What is Investment Fund ?
An investment fund is an entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish
Conditions for Exemption from Corporate Tax:
a) Main Business Activities: The primary activities of the investment fund should be related to investment business activities. Any other business or activities conducted by the fund should be ancillary or incidental, meaning they should be secondary to the main investment activities.
b) Ownership Limits: To qualify for tax exemption, a single
investor, along with its related parties, must not own more than a certain
percentage of the ownership interests in the investment fund.
The ownership limits are as follows:
If the investment fund has less than ten investors, no
single investor or related parties can own more than 30% of the ownership
If the investment fund has ten or more investors, no single
investor or related parties can own more than 50% of the ownership interests.
c) Qualified Investment Manager: The investment fund must be managed or advised by an Investment Manager that employs a minimum of three investment professionals. This requirement ensures that the fund is managed by professionals with expertise in investment matters.
d) Investor Control: The investors in the fund should not have control over the day-to-day management of the investment fund. The fund should be managed by the Investment Manager independently.
Attribution of Business Activities: If the investment fund is managed by a resident Investment Manager, the Taxable Income of the Investment Manager will be adjusted to include the income attributed to the investment fund. This adjustment is done in accordance with Article (20) of the Corporate Tax Law.
Ancillary or Incidental Activities: The other business or activities conducted by the investment fund will be considered ancillary or incidental if their combined revenue does not exceed 5% of the total revenue of the investment fund in the same financial year. This means that any additional business activities should be relatively minor compared to the main investment activities.
Transition Period for Ownership Conditions: The investment fund can be considered to have met the ownership interests conditions in the first two financial years of its establishment if there is sufficient evidence to demonstrate the investors' intention to meet these conditions after the initial two years. The Authority determines this intention.
Consequences of Not Meeting Conditions: If the investment fund does not meet the specified conditions, it will cease to be treated as an exempt person from the beginning of the third financial year of its establishment. This means that the fund will no longer be eligible for tax exemption and will be subject to corporate tax like any other business entity.
These conditions aim to ensure that investment funds
primarily engage in investment activities, have diverse ownership, and are
professionally managed to qualify for tax exemption.