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Information on Venture Capital Investment Funds

It is an investment method that enables young dynamic businesses with fast growth and high profit potential, but with financing difficulties, to become partners with funds.

In line with the goal of providing returns in the long term, the fund duration is generally between 5 and 10 years. Funds can also provide periodic returns to their investors in this process. The dividend is determined by the return of the partner company or the cash flow of the projects. The main purpose of Venture Capital Funds is to grow the partner company and earn a return from the increase in value. For this reason, instead of distributing dividends, the profit is usually added to the fund price and investors earn money from the increase in the value of the fund. Investors who want to realize their profits do so by selling their fund shares at the end of the specified period.

Each fund follows a different method for investors who wish to exit the fund early. However, the main method is to allow investors to sell their shares to other qualified investors and exit the fund early, while the portfolio company managing the fund can also offer the option to buy the shares.

They may become shareholders or founders of venture companies directly or indirectly through capital transfer or share transfer through special purpose companies established in Turkey and collective investment institutions established abroad as defined in the Communiqué.

Venture companies must aim to create or develop tools, equipment, materials, services or new products, methods, systems and production techniques with industrial, agricultural applications and commercial market potential, or be in a position to realize these objectives with management, technical or capital support. Within this scope, funds may only invest in joint stock and limited liability companies. Venture capital companies that are limited liability companies as of the date of investment must complete their conversion to joint stock companies within one year following the date of initial investment. They may invest in debt instruments issued by venture companies. Provided that the risk arising from the investments is limited to the principal amount invested, they may make direct investments in institutions established abroad for collective investment purposes in order to make capital investments only in venture capital companies defined in this Communiqué. They may invest in capital market instruments issued by venture capital investment trusts and participation shares of other venture capital investment funds. They may invest in the shares of companies traded on the BİAŞ Emerging Companies Market.

Invest in unlisted shares of publicly traded companies that are venture capital firms. Provide financing to venture companies in the form of structured financing as a mix of debt and equity financing. They may become shareholders in domestically established special purpose joint stock companies whose fields of activity, as defined in their articles of association, are exclusively limited to the purpose of investing in venture companies as defined in the Communiqué.

  • Venture Capital Funds are an investment method approved by the Capital Markets Board (CMB).
  • Venture Capital Funds can invest in startups or be the founder of a company.
  • Venture Capital Funds are established and managed by Portfolio Management Companies holding a CMB license and a venture capital authorization certificate.
  • Venture Capital Funds offer flexible and regulated investment management with respect to custody, transparency and reporting requirements in line with international market standards.
  • Venture Capital Funds are established for a fixed term. This period is specified in the Fund's Internal Regulation Document approved by the CMB.
  • Venture Capital Funds provide the opportunity to make advantageous investments as a result of detailed analysis and evaluations by a professional portfolio management and investment team.
  • Venture Capital Funds investment decisions are made by the investment committee of the long investment process.
  • Venture Capital Funds announce the fund price to investors at least once a year. This process is reported one by one by independent valuation companies licensed by the CMB. All administrative work of Venture Capital Funds is carried out by professional fund managers licensed by the CMB.

Investors can invest in companies selected by the fund instead of only in companies of their own choice. It is a long-term investment instrument. Not suitable for short-term cash savings. Provides portfolio diversification for investments. Investors can invest in more than one venture at the same time through the GCF.
It creates an investment basket that can be easily followed by every investor. GIFs are particularly preferred by pension funds and institutional investors. GIFs can also invest in foreign funds that have invested in global venture firms. Fund shares can be transferred between investors. Flexible exit strategies can be applied by partially or fully selling back fund shares.

box-image Established with approval of the Capital Markets Board.
Venture Capital Funds are managed by a portfolio management company with the approval of the Capital Markets Board.
box-image Covers the size, investment conditions, entry, exit, and investment rules of the fund.
Venture Capital Funds are managed by a portfolio management company with the approval of the Capital Markets Board.
box-image Can see transferred amount to the approved custody bank by the Capital Markets Board.
An investor investing in the Venture Capital Fund deposits the investment amount into an account opened in the name of the investor at the Custody Bank, which is contracted by the portfolio company and approved by the Capital Markets Board.
box-image Can see transferred amount to the approved custody bank by the Capital Markets Board.
An investor investing in the Venture Capital Fund deposits the investment amount into an account opened in the name of the investor at the Custody Bank, which is contracted by the portfolio company and approved by the Capital Markets Board.
box-image Can see transferred amount to the approved custody bank by the Capital Markets Board.
The investment committee of the Venture Capital Fund decides to invest in ventures that are found positive after evaluations.
First, the amount from individual custody accounts of investors is transferred to the fund's institutional custody account. Then, it is transferred from the fund's institutional custody account to the account of the venture decided to invest.

