRY 15,000,000 for other payment institutions, except for payment institutions providing the service of providing consolidated information on online platforms regarding the payment accounts of the payment service user held with payment service providers, and (iii) TRY 41,000,000 for electronic money institutions.

4. Additional Corporate Tax has been Imposed Against Taxpayers Benefitting from Corporate Tax Exemptions and Deductions

Pursuant to the Law No. 7440, a one-time additional corporate tax has been imposed against taxpayers benefitting from corporate tax exemptions and deductions, which will be subject to corporate tax returns pertaining to 2022. Accordingly, the additional corporate tax at the rate of 10% shall be calculated on the exemption and deduction amounts from the corporate income in accordance with the Corporate Tax Law No. 5520 (“CTL”) and other laws, and over the tax base subject to reduced corporate tax in line with the article 32/A of the CTL. This additional corporate tax shall be collected without being associated with the income for the period, i.e. even if the taxpayer has made a loss within the period. In addition, the additional corporate tax at the rate of 5% shall be calculated on the earnings subject to the participation income exemption as per the article 5/1(a) of the CTL and on the earnings subject to participation income that are derived from abroad and certified to carry a tax burden of at least 15%. The additional corporate tax shall be paid in two instalments in April and August. Taxpayers subject to a special accounting period shall declare the additional corporate tax with the corporate tax return to be issued for the fiscal year closing in 2023.

Taxpayers from the region declared as disaster area are exempt from additional corporate tax. In addition, the corporate tax exemptions and deductions that are not be subject to additional corporate tax, which can be evaluated within the scope of startup law, are as follows: the corporate tax exemption amount obtained by deducting the venture capital investment funds or partnerships, the amount obtained by deducting the venture capital fund allocated for the purpose of capitalizing venture capital investment partnerships or acquiring venture capital investment fund shares from the corporate tax base, the corporate tax exemption and deduction amount on the income that micro and small enterprises derived from technology development zones (“Technopolis”) and research and development (“R&D”) and design centers.

As a result, startups and their investors will be required to pay additional tax at the rate of 5% or 10% of other corporate tax exemptions and deductions they benefit from. However, it is considered necessary for the relevant taxpayers who will pay the additional corporate tax described above to declare the corporate tax declaration with a reservation on the grounds that the additional corporate tax is contrary to the principles of non-retroactivity and foreseeability and to file a lawsuit with a refund request.

5. Developments in the Portfolio Management Companies Regulations

The Communiqué Amending the Communiqué on Principles Regarding Portfolio Management Companies and Their Activities (III-55-1.d) (“Amendment Communiqué”) has entered into force through its publication in the Official Gazette dated 18.02.2023 and numbered 32108. Amendment Communiqué has introduced the sub-portfolio management. Portfolio management companies (“Company“, “Companies“) which are authorised by the Capital Markets Board (“CMB“) or institutions authorised abroad to perform portfolio management activities will be able to manage a certain portion or all of the portfolio managed by an authorised institution abroad or a portfolio management company in Turkey (sub-portfolio manager) within the framework of the agreement between them. There is no requirement to sign an agreement between the sub-portfolio manager and investors.

Pursuant to the Amendment Communiqué, the minimum initial capital of the Companies for the evaluation of the establishment permit applications by the CMB has been increased to TRY 30,000,000. The minimum shareholders’ equity requirement shall be (i) TRY 30,000,000 for Companies with a managed portfolio size of TRY 1,000,000,000, (ii) TRY 40,000,000 for Companies with a managed portfolio size of TRY 1,000,000,001 to TRY 4,000,000,000, (iii) TRY 50,000,000 for Companies with a managed portfolio size of TRY 4,000,000,001 to TRY 36,000,000,000, and (iv) TRY 100,000,000 for Companies with a managed portfolio size exceeding TRY 36,000,000,000. For Companies with a managed portfolio size exceeding TRY 72,000,000,000, additional equity equal to 0,02% of the exceeding amount will be required; however, if the equity amount exceeds TRY 200,000,000, the additional equity will not be further required. In addition, the minimum number of portfolio managers has been increased to be no less than 3, 4, 5 and 6, respectively, according to the above-mentioned portfolio size ranges. The Amendment Communiqué allows Companies to establish a liaison office. In order to establish a liaison office, a liaison office manager who meets the necessary qualifications as per the Communiqué on Principles Regarding Portfolio Management Companies and Their Activities and a sufficient number of personnel shall be employed.

