Republic of Türkiye
Elazığ Governorship
Directorate of Revenue
Date: August 14, 2024
No: E-48816587-130-…
Subject: Tax Status of Intellectual Property, Industrial Property, and Inventions in Technology Development Zones
In the attached special request form;
- It has been stated that the invention titled “…” developed by academics under the university umbrella is planned to be commercialized through … within your company, as per the intellectual and industrial property rights published by the mentioned University.
- It is specified that the sales of the intellectual, industrial, and inventions will be made by your company, and after deducting the expenses, the income will be recorded as %… for the idea or inventor, %… for Fırat University, and %… for your company.
During this sharing;
- Questions have been raised regarding whether VAT will be applied to the amount for which an invoice will be issued …, and if applicable, what the rate will be.
- It is also questioned whether withholding tax will be deducted during income distribution, and if so, what the rate will be.
- Additionally, it has been requested to determine whether the corporate income obtained from these transactions will be subject to corporate tax exemption.
EVALUATION ACCORDING TO CORPORATE TAX LAW
According to Article 5/B of the Corporate Tax Law No. 5520, titled “Exemption in Industrial Property Rights”:
“(1) The inventions arising from research, development, and innovation activities, as well as software activities carried out in Turkey, are exempt from corporate tax as follows:
a) The income and earnings obtained from leasing;
b) The income obtained from the transfer or sale;
c) The income obtained from marketing through mass production in Turkey;
ç) The income obtained from the sales of products produced as a result of the use of these inventions in the production process in Turkey, attributable to the patented or utility model documented inventions, are 50% exempt from corporate tax. This exemption also applies to income obtained due to the infringement of rights related to the invention and to insurance or other compensations received due to the invention.”
To benefit from the exemption;
a) The invention subject to the exemption must be among those protected by a patent or utility model document under the Decree Law No. 551 of June 24, 1995, or the Industrial Property Law No. 6769 of December 22, 2016, and must have been obtained through a substantive examination system with a patent or utility model document;
b) Individuals who can benefit from the exemption must possess the qualifications specified in Article 2 of the Decree Law No. 551 or Article 3 of Law No. 6769 and must have the authority to develop the patented or utility model documented invention, either as the owner of the patent or utility model document or as someone holding a monopoly-like special license on the patent or utility model document.
In accordance with the provision …”
On the other hand, detailed explanations regarding the subject are provided in the General Communiqué on Corporate Tax No. 1, particularly in the section titled “5.14.1. Scope of Income and Earnings Obtained from Industrial Property Rights”:
“This exemption applies to:
- Patent granted by the Turkish Patent Institute (TPE) through a substantive examination system,
- Utility model document granted by TPE as a result of a positive research report,
- Leasing the invention subject to the patent or utility model document through exclusive or non-exclusive licensing agreements to real or legal persons domestically or abroad for a certain period,
- Transfer or sale of the invention subject to the patent or utility model document to real or legal persons domestically or abroad for a fee,
- Marketing of exclusively produced products under the patent or utility model document in Turkey and offered for sale to real or legal persons domestically or abroad,
- Use in the production process, whereby the invention is utilized in the production of products manufactured in Turkey.”
The fundamental condition for the application of this exemption is that the research, development, and innovation activities and software activities related to the earnings and income must be conducted in Turkey.
Income obtained due to the infringement of rights related to the invention and insurance or other compensations received due to the invention are also included in the exemption scope.
In the section titled “5.14.2. Beneficiaries of the Exemption,” it states, “This exemption will be available for both corporate tax payers and income tax payers.”
According to these provisions and explanations, it is possible to benefit from the exemption in industrial property rights if the conditions described above are met. The individuals who can benefit from this exemption must possess the qualifications specified in Article 2 of the Decree Law No. 551 or Article 3 of Law No. 6769 and must have the authority to develop the patented or utility model documented invention.
Consequently, if the invention carried out by the academics is commercialized, as stipulated in the “Intellectual and Industrial Property Rights, Commercialization Guidelines” published by the mentioned University, through … within your company, it is not possible for your company to benefit from the exemption in industrial property rights on the income obtained from such sales.
EVALUATION ACCORDING TO INCOME TAX LAW
According to Article 61 of the Income Tax Law No. 193, titled “Definition of Salary,” it states, “Salary refers to the money and goods provided as compensation for services rendered by employees working under the employer and bound to a specific workplace, and benefits that can be represented in money.”
It is also stated in Article 62, titled “Definition of Employer,” that “Employers are real and legal persons who hire employees and direct them through orders and instructions.”
According to Article 65, titled “Definition of Professional Income,” “Professional activities are those performed personally under individual responsibility without being subject to an employer, based on personal effort, scientific or professional knowledge, or expertise.”
Furthermore, Article 94, titled “Withholding Tax,” states that public administrations and institutions, economic public enterprises, other institutions, commercial companies, partnerships, associations, foundations, the economic enterprises of associations and foundations, cooperatives, fund managers, and other individuals required to declare their actual income must withhold taxes on payments made as outlined in the following clauses (including advance payments).
The provisions regarding the payments made to employees for services are covered in Article 61, and those classified as salary payments (except for those benefiting from the exemption) are subject to Articles 103 and 104.
Additionally, in Article 32 of the Higher Education Law No. 2547, titled “Technology Transfer Office,” it states that “Higher education institutions may establish a technology transfer office in the form of a capital company with the decision of the higher education institution’s board, subject to prior permission from the Higher Education Council, to collaborate with public and private sectors regarding R&D and innovation, protect the produced knowledge and inventions under intellectual property, and implement them.”
The office’s startup capital may be covered by scientific research project funds or revolving capital revenues. Employees may be hired in the office under the Labor Law No. 4857, and foreign personnel may also be employed within the framework of the International Labor Law No. 6735 and relevant legislation. Faculty members may work part-time or full-time as needed for office activities, with their earnings not required to be deposited into the university’s revolving fund. They also will not receive additional payments from their universities.
According to these provisions and explanations, there are no provisions for exemptions in the legislation concerning the payments made to faculty members for their inventions, and thus, it is not possible to exempt these payments from income tax.
Therefore, payments made to faculty members for the inventions they realize independently of the university’s structure should be considered professional income under Article 65 of Law No. 193 and subjected to withholding tax as per the first paragraph of Article 94(2) of the same law.
EVALUATION ACCORDING TO VALUE ADDED TAX LAW
According to Article 1 of the Value Added Tax (VAT) Law No. 3065, it is stated that deliveries and services performed within the framework of commercial, industrial, agricultural activities, and freelance professions in Turkey are subject to VAT.
In Article 17/4-z, it is stipulated that leasing, transferring, or selling intangible rights related to patented or utility model documented inventions arising from research, development, innovation, and software activities under Article 5/B of the Corporate Tax Law No. 5520 is exempt from VAT.
In the section titled “Leasing, Transferring, or Selling Intangible Rights Related to Patented or Utility Model Documented Inventions” of the VAT General Implementation Communiqué (II/F-4.22), it states:
“According to Article 17/4-z of Law No. 3065, leasing, transferring, or selling intangible rights related to patented or utility model documented inventions arising from research, development, innovation, and software activities under Article 5/B of the Corporate Tax Law No. 5520 is exempt from VAT…”
Source: Revenue Administration
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