Under Article 5/1-e of the Turkish Corporate Tax Law (Law No. 5520), corporations may benefit from a partial corporate income tax exemption on gains derived from the sale of certain assets held in their balance sheet for at least two full years. The regulation aims to support corporate restructuring, enhance liquidity, and facilitate capital strengthening through asset disposals. However, the scope of the exemption has been significantly amended as of 15 July 2023, particularly with respect to real estate sales.
Legal Basis
This exemption is regulated under Article 5/1-e of the Corporate Tax Law No. 5520, as amended by Law No. 7456 (published in the Official Gazette dated 15 July 2023).
Holding Period Requirement
The asset must have been held in the company’s balance sheet for at least two full years (730 days) prior to the sale.
Exemption Rates (Current Framework)
1. Participation Shares, Founders’ Shares, Redeemed Shares, Pre-emptive Rights, and Venture Capital Fund Units
75% of the gain derived from the sale of these qualifying assets is exempt from corporate income tax.
This rate remains valid under current legislation.
2. Real Estate Sales (Critical Update)
The exemption regime for real estate has changed:
- For real estate acquired before 15 July 2023 →
25% of the gain is exempt from corporate income tax. - For real estate acquired on or after 15 July 2023 →
❌ No corporate tax exemption applies.
The previous 50% exemption has been abolished.
Additional Conditions
Genuine Sale Requirement
The transaction must constitute a real and completed transfer. Artificial or intra-group transfers lacking economic substance may be challenged by the tax authorities.
Registration Requirement
For real estate, the property must be registered in the company’s name in the land registry.
Reserve Account Requirement
The exempt portion of the gain must:
- Be recorded in a special reserve account in the equity section,
- Remain in that account for five years,
- Not be distributed (except for capital increase purposes).
Failure to comply may trigger retroactive taxation.
Special Situations
- For incomplete constructions, only the portion of the gain attributable to land qualifies under transitional rules.
- If the reserve is withdrawn or distributed within five years (other than capitalisation), the exemption is lost.
Illustrative Examples
A company sells participation shares held for more than two years and generates a gain of TRY 4,000,000 →
75% (TRY 3,000,000) is exempt; 25% is taxable.
A company sells a real estate property acquired in 2022 with a gain of TRY 10,000,000 →
25% (TRY 2,500,000) is exempt; 75% is taxable.
A real estate property acquired in 2024 and sold after two years →
No exemption applies.
Strategic Considerations
The real estate exemption has been substantially narrowed, while participation share exemptions remain a powerful restructuring tool.
Therefore, asset acquisition dates, holding periods, and transaction structuring must be carefully reviewed before disposal.
Professional Advisory Note
The application of Article 5/1-e requires a detailed assessment of acquisition dates, asset classification, holding periods, reserve account compliance, and transaction structuring. Incorrect application may lead to loss of the exemption and retroactive corporate tax exposure, including penalties and late payment interest.
Under the current legal framework, gains derived from the sale of participation shares, founders’ or redeemed shares, pre-emptive rights, and venture capital investment fund units remain 75% exempt, provided that the statutory conditions are met.
For real estate, however, the exemption has been significantly narrowed. For properties acquired before 15 July 2023, only 25% of the gain qualifies for exemption, while no exemption applies to real estate acquired thereafter.
This regulation is designed to support companies in strengthening their capital structure and improving liquidity through the disposal of long-term assets; however, its practical implementation requires careful planning and technical review.
At ÖzbekCPA, we assist corporations in evaluating eligibility under Article 5/1-e, structuring asset disposals, managing reserve account requirements, and ensuring full compliance with Turkish corporate tax legislation and established administrative practice.
For professional advice on corporate tax exemptions, asset sales, and capital restructuring in Turkey, contact ÖzbekCPA.
