Under the Turkish legislation an investment fund
is a property used in order to manage various instruments accepted by the capital markets. Among these instruments are gold, real estate and other assets, which is why Turkey has a large variety of investment funds
. The main laws governing investment funds
and their establishment in Turkey
- the Principles Regarding Mutual Funds;
- the Principles Regarding Exchange Trade Funds;
- the Principles Regrading the Registration and Sale of Mutual Funds;
- the Principles Regarding the Establishment and Operation of Pension Funds.
Types of investment funds in Turkey
As seen above, the Turkish legislation accommodates various types of investment funds, among which the largest ones are Turkish and foreign funds. Turkish investment funds are divided into:
All these type of funds are grouped as mutual funds.
The Turkish legislation also provides for pension and exchange traded funds and real estate investment funds
separately, as mentioned above. There is also the venture capital type of investment funds
Setting up an investment fund in Turkey
No matter the type of fund
selected, the setup and registration process
is the same. First of all, the investor must obtain the approval of the Capital Markets Board (CMB) in Turkey. However, the fund must be set up by a portfolio management company which will be established as a Turkish public company
After the company is registered with the Turkish Companies Register, it will prepare an agreement with a depositary acknowledged by the CMB. The depositary will keep the fund’s assets, as prescribed by the law. The investor must also draft a set of documents containing the internal regulations of the investment fund
, which will also be submitted for approval with the CMB. The internal regulations must also be filed with the Trade Register
Investment restrictions in Turkey
Even if it is very flexible, the Turkish legislation also imposes several restrictions on investment funds. Among these, all types of Turkish investment funds are not allowed to:
Also, funds with a single owner and one manager
is restricted from investing more than 20% of the company’s capital or voting shares.
Requirements for foreign investment funds in Turkey
Foreign funds cannot be traded on the Stock Exchange in Turkey, but a foreign investment company may trade its shares on the local capital markets. The offer must be submitted through a Turkish brokerage agency and is subject to the approval of the Capital Markets Board. The securities issued by a foreign fund may be registered as bearer shares.
Important details about taxation of investment funds in Turkey
The taxation of investment funds in Turkey is separated by a few exemptions and here we mention the venture capitals funds, the real estate investment funds, the securities funds and the investment fund with a portfolio that includes gold and other precious metals.
The income derived from warrants, foreign exchange, loans and financial assets, derivatives and commodity transactions by the foreign investment fund with the consideration of local portfolio management businesses are not subject to tax. The portfolio management company and its associated parties won’t have the right to more than 20% on the income of the foreign investment funds, after withholding the levies established for the services. It is good to know that The Council of Ministers in Turkey has the right to reduce the mentioned rate down to 0% or to raise it up to 40 percent.
Take into consideration that the participation exemption is offered for the earnings of the portfolio management companies in return for their significant investments to foreign funds, encountering the conditions mentioned above. Our Turkish lawyers can offer a great approach and suitable information for foreign investors interested in taxation of investment funds in the country.
The mutual fund taxation in Turkey
Incomes derived from mutual investment funds in Turkey is not subject to taxes. The withholding tax for non-resident businesses is related to a rate of 0% to incomes resulting by external equity companies in the nature of the mentioned enterprises and by foreign corporations which are regulated by the Ministry of Finance to be comparable to mutual funds and investment trusts created with the Capital Markets Law.
The mutual funds in Turkey
The mutual funds in Turkey refer to the portfolios containing capital market instruments like bonds, stocks and valuable metals on assets raised from the stockholders. Every foreign investor turns into a stockholder of the fund upon having a membership certificate that exemplifies part of the portfolio administered by the fund.
It is good to know that in Turkey, mutual funds do not allocate any supplementary dividend at the end of the year. The foreign investment funds in Turkey are not allowed to trade on the Stock Exchange in Turkey, but a foreign business can make such investments using shares on the local market. The Capital Markets Board in Turkey is the only financial agency that can approve the foreign investment funds, and a brokerage firm can do all the necessary submissions. For all types of investment funds, our lawyer in Turkey will provide you will legal assistance and detailed information.
Why have investment funds in Turkey?
Many overseas businessmen choose to open investment funds in Turkey, due to the country’s developed economy. Presently, the Turkish government is preparing important reforms and there are strong reasons for optimism, in order to receive long term investments.