How will taxation of investment-receiving enterprises affect entrepreneurs?

Hande Berkan

The additional tax decision that will affect the enterprises that received investment and received emission premiums last year was published in the Official Gazette. Enterprises that receive investment in 2022 with an emission premium will pay 10 percent tax.

Investors and entrepreneurs are of the opinion that the new additional tax, which was introduced with the ‘Law on the Restructuring of Certain Receivables and Amendments to Certain Laws’ published in the Official Gazette, and which the investment-receiving enterprises will also be liable to pay, will have negative effects on Turkey’s ventures and investments.

Entrepreneurs and investors of the technology world evaluated the effects of the new tax on the entrepreneurship ecosystem for Bloomberg HT.

“Unexpected tax regulations make foreign investors uneasy”

Finberg Board Member and investor İhsan Elgin said that unforeseen and sudden taxes always harm the entrepreneurial ecosystem. İhsan Elgin said, “I don’t think it was realized when this decision was taken that it would harm the entrepreneurship world so much. It is not a strategically correct move to tax the capital that the entrepreneurial ecosystem, which has been making efforts to grow for years, will use to compete and grow in regional competition by the startups that have received a small number of investments. Because it’s not an income. In any case, newly established enterprises are not even profit-making structures in the first place. Such unexpected arrangements always make foreign investors uneasy. Because a certain percentage of the amount you invest suddenly leaves the budget of the enterprise and goes to tax. Unforeseen developments do not give confidence to the markets,” he said.

“Taxes cause start-ups to relocate their headquarters to investor-friendly countries”

Entrepreneur Serdar Urçar, CEO of Comodif and Member of the Board of Directors of TUBISAD, expressed his concern that the 10 percent tax imposed on enterprises that receive investment may shift the headquarters of start-ups to countries in Europe that provide attractive conditions for entrepreneurs. Urçar, CEO of Comodif, said, “This additional tax will have negative effects on start-ups and scale-ups that are in the early stage, that is, receiving pre-core investments. This tax could shorten the life of invested, start-up technology companies. Because after the investment is received, some of this money is spent on human resources, some on marketing and an important part on product development. This tax, introduced today, will disrupt the operations of investment-receiving enterprises. This taxation is a decision that will make it difficult for the startups that will go on the investment tour to get investment at the same time,” he said.

Serdar Urçar “This taxation causes start-ups to move their headquarters from Turkey to countries that offer start-up friendly, attractive and flexible conditions such as the Netherlands, England, Germany, Estonia and Malta. The said additional tax application may increase the demands for establishing a company abroad. Taxation will be a factor that negatively affects the entrepreneurship ecosystem in Turkey,” he warned.

“This tax error must be corrected to make companies sustainable”

Turkish Informatics Foundation and Boğaziçi Ventures Board Member Barış Özistek said that some enterprises do not even have the cash to pay this tax, so there will be serious grievances, and the company founders and board members will face tax penalties. Barış Özistek, on taxation, said: “Unfortunately, the issue of 10 percent tax on emission premiums is a decision that deeply hurts the Turkish entrepreneurial ecosystem and causes long-term damage. What we call emission premium is actually capital. With this decision, tax is levied on the capital. Technology startups will be adversely affected by this situation. Enterprises that receive investments in their companies from Turkey and abroad, develop technology, and naturally transfer the investments they receive without generating any income in this process to the teams they employ to develop technology, are faced with paying a significant portion of the money left in their vaults as taxes. Some enterprises do not have the cash to pay this tax, so there will be serious grievances and the founders and board members of the company will face tax penalties,” he said.

“It will be harder to keep technology startups in Turkey”

Explaining the subject by exemplifying, Özistek said, “When an enterprise pays 10 percent of its investment as tax, it actually means that the life expectancy of 5 months decreases to 3 months. As Turkish Informatics Foundation, TÜBİSAD, TÜSİAD and Entrepreneurship Foundation, we have expressed the issue with examples in different environments, and even drew attention to the sensitivity of the issue with a joint press release from TBV and TÜSİAD. The biggest concern expressed was that investors would be hesitant to invest in technology companies in Turkey after the capital tax was levied, and they would insist that Turkish companies move abroad. It is very easy to establish or move technology startups abroad. It may be very difficult for us to keep these companies in Turkey after this tax. As a result of long years of efforts and incentives provided by the state, we may lose the IT exports that exceed billions of dollars. Personally, I do not think that the purpose of the tax is to be a tax on the investment that comes to the enterprises, that is, on the capital. This mistake will definitely be corrected, otherwise it is inevitable that the development of technology startups and investment ecosystem will stop or even regress. We can hear about companies that went bankrupt due to taxes, could not pay their salaries or moved their companies abroad in a hurry, and I am sure that a solution will be found before such a thing happens.” warned.

The finalized new tax will be paid in two steps this year. As a result of this decision, which binds all enterprises, regardless of profit or loss, the tax will be paid in equal installments in April and August.