When Turkey first acquianted with franchising system, it was 1991. From that day to this, Turkey's economic perspective was entirely amended and currently ranked as the world's 17th largest economy regarding GDP all over the world and converted into an integrated emerging market with a growing financial system.

Based upon the new legislation raised by The Undersecretariat of Treasury, Turkey is projected to be regional destination with investment incentives and tax benefits. In parallel with these regulations, small businesses are expected to be in the spotlight of angel investors.

The fundamental purpose of this law is fostering new ventures and increase accessibility of financial sources for small enterprises. In the scope of this law, business angels are targeted to embark on joint ventures or start-ups. Apart from venture capitalists, business angels do not have to wait for handing over their funds for months that drives angel investors to cross-border investments.

Incentives for Business Angels

As of June 2012, providing that Turkish company shares are held at least two year by angel investors, 75% corporate tax deduction can be applied regarding annual income. However,this deduction can not exceed 1,000,000 TRY in the same calendar month. Required investment amount for benefiting from tax relief is minimum 20,000 TRY per investment. Additionally, if a business angel invests in a Turkish venture company that undertakes a project supported by 'Scientific and Technological Research Council of Turkey' during the past five years, tax incentive rate will be 100%. Angel investors have an opportunity to invest in 20 different Turkish venture companies that enables to constitute a well diversified portfolio consisting of severe industries.Furthermore, they have opportunity to get into a partnership as co-investors.

How angel investors benefit from tax deductions?

Angel Investors are required to obtain a certificate called 'Angel Investors License' for taking advantages of tax deductions. Main criterias for being an accredited angel investor can be categorized as:

High Income or wealth: Investors who gain minimum 200,000 TRY annually within last two years or;

Potential investor whose total assets amount is at least 1,000,000 TRY at the stage of angel investors license application.

Nevertheless, The types of assets below are not accepted as a wealth value;

  • Residential house or house which is acquired with mortgage.
  • Pension Rights.
  • Llife Insurance Payments.
  • Rights arising out of insurance contracts.

Experienced Professionals: Investors are able to prove their expertise in Banking or Financial Institutions as a portfolio manager fund manager or etc.

If you have already worked as a general manager or similar role in a company with 50,000,000 TRY annual gross profit, you become entitled to be a qualified angel investor.Another competitive edge in Turkey is the Angel Investor License is valid for 5 years. After the five year period, angel investors are able to renew their license for the following five year periods.

Requirements for Turkish Companies

Turkish Government aimed to augment funds with the object of bolstering small entities on early stages and start-up companies with this new legal framework. Thus, If an angel investor decides to make an investment in Turkey, the requirements below should be met by Turkish private venture company in order to be considered:

  • Projected Turkish company must be a joint stock company under the Turkish Commercial Code.
  • Maximum 50 employees can be placed in this company.
  • Initial Public Offering transaction must not been executed.
  • This joint stock company, must not be under the control of another company.
  • Company to be invested in must generate maximum 5,000,000 TRY in last two fiscal years.
  • Investment must be undertaken in one of the activities or industries that Turkish Treasury determined in advance.

Limitations

In accordance with the new regulations, business angels can not hold more than 50% shares of company that they invest in Turkey. Altough this might seem as a venture restriction, it can be stated that this limitation will be significantly beneficial in the long run for effective risk management either of investor or invested company. Additionally, angel investors can not assign more than 50 % of board members or participate in administrative function.Thus and so, an agency problem between corporate management and shareholders can be averted on decision making process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.