You may find the legislative changes concerning the Turkish startup ecosystem in the second quarter of 2024 below.
- The Withholding Tax Rate on Earnings from Shares of Venture Capital Investment Fund Changed
The withholding tax rate was reduced to 0% for the income and gains derived by real person investors from the participation shares of venture capital investment funds, regardless of how long the participation shares were held. With the amendment, the withholding tax rate is increased to 7.5% for the participation shares acquired between 01.05.2024 and 31.07.2024 which are held for less than two years, and the withholding tax rate is increased to 10% for the participation shares to be acquired after 31.07.2024 which will be held for less than two years. On the other hand, the withholding tax rate will continue to be 0% for the income and gains to be derived from participation shares held for more than two years.
- Amendment Regarding Pension Mutual Funds' Ability to Invest in Venture Capital
The Capital Markets Board amended the Guidelines on Pension Mutual Funds. With this amendment, those who are included in the private pension system will be able to prefer to accrue interest on their investments in venture capital funds. Accordingly, at least one per cent of their portfolios shall be directed to venture capital investment funds' participation shares. The minimum venture capital investment rule shall be met until 30.06.2024.
- The European Union Adopted First Artificial Intelligence Regulation
The European Parliament adopted the EU Artifical Intelligence Act ("AI Act") on 13.03.2024. The AI Act introduced the first legal framework to regulate the artificial intelligence. The AI Act aims to improve the functioning of the internal market and promote the uptake of human-centric and trustworthy AI, while ensuring a high level of protection of health, safety, fundamental rights, including democracy, the rule of law and environmental protection, against the harmful effects of AI systems in the EU and supporting innovation.
The AI Act adopts a risk-based approach which defines four levels of risk for AI systems. AI systems are categorized based on their potential risks to fundamental rights, safety, and societal values. Accordingly, the AI Act classifies AI systems into four risk categories: unacceptable risk, high-risk, limited risk, and minimal risk, each subject to varying levels of regulatory requirements. AI systems posing unacceptable risk, such as those designed to manipulate human behaviour or exploit vulnerable groups, are prohibited. AI systems posing high risks (e.g., in healthcare, transportation, law enforcement) are subject to strict requirements, including mandatory risk assessments, high-quality datasets, transparency, and human oversight. AI systems with limited risk do not fall into the high-risk or unacceptable risk categories but still require specific regulatory measures, including ensuring that end-users are aware that they are interacting with AI. Minimal risk systems do not pose significant risks to individuals' rights or safety; therefore, they require only a few measures.
On the other hand, AI systems using a general-purpose AI model ("GPAI") are also regulated. GPAI systems display significant generality and are can competently perform a wide range of distinct tasks. GPAI system providers shall prepare technical documentation and information for downstream providers, establish a policy to comply with copyright rules, and publish a summary of the content used for training.
The AI Act applies to providers and deployers offering services in the EU, irrespective of whether those providers are established within the EU. Additionally, it also applies to providers and deployers of AI systems that are located in a third country, if the output produced by the AI system is used within the EU. Therefore, in case the persons or market of the EU are involved, the relevant AI system (including those are provided or exported by Turkish undertakings) will be subject to the AI Act.
The AI Act will enter into force 20 days after its publication in the Official Journal of the EU. Unacceptable AI systems will be prohibited after 6 months from the effective date. Obligations and governance rules for GPAI systems will be applicable after 12 months from the effective date. Obligations for high-risk AI systems, as outlined in specific cases listed in the AI Act, will come into effect 24 months after the effective date.
- The Artificial Intelligence Law Proposal Submitted to the Grand National Assembly
The Artificial Intelligence Law Proposal ("Proposal"), which aims to regulate artificial intelligence for the first time in Türkiye, was submitted to the Grand National Assembly of Türkiye on 24.06.2024. The Proposal aims to ensure the safe, ethical and fair use of artificial intelligence technologies; to ensure that personal data protection and privacy rights are not violated; and to establish a regulatory framework for the development and use of artificial intelligence systems.
Although the Proposal is substantially in line with the AI Act, it may face criticism for not clearly defining its basic principles, rules, compliance measures, and the institutions responsible for enforcing sanctions in cases of non-compliance. Nevertheless, the Proposal is still of importance as it marks the first legislative efforts in this field.
- Significant Amendments to the Turkish Commercial Code
Significant Pursuant to the Law No. 7511 on the Amendment of the Turkish Commercial Code and Certain Laws ("Amending Law"), published in the Official Gazette dated 29.05.2024 and numbered 7511, introduced significant amendments to the Turkish Commercial Code ("TCC").
Pursuant to the TCC, members of the board of directors can be elected for a maximum period of three years, and it was obligatory to elect the the chairman and vice chairman of the board of directors every year. This obligation has been annulled by the Amending Law.
Pursuant to the TCC, the appointment of the company's senior executives and branch managers are among the non-transferable and inalienable duties and powers of the board of directors. The Amending Law annulled this restriction on the grounds that the requirement for branch managers to be appointed only by a decision of the board of directors slowed down the functioning of the company, and it allowed the appointment of branch managers without a decision of the board of directors.
Pursuant to the TCC, the authority to call the board of directors to a meeting belongs to the chairman of the board of directors and, in case the chairman cannot be reached, to the vice chairmen. However, it is observed that the chairman of the board of directors refrains from calling the board of directors to a meeting in some cases. The Amending Law, aiming to prevent the board of directors from becoming dysfunctional without the need for a judicial remedy, allows the members to directly call for a meeting in case the chairman of the board of directors fails to respond to the meeting request made by the majority of the board directors within thirty days.
The minimum capital amounts for joint stock companies and limited liability companies to be established after 01.01.2024 have been increased to TRY 250,000 and TRY 50,000 respectively. The Amending Law stipulates that companies established before this date and not meeting the new minimum capital requirements shall increase their capital to these amounts until 31.12.2026.
- Minimum Equity Amount of Payment Services has been Increased
Communiqué on Redetermination of Minimum Equity Amounts of Payment Institutions and Electronic Money Institutions has been published. According to the Communiqué, the minimum equity amounts shall be increased to (i) TRY 10,000,000 for payment institutions intermediating invoice payments, (ii) TRY 55,000,000 for electronic money institutions, and (iii) TRY 20,000,000 for other payment institutions, except for payment institutions providing the service of providing consolidated information on online platforms regarding the payment accounts. These amendments shall be entered into force on 30.06.2024.
- Developments in the Tax Regulations
Dividends received from participation shares of the venture capital funds and investment funds, income generated from the refund of these funds' participation shares and value increase gains of the participation shares of these funds' have been exempted from the corporate tax. With the Law No. 7456, abovementioned income and gains related to investment fund participation shares except for those related to venture capital funds are excluded from this exemption.
Both legal and real persons participating in foreign joint stock and limited liability companies whose legal and business center is not located in Türkiye are exempted from income or corporate tax at a rate of 50%, provided that they held at least 50% of the paid-up capital of the foreign subsidiary and that the dividends are transferred to Türkiye until the date of submission of the tax return for the accounting period in which the income is received.
It was regulated that 50% of the income obtained by legal and real persons from the services provided abroad in the fields of architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, data analysis, education and health services can be deducted from income or corporate tax at a rate of 50%, provided that all of the income obtained are transferred to Türkiye until the date when the tax return should be submitted. This deduction rate has been increased to 80%.
It was regulated that the depreciation period to be applied to the machinery and equipment acquired by companies located in Technopolis and R&D and Design Centers to be used exclusively in R&D, innovation and design activities can be calculated over half of the current useful life period. This application has been extended until 31.12.2024.
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.
