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The Draft Law on Amendments to Certain Laws (the “Draft Law”), submitted to the Grand National Assembly of Türkiye on 5 May 2026, includes noteworthy provisions affecting the technology startup ecosystem, venture capital investments, and the Istanbul Finance Center (“IFC”).
The Draft Law generally aims to strengthen employee incentive mechanisms for technology startups, promote the use of alternative financing instruments, and enhance the competitiveness of the IFC regime.
Tax Incentives for Employee Equity Compensation
In Türkiye, employee equity incentives have long been subject to various practical challenges and uncertainties, particularly regarding the timing of taxation, employee liquidity considerations, and the adaptation of equity-based incentive models to Turkish law.
Against this background, the Draft Law expands the existing income tax exemption applicable to shares granted by technology startups free of charge or at a discount, which are treated as employment income.
The Draft Law also proposes increasing the exemption cap from the employee’s annual gross salary for the relevant year to twice that amount. In addition, the holding period structure applicable to employee shares is being revised and shortened. Under the proposed framework, if the shares are disposed of within two years from the acquisition date, the full amount of the exempted tax; if disposed of between three and four years, 75% of the exempted tax; and if disposed of between five and six years, 25% of the exempted tax, would be collected from the employer together with default interest.
Proposed Framework for Convertible Debt Agreements
One of the most notable aspects of the Draft Law is the proposed regulation on conditional capital increases to be carried out by non-public companies holding a technology startup designation based on convertible debt instruments.
To address practical challenges arising under the current conditional capital increase regime, particularly in relation to articles of association requirements, general assembly and registration procedures, and the structuring of conversion mechanics, the Draft Law proposes that the relevant provisions of the Turkish Commercial Code will not apply to transactions falling within this scope. It also provides that the procedures and principles governing such capital increases will be determined by the Ministry of Industry and Technology, taking into account the opinion of the Ministry of Trade.
This approach may be viewed as a significant development for alternative investment instruments that have long been discussed within the Turkish startup ecosystem. The term “convertible debt instrument” used in the Draft Law points to a framework comparable to SAFE agreements, convertible notes, and other early-stage investment instruments in practice.
Istanbul Finance Center Incentives Are Becoming Broader and Longer-Term
The Draft Law expands the scope of employee income tax incentives under the IFC regime while also significantly extending the duration of corporate tax and fee exemptions.
In this context, the employee income tax incentive, which under the current regime applies only to entities operating in the IFC and defined as “financial institutions holding a participant certificate,” is proposed to be broadened by removing the phrase “financial institutions” from the relevant definition, potentially extending the incentive to a wider group of participants. In addition, the Draft Law aims to prevent overlapping incentives for personnel employed at qualified service centers who already benefit from a separate income tax exemption.
The Draft Law also proposes extending the duration of the 100% corporate tax deduction, which is currently available until the end of 2031, for institutions carrying out financial activities in the IFC under a participant certificate until 2047, while increasing the exemption period for financial activity fees from five years to twenty years.
Taken together, these measures indicate an intention to position the IFC as a more competitive hub not only for traditional financial institutions, but also for fintech companies, technology companies, and international service center structures.
General Overview
Although the Draft Law is still going through the legislative process, in its current form it signals a clear policy direction toward making Türkiye’s startup, venture capital, and international investment environment more competitive.
In particular, the strengthening of equity-based employee incentives, convertible financing instruments, and IFC incentives are developments worth closely monitoring for technology companies, investors, and international groups considering regional structuring in Türkiye.
Going forward, both potential amendments to the Draft Law and the secondary legislation that will shape its implementation will determine the practical impact of these developments.
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.
