Taxation of Real Estate Investment Funds (REIFs)
1. Status of REIFs vis-à-vis Corporate Tax
5Article 2 of the Corporate Tax Law No. 520 stipulates that funds subject to the regulation and supervision of the Capital Markets Board and foreign funds similar to these funds shall be considered as capital companies. In this respect, funds are corporate taxpayers. However, Article 5/1-d-4 of the aforementioned Law exempts the earnings of real estate investment funds from corporate tax. Accordingly, REIFs will not pay tax on corporate income.
On the other hand, with the parenthetical provision added to the aforementioned article by Law No. 7394 to be applied to the corporate income of the taxation period of 2023, the GYFs established to operate a portfolio consisting of real estate, real estate projects and real estate based rights as their main activity are excluded from the scope of the exemption.
Justification of the regulation infrastructure investments and services It is mentioned that those who operate a portfolio are excluded from the exemption. However, this is not clear from the wording. In addition, the effective article of Law No. 7394 stipulates that the said regulation has been introduced to be applied to the corporate earnings of the taxation period of 2023.
In this case, it is assessed that the GIFs operating a portfolio of infrastructure investments and services will definitely be able to benefit from the said exemption in 2024 and beyond. However, based on the rationale of the regulation, it should be taken into consideration that the text of the article regarding the exemption may be amended to exclude FIFs operating a portfolio of infrastructure investments and services from the scope of the exemption indefinitely.
2. Status of holders of the GYF Participation Certificate
2.1 Corporate Taxpayers
Corporate taxpayers may trade or receive dividends from GYF participation certificates.
The exemption in Article 5/1-a-4 of the KVK, which was granted to the dividends received by the institutions from the participation shares of other mutual funds subject to full liability and the income arising from the return of the participation shares to the fund, was repealed by Law No. 7456. Accordingly, corporate tax exemption will not be applied to the dividends received by the corporations from REIFs and the income arising from the return of the participation shares to the fund.
On the other hand, the phrase “75% of the gains arising from the sale of participation shares of investment funds that constitute the source of exempt gains within the scope of subparagraph (a) of this paragraph” in Article 5/1-e of the KVK is no longer applicable for real estate investment funds. As stated above, since the exemption for real estate investment funds is no longer in force, the 75% corporate tax exemption will not be applicable to the gains derived from the sale of participation certificates of these funds held for more than two years.
Finally, according to the provisional Article 67 of the Income Tax Law, the withholding tax rate to be applied to corporate taxpayers’ earnings from GYF participation certificates is 0%.
2.2 Natural Persons
For real persons, earnings from REIFs will be evaluated within the scope of the provisional Article 67 of the Income Tax Law. For these persons, 0% withholding tax will be applied in the event that real estate investment fund participation shares held for more than two years are disposed of or dividends are distributed. Otherwise, a withholding tax rate of 10% applies.
Withholding tax is a final tax for real persons. There is no need to submit a separate declaration for these incomes.
2.3 Temporary Arrangement
According to the provisional article 3 of the Decree No. 2006/10731, which determines some withholding tax rates in the provisional article 67, 0% withholding tax will be applied to the income and gains from mutual funds (except for variable, mixed, eurobond, foreign borrowing, foreign, hedge funds and mutual funds with the expression “foreign currency” in their title) acquired until 31/12/2023.
For this reason, especially for real persons, withholding tax to be withheld for the GYF participation shares to be acquired until this date will not matter whether the shares are held or not.
3. Situation of the SIFs vis-à-vis VAT
Article 1 of the Value Added Tax Law No. 3065 stipulates that deliveries and services made within the framework of commercial, industrial, agricultural and self-employment activities in Turkey are subject to VAT.
Since there is no exemption recognized in the aforementioned Law regarding the transactions of GYFs, VAT will be applied on their transactions.
4. Stamp Duty Status of REIFs
Article 1 of the Stamp Tax Law No. 488 stipulates that documents that are written and signed or signed with a signature or a signature substitute and that can be submitted to prove or specify any matter, and documents created in magnetic media and electronic data form by using electronic signature are subject to stamp tax.
The papers exempted from stamp duty are listed in Annex (2) of the Law. In the 21st row of the “IV-Papers related to commercial and civil affairs” section of the aforementioned annex, it is stated that real estate investment funds purchase and sale agreements exclusively related to real estate portfolios and real estate sales promise agreements exempted from stamp tax.
Sincerely,
BİLGENER
