Asset Management Bulletin
February 2013
www.pwc.com.tr
Business Angels in
Turkey
Business Angels in Turkey
A new system, commonly known as ‘‘Angel Investments’’, has been introduced into the
Turkish finance system and certain tax reliefs have been provided for the business angels
with effect from 29 June 2012. This document explains the system in detail.
II. Tax Incentives for business
angels
A certain number of tax reliefs have been provided for business angels made after June 2012. Accordingly, 75% of the participation shares of qualifying Turkish resident joint stock companies (private venture
companies) held by ‘‘business angels’’ can be deducted from the business angels annual income tax base in the calendar year such investment is made; provided that the shares are held for at least two years. The annual deduction is capped at TRY 1.000.000.
I. What is “angel
investment”
Business angels are defined as affluent individual investors who have knowledge or expertise and/or available funding and who are ready to invest into high growth start-up companies; typically in the technology industry.
In Turkey, Venture Capital investments have not yet developed enough. This is mainly due to the lack of clear regulation and incentives. With a new law enacted by the Parliament at June (Law no:6327
In the year of the investment into a qualifying private venture company, if the annual income tax base of the business angel is less than the incentivized investment amount, the residual can be carried forward to the
following calendar years. It can be revalued with the revaluation rates determined by the Ministry of Finance.
the Parliament at June (Law no:6327 dated 13 June 2012 ), Treasury is
authorized to regulate angel investments with the purpose of standardization and institutionalization of angel investments in Turkey. Furthermore, within the same Law a temporary article in relation to tax
incentives for business angels was added to the Income Tax Law.
The Treasury has not finalized the secondary regulation yet, but a draft was shared with the public. The draft
regulation sets out the angel investor criteria as well as other principals with respect to the application of the tax reliefs.
Business Angels in Turkey
III. Who can qualify as a
business angel
Business angels are defined as affluent
individual investors who invest their personal assets and/or experience and know-how to innovative, high-growth potential companies in need of seeding, start-up or growth capital. In order to benefit from the tax reliefs, business angels should obtain a license from the Treasury as “business angels”. Operations of the
corporation whose shares are to be held by the business angels (qualifying private venture companies) should be declared to the Treasury before the investment is made.
Following qualifications are required to become accredited as a business angel:
Business angels cannot directly or indirectly be controlling shareholders of the qualifying private venture company in which they invest, either jointly or individually. Furthermore business angels cannot be shareholders of qualifying private venture companies which are under their own or their relatives’ control or supervision or the companies that they are directly or
indirectly related to in terms of capital. If the business angels participate in
qualifying private venture companies whose projects are related to research,
development and innovations programs the applicable rate is 100%, instead of 75. But only if these activities are supported in last five years by the Scientific and
Technological Research Council of Turkey, Small and Medium Enterprises
1) Investors who have high income or wealth; • Investors whose annual income is at
least TRY 200,000 within the last two fiscal years before obtaining the license or,
• Investor, whose total amount of personal wealth including every type of movable and immovable assets is at least TRY 1.000.000.
However, the following assets are excluded from the calculation of the personal wealth value;
Small and Medium Enterprises
Development Organization and the Ministry of Science, Industry and Technology.
The tax reliefs are applicable until the 31st of December 2017. However, the Council of Ministers is authorized to extend this date up to 5 years.
Business Angels in Turkey
2) Investors who have experience; • Investors who have at least 2 years
experience as a fund manager in financial institutions or, manager and/or likewise position in SME finance department of a financial institution or in private venture companies; or
• Investors who work at least as deputy general manager/or equivalent or a higher position in a company with the annual turnover of at least TRY 50.000.000 within the last 5 years before obtaining the license; or
• Investors who have been members of an business angels authorized network for 2 years before getting a license and who
Accreditation application to the Treasury
License application to the Treasury should be made through an authorized network with the required documentation.
Business angels authorized network is an association constituted by the business angels. It is licensed and regulated by the Treasury and brings business angels together with entrepreneurs.
years before getting a license and who have been shareholders in non-public companies as angel investors for 3 years. The license obtained by a business angel from the Treasury cannot be transferred to another investor and is not heritable.
