Presidential Decree No. 9160, published in Official Gazette No. 32735 of 27 November 2024, reduced the exemption rate in Article 5/1-e of the Corporate Income Tax Law from 75% to 50%.
The “Decree on the Amendment of the Exemption Rate in Subparagraph (e) of the First Paragraph of Article 5 of Corporate Income Tax Law No. 5520 (Decree No: 9160)”, published in Official Gazette No. 32735 of 27 November 2024, reduced the exemption rate in subparagraph 5/1-e of the Corporate Income Tax Law from 75% to 50%.
1) The exemption rate in Article 5/1-e of the Corporate Income Tax Law has been reduced from 75% to 50%
Under Article 5/1-e of the Corporate Income Tax Law, 75% of the income derived by entities from the sale of participation shares held in their assets for at least two full years, and of founders’ shares, redeemed shares, pre-emption rights held for the same period, and participation units of investment funds forming the source of exempt income under subparagraph 5/1-a, was exempt from corporate income tax.
The President is empowered to reduce the tax burden rates in this article, separately or together, to zero or to increase them up to the corporate income tax rate, and to reduce the other rates, separately or together, to zero or to increase them up to 100%; the Ministry of Treasury and Finance is empowered to determine the procedures and principles governing the application of the exemptions in this article.
Presidential Decree No. 9160 reduced that 75% exemption rate to 50%. The new provision entered into force on 27 November 2024. The Decree contains no special provision for assets acquired before that date. Accordingly, from 27 November 2024 the exemption rate of 50% will apply to all sales made under Article 5/1-e of the Corporate Income Tax Law, regardless of the date on which the assets were acquired.
The position before and after the change made by this Decree is set out in the table below.
2) Scope of participation shares, founders’ shares, redeemed shares, pre-emption rights and investment fund participation units
The assets to which this exemption applies are detailed below:
Participation shares, founders’ shares and redeemed shares
The term “participation shares” in the article means shares and partnership interests included in the securities portfolio.
These are:
- partnership interests or shares in joint stock companies (including shares of investment trusts established under the Capital Markets Law),
- participation interests in limited liability companies,
- partnership interests of limited partners in partnerships limited by shares,
- partnership interests in joint ventures and ordinary partnerships,
- partnership interests in cooperatives.
Participation certificates of funds subject to the regulation and supervision of the Capital Markets Board are not treated as participation shares.
Pre-emption rights
Where joint stock companies and partnerships limited by shares increase their capital, entities holding the shares of those companies in their assets may participate in the capital increase, whether against payment or free of charge, and may also sell the pre-emption right coupons for the new shares (the priority purchase right) to others. 50% of the income derived from the sale of such pre-emption rights may benefit from the exemption.
Venture capital investment fund participation units
Under the capital markets legislation, venture capital investment funds are defined as assets without legal personality, established to manage a portfolio consisting of venture capital investments on behalf of unit holders on a fiduciary basis, using money or participation interests collected from qualified investors in return for participation units.
Accordingly, 50% of the income derived from the sale of participation units of venture capital funds operating with the authorisation of the Capital Markets Board will be exempt from corporate income tax, provided the prescribed conditions are also met.