Real estate investments made through real estate investment funds (REIFs) have gained prominence as an alternative method of real estate investing, thanks to professionally managed portfolios under a corporate structure, access to larger-scale investments for smaller investors, and significant tax advantages.
Real estate investment funds (REIFs) are regulated under the Capital Markets Board (CMB) Communiqué on Principles Regarding Real Estate Investment Funds (III-52.3), issued pursuant to Article 54 of Law No. 6362 on Capital Markets, and are subject to the supervision and oversight of the CMB. As defined in this communiqué, REIFs are asset pools (with no legal personality) that collect money from qualified investors in exchange for fund units, under the principles of fiduciary ownership, to manage a portfolio specified by the CMB on behalf of the unit holders. These funds may be established for a definite or indefinite period by portfolio management companies or real estate portfolio management companies. At least 80% of the total fund value must comprise real estate investments. Other permissible assets and transactions for the fund portfolio include—among others—shares of joint stock companies in Türkiye (including those under privatization), private and public debt instruments (both domestic and foreign, provided they can be traded under Decision No. 32 on the Protection of the Value of Turkish Currency), time deposits and participation accounts, mutual fund units, repo and reverse repo transactions, warrants and certificates, Takasbank money market transactions, cash collateral and premiums for derivative transactions, and other investment instruments deemed suitable by the Board.
Although these funds do not have legal personality, from a corporate tax perspective, Article 2 of the Corporate Tax Law counts funds under CMB regulation and supervision as joint-stock corporations (i.e., corporate taxpayers), meaning REIFs are among those subject to corporate tax.
However, under subparagraph (d)/(4) of the first paragraph of Article 5 of the Corporate Tax Law, REIFs (or partnerships) enjoy a corporate tax exemption on their profits—provided they are established primarily to manage a portfolio of real estate, real estate projects, or real estate–based rights. (Entities whose core activity does not fit this description are excluded from the exemption.)
Until and including the 2024 fiscal year, the REIF corporate tax exemption applied without any additional prerequisites. However, based on an amendment introduced by Article 32 of Law No. 7524, which took effect on August 2, 2024, and applies to income derived on or after January 1, 2025, REIFs must distribute at least 50% of the profit generated from the immovable properties they own as a dividend by the end of the second month following the month in which the corporate tax return for the period was due. If the fund fails to distribute this required portion within the specified period, any tax not levied in due time owing to the exemption will be treated as lost revenue, triggering a tax shortfall.
To What Extent Is Dividend Distribution Financially Feasible?
Starting with the 2025 fiscal year, the exemption on a REIF’s portfolio-management profit depends on distributing at least 50% of the profit from immovable properties by the end of the second month following the corporate tax filing deadline for the relevant tax period.
Under Article 27 of the Communiqué on Principles Regarding Real Estate Investment Funds (III-52.3), a fund may distribute dividends to fund unit holders in line with the terms set out in its fund issuance document.
Further, according to the same communiqué, REIFs must determine the fair value of the assets and rights in their portfolios (as well as their fair rental values) when preparing year-end valuations. These valuations must be completed by the last day of the relevant year at the latest. When an increase in the value of the fund’s portfolio arises, the “income” from this revaluation does not necessarily equate to actual cash proceeds. Thus, in periods where a large portion of the fund’s profit is attributable to revaluation, there may be challenges in making a cash dividend distribution.
Does the New Domestic Minimum Corporate Tax Regime Inevitably Require Paying Corporate Tax for REIFs?
While REIFs must distribute dividends to preserve their corporate tax exemption for portfolio-management profits, the same law (Article 36) also introduces a “domestic minimum corporate tax” for income earned in 2025 and thereafter.
Under this arrangement, starting in the 2025 tax year, the corporate tax calculated by applying the rate(s) set in Articles 32 and 32/A of the Corporate Tax Law cannot be less than 10% of the corporate profit before deductions or exemptions.
Furthermore, the article specifies which deductions or exemptions are excluded when calculating the minimum corporate tax base, listing the following items that cannot be subtracted from the corporate profit:
- Exemptions specified in subparagraphs (a), (ç), (i), (j), and (k) of the first paragraph of Article 5 of the Corporate Tax Law, as well as any income included under subparagraph (d) but excluding income from immovable property
- Deductions listed under subparagraphs (g) and (h) of the first paragraph of Article 10 of the Corporate Tax Law
- Income exempt from tax under Law No. 4490 on the Turkish International Ship Registry and the Amending Decree-Law No. 491, as well as income exempt from tax under Law No. 3218 on Free Zones
- Exemptions under Law No. 4691 and any R&D or design deductions eligible to be subtracted from the corporate tax base
Therefore, if a REIF distributes at least 50% of its profit from real estate as dividends, the portion of portfolio-management income exempt from corporate tax cannot be deducted from the minimum corporate tax base. Consequently, a minimum 10% domestic corporate tax will still apply. In other words, even if dividends are distributed, the fund will still incur corporate tax.
Nevertheless, new investors looking to form a REIF should bear in mind an important rule in the Corporate Tax Law. Article 32/C provides that, for entities starting operations for the first time, there is no domestic minimum corporate tax for the first three fiscal periods following the commencement of operations. Taking this into account, newly established REIFs that distribute at least 50% of their real estate income by the end of the second month after the filing deadline for the relevant corporate tax return could, in principle, pay no corporate tax for up to three years.
New Tax Rules for Investors, Too
- Individual Investors
Since real estate investment fund units are bought and sold through banks and brokerage houses, gains from the purchase and sale or from redemption of these fund units are subject to withholding under the first paragraph of Temporary Article 67 of the Income Tax Law. In a draft guide previously shared by the Revenue Administration regarding the taxation of investment funds and partnerships, as well as a private ruling dated December 15, 2020 (No. 62030549-120[Geç.67-2018/394]-E.934609), the Administration stated that in cases where investors do not redeem their real estate investment fund units, any dividends they receive are considered periodic income earned during the holding period and are subject to withholding under the first paragraph of Temporary Article 67 of Law No. 193.
Hence, unlike dividends distributed by other corporate taxpayers, dividends paid out by real estate investment funds are treated under paragraph (1) of Temporary Article 67 for withholding purposes.
Because this withholding is final for individual taxpayers, no further tax return is required, including for income from REIFs.
However, the applicable withholding rate can be somewhat complicated. Under Council of Ministers Decree No. 2006/10731, the initial withholding rate was set at 10% for individual taxpayers’ gains from investment funds covered by Temporary Article 67.
By Presidential Decree No. 3321, published in the Official Gazette on December 23, 2020, the withholding rate was temporarily reduced to 0% for income and gains derived from purchasing certain mutual fund units (excluding variable, mixed, eurobond, foreign borrowing, foreign, hedge funds, and funds containing foreign currency in their name) between December 23, 2020, and March 31, 2021. This reduction to 0% also extended to real estate investment funds.
Through subsequent Presidential Decrees, the 0% withholding rate was repeatedly extended for mutual fund units acquired between December 23, 2020, and April 30, 2024.
On May 1, 2024, a new Presidential Decree stipulated that the withholding rate would be 7.5% for fund units acquired between May 1, 2024, and July 31, 2024. Then, on August 1, 2024, another Presidential Decree extended the reduced withholding rate of 7.5% for Turkish Lira–denominated funds acquired from August 1, 2024, through October 31, 2024.
As of November 1, 2024, there has been no further extension of the reduced rate, so the general 10% withholding rate once again applies to any gains from Turkish Lira–denominated fund units acquired on or after November 1, 2024.
In summary, for individuals:
- 0% withholding applies to fund units acquired between December 23, 2020, and April 30, 2024.
- 7.5% withholding applies to fund units acquired between May 1, 2024, and October 31, 2024.
- 10% withholding applies to fund units acquired on or after November 1, 2024.
will be subject to withholding tax at the rate of .
Additionally, unlike other mutual funds, real estate investment funds and venture capital investment funds provide a reduced withholding if the units are held for more than two years. Under Presidential Decree No. 4454, published in the Official Gazette on September 4, 2021, if the units of a real estate investment fund or venture capital investment fund are held for more than two years, any gains are subject to a 0% withholding rate.
Thus, for the first two years following acquisition, gains are subject to the rates outlined above, based on the specific acquisition date.
After two years, all gains are subject to a 0% withholding rate. In this respect, real estate investment funds retain their appeal as an alternative real estate investment instrument for individual investors.
Corporate Investors
Just as for individuals, any income earned by corporate taxpayers from real estate investment funds is subject to withholding under the first paragraph of Temporary Article 67 of the Income Tax Law.
For joint stock companies, limited partnerships with share capital, and limited liability companies, the withholding rate is set at 0%. Since withholding is not the final taxation for resident corporate taxpayers, these gains must still be included in the corporate tax base and are therefore subject to corporate income tax.
One exception pertains to TL mutual fund units (free from foreign currency instruments, gold, other precious metals, and capital market instruments indexed to these) acquired by full taxpayer entities prior to July 15, 2023. Dividends and redemption gains from these fund units can be exempt from corporate tax altogether, provided the units were held for at least two years. Regarding the sale of these fund units to third parties (after two years on the company’s books), 75% of the gain was exempt from corporate tax—though this rate was reduced to 50% for sales made on or after November 27, 2024.
A second exception applies to dividends distributed by REIFs that, due to failing the dividend distribution requirement, can no longer claim the corporate tax exemption on portfolio-management profits for income earned on or after January 1, 2025.
In such cases, the dividends they distribute to corporate investors may be exempt from corporate tax. Put differently, if the REIF itself does not benefit from the exemption, the distributed dividends may be tax-exempt for the recipient corporation.
Final Thoughts
Owing to the amendments introduced by Law No. 7524—which revised corporate tax exemptions—and by various Presidential Decrees that changed withholding rates under Temporary Article 67 of the Income Tax Law, 2025 will require careful consideration, additional calculations, and multiple scenario analyses for real estate investment funds and their investors alike.
Despite these regulatory changes, real estate investment funds that deliver sustainable, long-term returns appear likely to maintain their appeal for investors who understand the new rules and position themselves accordingly.
Best regards,
Melike Kılınç, Sworn-in Certified Public Accountant
Managing Partner