Except for information required by law, the Treasury cannot disclose or make available the business angels identity to third parties.
Business Angels in Turkey
Investment limitations
Business angels cannot invest individually in more than 10 different qualifying private venture companies during their 5 year license period.
The capital to be invested into each individual qualifying private venture company cannot be less than TRY 20.000 and more than TRY 1.000.000 annually. However, the total investment of a business angel in different venture capital companies can exceed this limit (i.e. TRY 1.000.000). On the other hand, the capital to be invested in each venture capital company by co-investments can be a maximum of TRY 2.000.000.
The draft articles of association prepared
Investment application to the Treasury
Business angels should apply to the Treasury with the required documents (e.g. business plan, draft articles of association including main activity, partnership structure, capital and other information of the venture capital company) to get authorization before making investments.
After obtaining authorization from the Treasury (i.e. letter of conformity) the establishment procedures should be completed within 3 months.
A business angel, can invest in a new or existing qualifying venture capital company through investing capital. The capital invested in the venture capital company by the business The draft articles of association prepared
between a business angel and the
entrepreneur should be submitted to the Treasury for approval. The business angel and entrepreneur can sign other contracts related to their mutual rights and liabilities.
Business angels cannot enter into a
transaction which would put the entrepreneur in debt.
Business angels cannot be the controlling shareholders of the venture capital company either separately or as co-investors.
Furthermore, a business angel can only participate in the management of a venture
in the venture capital company by the business angel should be used within 12 months in accordance with the business plan.
In order to finalize the applications, following the letter of conformity from the Treasury, the articles of association of the venture capital company and a copy of the trade registry gazette should be submitted to the Treasury. The Treasury makes a notice to the related tax office after receiving the bank receipt signed by the bank. This proves that the capital invested by the business angel is transferred to a special account opened on behalf of the venture capital company. This will allow the business angel to benefit from the tax reliefs.
Business Angels in Turkey
IV. Qualifying private venture
companies
Business angels can only benefit from the tax reliefs if they invest in qualifying private venture companies. The below conditions must be met, in order to be considered as a “qualifying private venture company”:
• It should be a joint stock company as per Turkish Commercial Code numbered 6102,
• Total value of its assets should not be more than TRY 10.000.000 before the investment,
• It should have a maximum of 50 employees,
• It should not be under the control of
Private venture companies should submit to the Treasury their activity reports related to the investments every 6 months.
The Treasury is authorized to request financial statements in accordance with Turkish Accounting Standards if necessary. Furthermore, the Treasury should be informed of certain special conditions (e.g., changing of articles of association,
bankruptcy, tax inspections) within 1 month by the angel investors through the
authorized business angels networks. Business angels, authorized networks and private venture companies are required to provide all information and documentation requested by the Treasury.
• It should not be under the control of another company,
• It should be engaged in one of the activities that are defined by the Treasury,
• Its shares should not have been offered to the public, and
• It should not invest into the businesses which are illegal.
requested by the Treasury.
V. Failure to comply with the
conditions
In case the aforementioned conditions for benefiting from the tax incentives (e.g. if the angel investor disposes the participation shares before the completion of the 2 years holding period, or invests into a business area that is not supported by the Treasury, or does not to comply the limitations for partnership structure) are not satisfied, the taxes which have not been paid in the past should be paid with the tax penalty and the late interest payment.
Umurcan Gago, Partner
PwC Tax and Legal Services Tel: +90 (212) 326 6098
E-mail: umurcan.gago@tr.pwc.com
Barış Yalçın, Senior Manager
PwC Tax and Legal Services Tel: +90 (212) 326 6536
E-mail: baris.yalcin@tr.pwc.com
Our team
Our specialists would be happy to discuss with you the topics of this bulletin. Please do not
hesitate to contact us.
E-mail: baris.yalcin@tr.pwc.com
Emre Akarkarasu, Manager
PwC Tax and Legal Services Tel: +90 (212) 326 6592
E-mail: emre.akarkarasu@tr.pwc.com
