Category: Turkiye

Kumkumoglu Ergun Cin Ozdogan has advised Istanbul-based climate technology start-up Erguvan on its seed investment round with Emirates NBD and DenizBank’s Deniz Ventures over a USD 7.33 million valuation.

According to Erguvan, this investment marks the inaugural deployment of ENBD’s USD 100 million venture fund announced last year, demonstrating the bank’s commitment to climate action and addressing financed emissions.

Erguvan describes itself as a provider of digital infrastructure for corporate climate action. It offers “a B2B marketplace for environmental commodities and API-based carbon accounting software solutions to financial institutions and corporates.”

The Emirates NBD is a banking group with total assets equivalent to approximately USD 221 billion. It completed the acquisition of DenizBank in 2019.

“The partnership with the ENBD Group will bolster Erguvan’s international expansion and strengthen its commitment to providing a direct, secure, and transparent access to carbon credit and REC markets as well as high-reliability, data-driven carbon accounting tools directly addressing the requirements of financial institutions and corporates,” Erguvan announced.

The KECO Legal team included Partner Berk Cin and Associate Burhan Toker.

The Law No. 7456 on the Issuance of Additional Motor Vehicles Tax for the Compensation of Economic Losses Caused by the Earthquakes Occurred on February 6, 2023 and Amendments to Certain Laws and Decree Law No. 375 (“Omnibus Bill”) entered into force upon its publication in the Official Gazette dated July 15, 2023 and numbered 32249.

The Scope of the Amendment

The Omnibus Bill has amended the Corporate Tax Law No. 5520 (“Law”) to exempt the gains arising from the sale of immovable properties held in assets for at least 2 full years. In this regard, pursuant to Article 5/1-e. of the Law amended by the Omnibus Law, the exemption for 50% of the gains arising from the sale of immovable properties that have been held in assets for at least 2 full years as of July 15, 2023 (“Effective Date”) has been abrogated.

However, according to the provisional Article 16 added to the Law, the Corporate Income Tax exemption will continue for the immovables held in the assets of the corporations prior to the Effective Date and the sales gain exemption will be applied as 25% instead of 50%.

Based on the definition of corporations in the Law, the corporations that will be affected by these amendments to the Law are (i) capital companies, (ii) cooperatives, (iii) public economic enterprises, (iv) economic enterprises owned by associations or foundations, and (v) joint ventures.

By Cerensu Cetin Yenigun, Senior Associate, and Mehmet Oguz Koc, Trainee Lawyer, Moral, Kinikoglu, Pamukkale, Kokenek

Turunc has advised Bogazici Ventures on its investment in Arvis Games. The Kirbiyik Law Firm advised Arvis Games.

Arvis Games is a platform-agnostic gaming studio focused on the mid-core genre.

Bogazici Ventures is a Turkish capital markets board-regulated venture capital fund focused primarily on fintech, health tech, retail tech, and gaming.

The Turunc team included Managing Partner Kerem Turunc, Partners Esin Camlibel and Yasemin Erden, and Associates Beste Yildizili Ergul, Naz Esen, Ovgu Kopal, Canberk Taze, and Baran Ezeli. 

The Kirbiyik team included Founding Partner Omer Faruk Kirbiyik and Associate Gamze Zobur.

Baker McKenzie Turkish affiliate Esin Attorney Partnership has advised TeamSystem on its acquisition of a 53% stake in the Mikro Group from Dash Software, Izzet Murat Sakarya, Alpaslan Tomus, Kadir Keskin, Xiang Yu, and Andac Turkmen through a bid process. Verdi advised the sellers.

Both companies have launched or are currently looking forward to launching new cloud-based/SaaS products.

According to Esin, the Mikro Group and TeamSystem share a “very similar development model in terms of user design investments, product portfolio, targeted markets, and needs met.” The sellers, who will hold 47% together after closing, are given exit options exercisable in multiple tranches. And upper management will also execute management contracts and remain in the Mikro Group post-closing for additional terms.

The Esin team included Managing Partner Eren Kursun, Partner Caner Elmas, Senior Associates Sila Pinar and Erman Ertan, and Associate Sam Gizem Sozer.