Companies which obtained the establishment and activity permits prior to Amendment Communiqué shall comply with these amendments until 30.06.2023, this period may be extended up to six months in case of reasonable grounds.

6. President has been Authorised to Increase the Ratio of Working Hours Spent Outside the Technopolis and R&D and Design Centers that can be Benefitted from Income Tax Withholding Incentive to 100%

Pursuant to the Law No. 4691 on Technology Development Zones (“Technopolis Law“), the income tax calculated after applying the minimum living allowance on the wages of R&D design and support personnel working in Technopolis arising from their relevant duties can be deducted from the tax accrued on the withholding tax return to be submitted. This incentive thus reduced the personnel costs of the venture companies. In addition, it was regulated that the periods spent outside the Technopolis or R&D and design center shall also be considered within the scope of the income tax withholding incentive, provided that they do not exceed 20% of the total number of personnel working in the Technopolis or R&D and design center hours subject to the income tax withholding incentive or the total working hours subject to incentive. Pursuant to the Presidential Decree No. 5806, this ratio was increased to 75%. Accordingly, for example, in case 10 employees of an employer spend all of their monthly working time in their branch in Technopolis and 30 employees spend all of their monthly working time outside, this incentive can be utilized for all 30 employees working outside (corresponding to 75% of the total number of employees). On 12.03.2023, pursuant to the amendments on Technopolis Law and the Law No. 5746 on Supporting Research, Development and Design Activities, the President has been authorized to increase the ratio of the working hours spent outside the Technopolis and design centers to 100%. Accordingly, pursuant to the Presidential Decree No. 7015, the ratio of the working hours spent outside the aforementioned regions and centers has been increased to 100% for the duration of the state of emergency in the earthquake zone. In addition, pursuant to the Presidential Decree No. 7103, the ratio of the working hours spent outside the aforementioned regions and centers has been increased to 100% for the IT personnel whose qualifications will be determined by the Ministry.

7. Implementation Period of Additional Corporate Tax Deduction for R&D and Design Expenditures has been Extended

Pursuant to the Decree of the Council of Ministers numbered 2016/9092, 50% of the increased amount of the R&D and innovation or design expenditures made by R&D or design centers compared to the previous year can be subject to an additional deducted in the determination of taxable corporate income. In order to benefit from this additional corporate tax deduction, R&D or design centers shall achieve at least a twenty percent increase in any of the following indicators compared to the previous year: (i) the ratio of R&D or design expenditure in total turnover, (ii) the number of registered national or international patents, (iii) the number of internationally supported projects, (iv) the ratio of the number of postgraduate researchers in R&D or design centers to the total number of R&D or design personnel, (v) the ratio of the total number of researchers or designers in R&D or design centers to the total number of R&D or design personnel, and (vi) the ratio of turnover generated from new products resulting from R&D or design activities to total turnover. Pursuant to the Presidential Decree No. 6652, the implementation period of the additional corporate tax deduction has been extended to 31.12.2028.

8. Digital Transformation Support Program and Green Transformation Support Program were Included among Priority Investments

Pursuant to the amendment to the Decree on State Aids in Investments No. 2012/3305, investments prioritising technological progress within the scope of the Digital Transformation Support Program and investments prioritising green transformation within the scope of the Green Transformation Support Program were included among the priority investment subjects. Thus, the investments within the scope of these programs can benefit from the support elements applied in the fifth region such as value added tax exemption, customs duty exemption, tax reduction, insurance premium of employer’s share support, insurance premium of employee’s share support, interest or profit share support and allocation of investment space.

9. Venture Capital Market has been Established

The Communiqué on the Principles Regarding the Companies whose Shares to be Traded on the Venture Capital Market (II-16.3) (“VCM Communiqué“) has been entered into force by the CMB through publication in the Official Gazette dated 18.05.2023. With the VCM Communiqué, non-public joint stock companies will be able to sell their shares to be issued through capital increase to be traded in the venture capital market (“VCM“) to qualified investors without public offering. Pursuant to the VCM Communiqué, a prospectus shall be prepared for the issuance of shares and the approval of the CMB shall be obtained. Shares listed on the VCM can only be purchased by qualified investors.

VCM Communiqué also regulates the procedures and principles regarding the rules to be complied with after the sale of the shares of the joint stock companies issued through capital increase without public offering, financial reports and independent auditing, material event disclosures, exemptions, other obligations, financial thresholds and waiting periods for the public offering of shares.

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