Turkey’s Venture Capital Fund for Foreign Investors

Foreign capital seeking an efficient route into Turkish growth companies has a purpose-built vehicle. Turkey’s Girişim Sermayesi Yatırım Fonu (GSYF), the venture capital investment fund regulated by the Capital Markets Board under Communiqué III-52.4,[1] delivers a genuine zero-tax outcome at the Turkish level. Two questions decide whether a foreign investor keeps that benefit: the fund’s treaty status, and the investor’s home regime.

Zero tax at the Turkish level

Income from the portfolio management activity of a GSYF is exempt from corporate income tax under Article 5(1)(d) of the Corporate Income Tax Law.[2] The fund pays no Turkish corporate tax on the dividends, interest, gains and disposal proceeds earned across its portfolio. The domestic minimum corporate tax introduced for 2025 does not disturb this result. Although Article 32/C of the Corporate Income Tax Law sets a floor below which corporate tax cannot fall, the Article 5(1)(d) exemption stays deductible from the minimum-tax base for all portfolio income other than income from real estate the fund itself holds, which a venture capital fund investing in operating companies does not generate.

The advantage is preserved on exit. Distributions and redemption proceeds paid to a non-resident carry no Turkish withholding tax where the participation shares have been held for more than two years. A holding of two years or less now attracts 17.5% for participation shares acquired on or after 9 July 2025, following the rate increases made by Presidential Decree during 2025.[3] For a non-resident without a Turkish permanent establishment the withholding is a final tax, and the rate in force at acquisition continues to govern the holding, so a later increase cannot reach back.

Who benefits, and from where

Because the Turkish layer is already zero, the investor’s home regime decides the overall tax burden. Investors in jurisdictions that levy no personal income tax, or tax only domestic income, keep the Turkish exemption in full. Gulf investors are the clearest institutional case: the principal Gulf states impose no personal income tax on individuals, and Turkey has tax treaties in force with the UAE, Qatar, Saudi Arabia and Kuwait, so the return flows to a Gulf family office or institution. Territorial systems such as Hong Kong and Singapore produce the same outcome.

The natural beneficiaries are internationally mobile individuals already taxed under a favorable foreign-income regime, where new residents pay a fixed annual fee, or nothing, on foreign-source income; a GSYF distribution is such foreign income in their hands. Italy’s regime substitutes a flat charge of EUR 200,000 a year for tax on all foreign-source income, for up to fifteen years, so a GSYF return falls within the fee and bears no further Italian tax.[4] Greece offers a comparable alternative-taxation regime at EUR 100,000 a year on foreign income, conditioned on a qualifying Greek investment.[5] The United Kingdom’s four-year foreign income and gains regime, in force from 6 April 2025, exempts qualifying new residents from UK tax on foreign income and gains for their first four years, even where the funds are brought into the UK.[6] Switzerland’s lump-sum taxation and Monaco’s absence of personal income tax point the same way.[7]

For these investors the combination is efficient: Turkish growth assets held through a GSYF bear zero tax in Turkey on a holding of more than two years and a capped or nil charge at home. The timelines align, since the two-year Turkish holding needed to reach 0% sits within a four-year UK window or a fifteen-year Italian or Greek one. An investor taxed on a worldwide basis with ordinary credit relief, by contrast, shares more of the benefit with the home treasury, so the vehicle should be matched to the investor.

Treaty access

Treaty access turns on whether the fund is a “person” and a “resident” of Turkey, and both are satisfied. Article 3 of the OECD Model defines a person to include a company, and a company as any body corporate or any entity that is treated as a body corporate for tax purposes. A GSYF has no legal personality under Turkish private law, but that is not the test: Article 2 of the Corporate Income Tax Law deems the fund itself a capital company and a corporate taxpayer, charged to tax in its own name, which is what makes it a person. Residence follows from the same fact. Under Article 4 a person is a resident where it is liable to tax by reason of domicile, place of management or a similar criterion; the GSYF sits within the charge to Turkish corporate tax, and the exemption in Article 5(1)(d) operates inside that charge as a relief, not as a removal from the tax system. The Commentary on the OECD Model Tax Convention on Income and on Capital (2017), drawing on the OECD’s report on the granting of treaty benefits to the income of collective investment vehicles, treats a vehicle that is liable to tax but exempt as a resident where the exemption conditions are sufficiently stringent, and the venture capital, portfolio and regulatory conditions a GSYF must satisfy are precisely of that kind. The fund should accordingly be recognised as a person and a resident of Turkey.[8]