The Verdi team included Partner Ayse Demirel, Senior Associate Dogac Gunaydin, Associate Ezgi Ozmarasali, and Junior Associate Yaren Kinalioglu.

Former White & Case Senior Competition Director Sezin Elcin Cengiz announced the establishment of her new competition law consulting firm in Istanbul: CORE – Competition & Regulation.

CORE describes itself as a competition law and regulation consulting firm in Turkiye. Its founder has been working on competition law matters for over 20 years. Before leaving to establish her own firm, Cengiz spent 12 years with White & Case, the first ten as a Senior Advisor and the final two as a Senior Director – Competition, leading the firm’s Competition practice group. Before that, she spent ten years with the Turkish Competition Authority as an Antitrust Expert and Case Handler, between 2001 and 2011.

“This step wouldn’t have been possible without the unwavering support of my exceptional colleagues at White & Case and the trust of our valued clients, to whom I am deeply grateful,” Cengiz commented. “Moving forward, I will continue to provide top-tier expertise in the field of competition law, and I am committed to delivering the same level of excellence and dedication that you have come to expect from me.”

Turkish lawyer Meltem Azbazdar has relocated to Hamburg, Germany, to take the role of General Counsel Northern Europe, Eastern Europe, and MENA at Diageo.

Diageo is a British multinational alcoholic beverage company, headquartered in London. It operates from 132 sites around the world.

Previously, Azbazdar spent almost ten years with Mey Diageo, the Turkish affiliate of Diageo, as General Counsel and Corporate Relations Director. Earlier, she spent two years in private practice, almost seven years with Carrefour as a Real Estate and Business Development Director, and over six years as a Senior Associate with Herguner Bilgen Ozeke. She began her career as an Associate with Fox & Gibbons, in Istanbul, where she spent a year and a half.

Azbazdar obtained her law degree from Ankara University.

Originally reported by CEE In-House Matters.

Recent developments in Turkish tax regulations carry substantial implications for both corporations and foreign investors. Turkey has undertaken substantial measures to fortify its fiscal position and tackle economic challenges. Among the notable changes is the elevation of the general corporate income tax rate to 25%. The financial sector faces an even higher rate of 30%. This tax rate adjustment is rationalized by the government as a means to aid the country’s recovery efforts following recent earthquakes.

The amendment to Article 32 of the Corporate Income Tax Law outlines these alterations. Corporate income tax is now set at 25% on corporate profits, while banks and other specific entities fall under a 30% corporate income tax rate category.

Additionally, the revision to paragraph (7) of Article 32 introduces a 5-point discount on the corporate income tax rate for corporations exclusively engaged in export-related profits.

The heightened corporate income tax rate of 30% in the financial sector warrants scrutiny due to its potential effects on the profitability, lending practices, and overall stability of financial institutions. While the motive behind this adjustment may be to augment tax revenue, its repercussions on the financial sector necessitate careful consideration.

As of July 15, 2023, the Turkish government has eliminated the exemption on 50% of gains resulting from the sale of immovables listed under corporate assets. This translates to corporations now being subject to full taxation on gains from such sales.

Nonetheless, a temporary provision exists, permitting corporations to maintain a 25% exemption on gains from the sale of immovables recorded under their assets before the regulation’s effective date. This allows corporations holding immovables for an extended period to continue benefiting from a substantial tax advantage upon sale.

The government has also terminated the Value Added Tax (VAT) exemption on immovable sales by corporations, requiring them to pay VAT similar to individuals.

These regulatory changes are likely to significantly influence the Turkish real estate market. Corporations intending to sell immovables must now factor in higher taxes when making decisions, potentially leading to reduced sales and downward price pressure.

Foreign investors might also feel the impact of these new regulations. The erstwhile allure of investing in Turkish real estate, stemming from tax exemptions on immovable sales, has diminished. Consequently, foreign investors could display reduced enthusiasm for Turkish real estate investments.

The repercussions of the new regulations on the Turkish real estate market are yet to fully unfold. However, it is evident that corporations and foreign investors will experience a substantial impact.