Real and legal persons investing in Venture Capital Investment Funds enjoy various tax advantages.
The tax advantages provided herein are informative. Please contact Letven Capital tax experts for more detailed information, current tax regulations and practices.

Venture Capital Funds
The earnings of venture capital investment funds established in Turkey are exempt from corporate tax.
Since the withholding tax rate is 0% on the earnings of Venture Capital Funds in accordance with the Council of Ministers Decree No. 2009/14594, they do not pay tax through deduction.

Individual / Real Investors
Gain on Sale of Participation Certificates
Earnings derived from the return of investment fund participation certificates to the fund or other disposals are subject to tax deductions at low rates and are collected by the bank or intermediary institution and paid to the tax office. There is no need to submit an annual income tax return for the income obtained.

Dividend Income
Certain portion of dividends received by real person shareholders are exempt from income tax on an annual basis. Taxation of dividends, dividends and gains received by real person investors is limited to 10% withholding tax and is not declared.
Dividends received by real person shareholders are subject to income tax on an annual basis. However, half of the dividends are exempt from income tax. In other words, only half of the dividends received are subject to tax.

Institutional / Legal Investors
Dividends and Sales Gains
Dividends received by corporations (joint stock and limited liability companies) that are corporate taxpayers in Turkey are within the scope of the participation income exemption. The company receiving dividends does not pay corporate tax on this income. In addition, when investment fund participation certificates are disposed of, only a limited portion of the sales gains within the corporate income is subject to corporate tax.
Venture Capital Fund Investments
A maximum of 10% of the related period's earnings or declared income and 20% of the total equity capital is set aside as 'venture capital fund' by corporate taxpayers.
Contributions made as capital to Venture Capital Investment Funds or Partnerships can be deducted from the corporate tax base.
In order to benefit from the exemption, investments in venture capital funds must be made until the end of the year in which the fund is set aside.
The amount to be taken into a special fund account in liabilities will be taken into consideration as a deduction when determining the corporate tax base over the value it has as of the date of this transaction.
If the mutual fund is sold, an investment of the same nature must be made within 6 months.

Corporate Tax Base Deduction Corporate taxpayers declare that the declared income (maximum 10 per cent and 20 per cent of the shareholders' equity in total) to the 'Venture Capital Fund the amount is deducted from the corporate tax base.
Profit share income • Exception of corporate tax
• %0 withholding tax
• %0 withholding tax
Gains on sale and purchase of participation shares Obtained by capital companies (joint stock, limited partnership or limited liability company) 0%. Others subject to 10% withholding tax
- Subject to corporate tax at the standard rate
Foreign corporations in the nature of joint stock, limited partnership and limited liability companies, and foreign corporations determined by the Ministry of Finance to be of a similar nature to investment funds and investment trusts established in accordance with the Capital Markets Law are subject to a withholding tax of 0%.
Profit share income • %10 withholding tax
• %50’ half is exempt from income tax; the remaining half is subject to declaration if it exceeds the declaration limit
• %10 withholding tax
Gains on sale and purchase of participation shares • %10 withholding tax • %10 withholding tax
Sample Table of Transfer of Corporate Tax Base to Venture Capital Funds
As of 31.12.2018 of (A) A.Ş., whose accounting period is calendar year
Equity Capital 1.000.000 TL
Commercial Balance Sheet Profit 250.000 TL
Legally Unallowable Expenses 35.000 TL
Prior Year Losses 40.000 TL
Exemption for Subsidiary Earnings 60.000 TL
Free zone earnings within the scope of exemption 30.000 TL
Invesment İndirimi 50.000 TL
Minimum and Maximum Fund Transfer Amount
[250.000+35.000-40.000-60.000-30.000-50.000] 10% of (105.000 x 10%=) 10.500 TL
20% of the maximum equity (1.000.000 x 20%=) 200.000 TL
Notification to the Ministry of Treasury and Finance
In order to claim a deduction in the corporate tax return for the year 2014, the taxpayer company must record as follows by the date of submission of the return: 570 Previous Years' Profit: 10,500 549 Special Funds: 10,500 The company should transfer the venture capital fund it has allocated to the special fund account by April 25, 2019, and by December 31, 2019, it should invest this allocated fund amount into venture capital funds.

The Turkish Ministry of Treasury and Finance supports the development of venture capital funds in Turkey through direct and indirect fund transfers.