The structure’s value, however, lies elsewhere. The Turkish exemption and zero withholding tax rate after the two year holding period comes from domestic law, not from a treaty, so an investor whose home jurisdiction does not tax the return is unaffected even if a treaty partner resists the fund’s residence. Treaty status matters in the narrower case where the GSYF itself earns foreign-source income, dividends or interest on foreign holdings inside its portfolio, and seeks relief under a treaty between Turkey and the source state. There the fund’s standing as a person is not in doubt either, but its entitlement as a resident is not automatic: it turns on beneficial ownership of the income and on the anti-abuse rules now standard across the treaty network and the Multilateral Instrument, namely the principal purpose test, any limitation-on-benefits provision, and the OECD’s position that a collective investment vehicle obtains treaty benefits only where its treatment is substantially similar to direct investment by its investors. Where a structure invites a treaty-shopping objection, that assessment is necessarily made treaty by treaty rather than assumed.[9]

Mandate and conclusion

On mandate, at least 80% of the fund must be held in venture capital investments; a foreign company qualifies as a Turkish venture investment where at least 51% of its assets are participations in Turkish companies, and a majority foreign-held fund may extend its foreign holdings up to 100%.[10] The GSYF is a regulated incentive vehicle with substance requirements, not a conduit, and any cross-border use remains subject to the anti-abuse rules of the relevant treaty. Within those limits it pays no corporate tax, distributes free of withholding to a committed holder, and ranks as a treaty person and resident because it is a Turkish taxpayer. For an investor already outside the charge at home, it is an efficient and fully onshore route into Turkish growth investment.

Yusuf Gökhan Penezoğlu is a founding partner, and Ayşe Uzun Nurili, a Director, of Penezoğlu Law Firm in Istanbul. This article is for general information only and does not constitute legal or tax advice.

[1]Capital Markets Board, Communiqué on Principles Regarding Venture Capital Investment Funds, No. III-52.4, as amended (most recently by Communiqué No. III-52.4.c, Official Gazette, 21 September 2024).

[2]Corporate Income Tax Law No. 5520, Art. 5(1)(d) (exemption for the portfolio management earnings of Capital Markets Board-regulated investment funds).

[3]Income Tax Law No. 193, Provisional Art. 67; Presidential Decree No. 9487 (Official Gazette, 1 February 2025) and Presidential Decree No. 10041 (Official Gazette, 9 July 2025). Participation shares in a GSYF held more than two years remain at 0%; shorter holdings acquired on or after 9 July 2025 are taxed at 17.5%.

[4]Italy, Art. 24-bis of the Income Tax Code (TUIR); annual substitute charge raised from EUR 100,000 to EUR 200,000 with effect from August 2024 for new electors, available for up to 15 years.

[5]Greece, Art. 5A of the Income Tax Code; alternative taxation of the foreign-source income of new tax residents at a flat EUR 100,000 per year, subject to a qualifying investment in Greece.

[6]United Kingdom, foreign income and gains regime in force from 6 April 2025, replacing the remittance basis; relief for up to four tax years for individuals UK-resident after at least ten consecutive years of non-residence.

[7]Switzerland, expenditure-based (lump-sum) taxation under Art. 14 of the Federal Act on Direct Federal Taxation and corresponding cantonal law, available to qualifying non-employed foreign nationals; Monaco, no personal income tax on residents other than French nationals (1963 France-Monaco Convention).

[8]OECD, Model Tax Convention on Income and on Capital: Condensed Version (2017), Commentary on Article 1, paras 22-27 (in particular paras 24 and 26: a vehicle treated as a taxpayer is a person; a vehicle liable to tax but exempt is a resident where the exemption conditions are sufficiently stringent), and Commentary on Article 4, paras 8.11-8.12; OECD Committee on Fiscal Affairs, The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (23 April 2010), whose conclusions are reflected in those paragraphs; Corporate Income Tax Law No. 5520, Art. 2 (Capital Markets Board-regulated funds deemed capital companies and corporate taxpayers).

[9]On beneficial ownership, OECD Model Commentary on Article 10, paras 12 to 12.7, and on Article 11, paras 9 to 11. On the anti-abuse standards, Article 29 of the OECD Model (entitlement to benefits) and Article 7 of the Multilateral Instrument (the principal purpose test and the optional simplified limitation-on-benefits rule). On collective investment vehicles, OECD Committee on Fiscal Affairs, The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (23 April 2010), recommending treaty access on a basis substantially similar to direct investment by the underlying investors.

[10]Communiqué No. III-52.4, Art. 19 (minimum 80% venture capital investment), Art. 18 (foreign companies qualifying as Turkish venture investments where at least 51% of assets are participations in Turkish companies) and Art. 23 (graduated limits on foreign holdings).