By Onur Cagdas Ozgur, Tax Senior Manager, Nazali Tax & Legal

Paksoy has advised the Stellantis Group on the full sale of its Stellantis Otomotiv Pazarlama automobile distributor subsidiary to Tofas Turk Otomobil Fabrikasi. Baker McKenzie Turkish affiliate Esin Attorney Partnership advised Tofas.

The transaction remains contingent on regulatory approval.

Stellantis Otomotiv Pazarlama is an automobile distributor for the Citroen, Peugeot, Opel, and DS Automobiles brands.

Amsterdam-headquartered Stellantis was established in 2021 through the equal merger of Italo-American Fiat Chrysler Automobiles and the French PSA Group.

According to Paksoy, 24.3% of Tofas’ shares are currently traded on the Borsa Istanbul stock exchange, with Koc Holding and Stellantis each holding equal stakes in the remainder. Among its other operations, Tofas has a production capacity of 400,000 vehicles per year.

“Through this transaction, Stellantis N.V. […] will consolidate all activities in Turkiye under a single entity, meaning that all Stellantis brands in Turkey – Alfa Romeo, Fiat, Citroen, DS Automobiles, Jeep, Maserati, Opel, and Peugeot – will be distributed by Tofas,” Paksoy reported.

The Paksoy team included Partners Togan Turan, Okkes Sahan, Nazli Bezirci, and Sansal Erbacioglu and Associates Melisa Sevinc, Melis Azman, Idil Gunes, Nazim Canay Palak, Gamze Boran, and Ece Bezmez.

The Esin Attorney Partnership team included Managing Partner Eren Kursun, Partner Ali Selim Demirel, Senior Associates Sila Pinar and Erman Ertan, and Associates Alp Mungan and Sam Gizem Sozer.

The significant public financing need caused by the earthquakes centered in Kahramanmaraş and Hatay on 6 February 2023 continues to lead to various tax-related regulations. The first of such regulations was a one-time additional tax imposed on certain corporate taxpayers with Law No. 7440 on the Restructuring of Certain Receivables and Amendments to Certain Laws published in the Official Gazette dated 12 March 2023.

Subsequently, on 5 July 2023, “Draft Law on Additional Motor Vehicles Tax and Amendments to Certain Laws and Decree Law No. 375 for the Compensation of Economic Losses Caused by the Earthquakes Occurred on 6/2/2023” (“Draft Law”), which includes certain regulations and amendments aiming to meet the financing needs caused by the earthquake, was submitted to the Planning and Budget Committee of the Turkish Grand National Assembly. The regulations and amendments to be made by the Draft Law cover various matters, including the increase in the corporate income tax rate, the repeal of corporate income tax and VAT exemptions for real estate sales, and the repeal of corporate income tax exemptions for investment funds.

Lastly, the regulations published in the Official Gazette dated 7 July 2023 introduced certain measures to increase public revenue, such as increasing the VAT rates and fixed charge amounts together with the changes in banking and insurance transactions tax (BITT) and withholding tax rates on certain transactions.

What do the New Regulations Mean?

Tax Regulations Implemented on 7 July 2023

• Presidential Decree No. 7346 increased the general VAT rate from 18% to 20%; VAT rate on goods included in List No. (II) from 8% to 10%; and from 8% to 20% for soaps, shampoos, detergents, sanitizers, wet wipes (regardless of being saturated with soaps, detergents or solutions), toilet papers, paper towels, paper tissues and tissues.
• Presidential Decree No. 7344 increased all the fixed charges by 50%, except for the driving license charge, and increased the phone registry charge for the phones imported by passengers from TRY 6,091 to TRY 20,000.
• Presidential Decree No. 7345 increased the BITT rate from 10% to 15% on consumer loans. The new rate is applicable for consumer loans obtained as of 7 July 2023.
• Presidential Decree No. 7343 provided that withholding tax at 0% will only apply to the full taxpayer capital companies listed on the Istanbul Stock Exchange on the amounts deemed as distributed dividend in case of share buy-backs. Accordingly, withholding tax has been reset as 15% for non-listed full taxpayer capital companies on the amounts deemed as distributed dividend in case of share buy-backs. The amendment is applicable to the shares acquired by 7 July 2023.

