Turkey: Re-Financing Model For Angel Investment Permits

Currently, the process for obtaining angel investment permits in Turkey is strict and at times causes practical problems for parties seeking to make or receive investments. In theory, a re-financing model is possible within the existing legal framework for angel investments which would increase the flexibility of investment timelines. Such a model could allow investors to receive tax benefits for investments made into start-ups before the investor has received an angel investment permit from the Turkish Undersecreteriat of Treasury (the "Treasury").

The Treasury recently recognized and permitted the re-financing model in a particular application, allowing an investment to qualify for the angel investment tax advantages, despite the Treasury having not granted the investment permit yet. It is unclear though whether the Treasury will consistently accept such an interpretation or even amend the legislation to specifically contemplate investments which are initiated as loans to later be converted to capital.

If the Treasury recognizes the re-financing model as a permitted investment structure which qualifies for the associated tax advantages, this would be a significant step by the Treasury in supporting the Turkish angel investment ecosystem. It is likely that the increased flexibility would encourage investment volumes to increase accordingly.

The recently introduced angel investment regime is one of the most investment-mobilizing schemes in Turkey. The scheme might appear to be slightly rigid when compared to the real economic needs of start-ups. However, with flexible interpretation of the legislation, as well as certain other improvements, the process will be made easier for many prospective and ongoing investments in the short and mid-term.

Explanation of the full legal framework governing the Turkish angel investment system is outlined in this article, including an outline of the process for obtaining an angel investment permit.

The typical process for obtaining an angel investment permit

Typically, before making an investment into a start-up, an angel investor (holding an angel investor license) should apply to the Treasury to obtain an angel investment permit. To qualify for angel investment tax benefits, the investor must receive the investment permit before he or she makes the investment. The Treasury issues an investment permit if it is satisfied that the prospective investment, as well as the recipient (the start-up) meets the applicable legislative criteria. In practice, angel investment permits contain limited information, to the effect that the subject matter investment complies with the legislation and the investment must be completed within three months of the permit date.

Once the Treasury has issued the investment permit, the investor must complete the investment into the start-up in line with all of the information previously submitted to the Treasury. The investor must close the transaction within three months (the legislative timeframe for investment permits).

After completing the investment, the investor must submit a series of formal documents to the Treasury which show the investment has been made in line with the terms of the angel investment permit.

The typical process above requires the Treasury to grant the investment permit first, before the investor can complete the investment. Any amount which the investor pays into the start-up prior to receiving the investment permit would not qualify for the associated tax advantages. It can be challenging for parties in the Turkish angel investment ecosystem to satisfy such strict chronological requirements and navigate the associated procedural bureaucracy. For example, such a linear process raises obstacles for an investor who seeks to invest in a start-up at a given time, or a start-up which seeks cash injection for a time-sensitive purpose (such as continuing daily operations).

The re-financing model – An alternative interpretation

Under the re-financing model, investment amounts that were previously injected into the start-up for operational costs and expenses could be counted as a simple repayable loan in the business plan submitted to the Treasury.

Usually, in the business plan submitted to the Treasury with investment permit applications, the proposed investment amount is allocated to future expenses. These fall in the period after the investment permit is received and the investment has been completed. Under the re-financing model though, the amount is allocated to past expenses. Once the Treasury grants the investment permit, the investor would then invest into the start-up as re-financing in order for the start-up to re-pay the loan and for the capital increase process (registration with the Commercial Registry). Through this approach, investments made into a start-up before completing the Treasury's lengthy investment permit procedures may qualify for the associated tax benefits.

The re-financing model could potentially allow a more flexible process for realizing investments into start-ups, while still ensuring the investment is eligible for the tax benefits associated with investment permits. At this stage, while the re-financing model is theoretically possible within the existing legal framework and we have limited experience with the Treasury accepting such an approach, it is unclear whether the Treasury will be consistently accept such an approach.

In the documentation submitted to the Treasury during the subsequent investment permit application, it is essential to accurately indicate the start-up's expenses or costs which will be covered from the re-financing amounts. The business plan submitted to the Treasury must list the estimated purchase prices and purchase dates of equipment, raw materials, intermediate goods, salaries and other costs. The total of those estimated costs and expenses must equal the investment amount subject to the angel investment permit application.

Under the re-financing model, it is only the chronology of events that are switched and stretched slightly in order to allow a more flexible structure for realizing investments. It is clear that an investment permit must still be obtained from the Treasury in order for the investment to qualify as an angel investment. All other closing requirements will also still apply, such as the capital increase for the new investment and formal registration requirements with the commercial registry.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Dr. E. Seyfi Moroğlu, LL.M.
Pelin Oğuzer, LL.M.
Similar Articles
Relevancy Powered by MondaqAI
GSG Attorneys at Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
GSG Attorneys at Law
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions