Foundations have played a major role in order to increase aid and solidarity in society for centuries. Today, foundations support the public service obligation as one of the leading non-governmental organizations.

In this context, after the audits made by the public authorities, the tax exemption granted to foundations increases their credibility in society. Therefore, society will provide more aid and donations to foundations with increased credibility. Therefore, these foundations, which are subject to audits, may reach more people in society.

In addition, for foundations to gain the status of collecting aid without permission, they should be granted tax exemption. Therefore, the tax exemption issue is of particular importance today. In this context, the application for tax exemption for foundations, the post-application period, and the obligations that foundations should comply with after obtaining tax exemption are summarized in this article.

I. Tax Exemption Application

Pursuant to Article 20 of the Law on the Amendment of Certain Laws and Granting Tax Exemption to Foundations ("Law"), the President may grant tax exemption to foundations which meet the necessary conditions. It is stated that in the Law, the conditions, procedures and principles regarding the benefit and loss of tax exemption shall be determined by the Ministry of Treasury and Finance.

In this context, the General Communiqué on Granting Tax Exemption to Foundations ("Communiqué") has been issued in 2007. Pursuant to the Communiqué, detailed regulations have been made regarding the granting of tax exemption to foundations by the President.

Pursuant to the Communiqué, foundations that meet the following conditions apply to the Ministry of Treasury and Finance for tax exemption with the necessary documents specified in the Communiqué.

II. Conditions of the Tax Exemption

1. Subject of Activity: Pursuant to Article 1.1 of the Communiqué, the subject of activity of the foundation to be granted tax exemption has been regulated, accordingly:

  • The foundation should aim to carry out activities in the fields of health, social assistance, education, scientific research and development, culture, environmental protection, and afforestation. The subject of activity of the foundation may be related to one or more of these.
  • These activities of the foundation that will request tax exemption should be open to the public and should be at a level that will reduce the public service burden of the state.
  • It is not possible to grant tax exemption to foundations that purpose to serve a certain region or a community.

The official deed of the foundation that will apply for tax exemption on the above-mentioned issues should be examined and its compliance should be checked.

2. Term of Activity: Pursuant to Article 1.2 of the Communiqué, foundations should have been active for at least 1 year from the date of their establishment before applying for tax exemption.

However, it is regulated in the Communiqué that foundations whose assets and income amount exceed 2 times the limits valid for the year in which the application is made may operate for a minimum of 6 months instead of the requirement of being in operation for at least 1 year in their applications for tax exemption.

3. Bookkeeping: Pursuant to Article 1.3 of the Communiqué, the regulations regarding the bookkeeping of foundations to be granted tax exemption are as follows:

  • They are required to keep books on a balance sheet basis.
  • According to the provisions of the Tax Procedure Law No. 213, the books required to be kept by first class trader should be certified and used within the specified periods.
  • Accounting records should comply with the Accounting System Implementation General Communiqués.
  • If there are economic enterprises belonging to the foundation, they are required to have separate books certified for them as well, and they are required to follow the accounting records of the foundation and the economic enterprise separately in a way to prevent confusion with each other.

4. Assets and Annual Income: Pursuant to Article 1.4 of the Communiqué and in accordance with the revaluation rate for 2023, foundations requesting tax exemption should have at least TRY 5,686,000.00 of income-generating assets and at least TRY 512,000.00 of annual income at the date of the tax exemption request. This amount is re-determined every year in accordance with the provisions of the Tax Procedure Law.

It is important to note that in the determination of annual income, aid from the budgets of general and special budget administrations and income in the form of donations are not taken into account.

5. Income Spending: Pursuant to Article 1.5 of the Communiqué, it should be stated in the official deed of the foundation that the at least two thirds of the gross incomes that provided in the year should be used in purpose of health, social assistance, education, scientific research and development, culture, environmental protection, and afforestation and this condition should be complied with in last year or average of last two years.

The yearly gross income to be taken into account in fulfilling the spending conditions refers to all incomes of the foundation includes but not limited to donations and incomes provided from the commercial enterprises of the foundation.

III. Evaluation After the Application

  1. Preliminary Examination: A preliminary examination will be conducted in order to determine whether the fulfillment of the above conditions by the foundation on the documents.
  2. Obtaining the Appropriate Opinion: After the preliminary examination section, the appropriate opinion will be obtained from the General Directive of Foundations and other public institutions, if necessary, on whether the foundation will be granted tax exemption.
  3. Audit: After obtaining the appropriate opinion or determination that there is no objection to granting tax exemption to the foundation, the activities and accounts of the foundation will be audited by the Ministry of Treasury and Finance.
  4. Letter of Positive Opinion: In the event that the foundation obtained positive opinion as a result of the audit conducted by Ministry of Treasury and Finance, the report, official deed of the foundation and application petition will be sent to the President for taking resolution of tax exemption by the President.

IV. The Obligations of the Tax Exempted Granted to Foundations

  1. Obtaining Permission for the Official Deed Amendment: In the event that he management of the foundation plans to amend the official deed of foundation, the management should take prior permission from the Ministry of Treasury and Finance before the amendment.
  2. Submission of Finance Tables and Reports: The tax exempted foundation should send the copies of balance sheets and income statement tables prepared end of the period, and the exact budged refers the results of the one-year activities, annual activity reports, certification report prepared by sworn accountant to the Ministry of Treasury and Finance within 3 months of each year.
  3. Establishment of a Fund: The tax exempted foundation should spend two thirds of its annual income in the year in which it is generated.

V. Revocation of the Tax Exemption

The Communiqué regulates tax exemption of the foundations may be revoked under certain conditions. In this scope, in the event that determining of the following issues at the end of the examinations and audits made by the Ministry of Treasury and Finance, the Ministry of Treasury and Finance will request explanation from the foundation regarding to the issue. In the event that the foundation does not make any explanation, make an insufficient explanation or repeat the act, the President may revoke the tax exemption of the foundation.

  • Failure of the foundation to comply with legal obligations.
  • The foundation makes an activity other than the purposes of health, social assistance, education, scientific research and development, culture and environmental protection and afforestation as written in the official deed.
  • It is not possible to realize the purposes written in the official deed, considering the activities of the foundation in recent years.
  • Failure to fulfill the obligations in the official deed of the foundation.

VI. Tax Exemption Areas

In the Communiqué, the laws and related transactions within the scope of exemption are specified for foundations granted tax exemption, accordingly, in accordance with the current legislation, exemption is granted within the scope of the following laws:

  • These foundations will benefit from value added tax exemption for their deliveries and services falling within the scope of paragraphs 1 and 2 of Article 17 of the Value Added Tax Law No. 3065.
  • These foundations will benefit from the exemption of inheritance and transfer tax for the transfer of the properties allocated to these foundations for their establishment or after their establishment, according to subparagraph (k) of Article 4 of the Inheritance and Transfer Tax Law No. 7338.
  • These foundations will benefit from the exemption of fees for the transactions requiring registration and annotation of the real estates and other real rights to be acquired by these foundations and for the transactions requiring registration and annotation of the real estates and other real rights to be acquired by these foundations and for the transactions requiring registration and annotation of the real estates and other real rights to be acquired by these foundations and for the abandonment thereof, according to subparagraph (b) of Article 59 of the Fees Law No. 492.
  • These foundations will benefit from real estate tax exemption for the buildings belonging to the foundation, provided that they are not rented out and are allocated to the purposes written in the official deed, according to paragraph (m) of Article 4 of the Real Estate Tax Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.