Regulations to be Implemented with the Draft Law

Corporate Income Tax Rate Increase

The Draft Law increases the general corporate income tax rate from 20% to 25%, and from 25% to 30% applicable to the banks, companies subject to the Law on Finance Lease, Financing and Saving Finance Companies; electronic payment and money institutions; authorized foreign currency institutions; asset management companies; capital market institutions; insurance and reinsurance companies; and pensions companies.

Moreover, the Draft Law increases the corporate income tax rate deduction from 1 point to 5 points, which applies to the income of the exporting companies generated exclusively from the export transactions.

The amendments to the corporate income tax rates will apply to the tax returns to be filed by 1 October 2023, and to the income generated in 2023 and within the subsequent taxation periods. For taxpayers using special accounting periods, the periods starting in 2023 and the following taxation periods will be taken into account.

Repeal of the Corporate Income Tax and VAT Exemptions on Real Estate Sales

Except for those carrying out real estate sales as a business, 50% of the income generated from the sale of real estate, kept in an entity’s assets for at least two years, is exempt from the corporate income tax (as long as certain conditions are met). Likewise, the sale of real estate kept in the assets of an entity that does not carry out real estate sales as a business for at least two years is exempt from VAT.

The Draft Law repeals the mentioned corporate income tax and VAT exemptions on real estate sales. Meanwhile, if a real estate included in an entity’s assets before the enactment of the Draft Law is sold later on, the sale will be exempt from the VAT while only 25% of the income generated from the sale will be exempt from the corporate income tax.

Repeal of the Corporate Income Tax Exemptions Regarding Investment Funds and Partnerships Except for Venture Capitals

Regulations implemented in 2022 provided corporate tax exemptions for the corporate income generated from the dividends received from the full taxpayer investment funds and the refund of these funds’ participation shares. The Draft Law repeals the exemptions on the income generated from investment funds, except for those generated from the dividends received from venture capital funds and partnerships and the refund of their participation shares.

This amendment will apply to the investment fund participation shares acquired as of the publishing of the related provision in the Official Gazette. Income from the investment funds acquired before the publishing of the provision will remain exempt from the corporate income tax.

Exclusion of Real Estate from the Scope of Partial Demerger

According to Article 19 of the Corporate Income Tax Law, real estate, shares, and production and service businesses can be, under certain conditions, subject to partial demerger. The partial demergers made within that scope are exempt from the corporate income tax, VAT, stamp tax and title deed fee. The Draft Law excludes real estate from the scope of a partial demerger. Accordingly, transfer of a real estate alone would not benefit from the tax exemptions under the partial demerger. This provision is envisaged to enter into force by 1 January 2024.

Additional Motor Vehicles Tax

The Draft Law introduces an additional motor vehicles tax for once in the amount of the motor vehicles tax accrued for 2023.

Conclusion

Earthquakes centered in Kahramanmaraş and Hatay on 6 February 2023 caused significant public financing needs. This has led and continues to lead to the implementation of many new regulations to generate more public revenue by increasing taxes. As a result, careful financial planning by taxpayers, who would be affected by these regulations, thereby increasing their tax burden, becomes increasingly important. We recommend that taxpayers closely follow the new regulations to avoid adverse consequences.

By Erdal Ekinci, Orhan Pala, Partners, and Huseyin Eren Akarca, Associate, Esin Attorneys Partnership

Paksoy and CMS affiliate Yalcin Babalioglu Kemahli have advised Turkish tile manufacturer Kaleseramik on its IPO and Borsa Istanbul listing.

Kaleseramik was established in 1957. According to Paksoy, the total funds raised in the public offering amounted to TRY 2.73 billion – approximately USD 105 million – and the offering was almost four times oversubscribed, mostly by retail investors.

According to YBK, “with such an impressive debut on the market, the company has established itself as a prominent player and gained the attention of both institutional and retail investors seeking promising investment opportunities.”

The Paksoy team included Partner Okkes Sahan, Senior Associate Merve Kurdak, and Associate Bengisu Yilmaz.

The YBK team included Partner Hulya Kemahli, Counsel Arcan Kemahli, and Associate Zeynep Berin Manavgat.