Advantages of Capital-In-Kind Method in Terms of Real Estate Investment

Pursuant to Article 127 of the Turkish Commercial Code No. 6102 (“TCC”), any type of immovable property may be contributed as capital. Can immovables contributed as capital-in-kind be considered an investment instrument in joint-stock companies?

Firstly, pursuant to Articles 127 and 342 of the TCC, all kinds of immovable property that are not subject to limited real rights in rem, attachment, or injunction may be contributed as capital-in-kind to joint-stock companies. For this purpose, pursuant to Article 343 of the TCC, the relevant immovable property must be appraised by the court through experts, and this appraisal must be approved by the court. Upon the registration of incorporation or capital increase, the trade registry director shall immediately and ex officio notify the relevant land registry for registration (TCC Art. 128/6). In this context, there is no need to comply with the official form for contributing immovables as capital; the provisions of the articles of association are valid without requiring an official form (TCC Art. 128/3). Therefore, during this procedure, no transaction will be carried out at the trade registry, and no fee will be paid.

Secondly, in Turkey, due to disputes arising from joint ownership and inheritance law, the value of many immovable properties is significantly reduced, leaving them idle. At this point, the capital-in-kind method, together with appropriate corporate law mechanisms, could ensure that immovables that need to coexist in terms of their strategic value and effective use are gathered under the umbrella of a single company. This approach would enable management with significantly less impact from disputes between joint owners and heirs.

Finally, when transferring immovable properties contributed as capital-in-kind to a new investor, instead of transferring the immovable properties one by one with an official deed by paying a title deed fee of 4% of the transfer price (as required under the current legislation), the shares could be transferred in writing without incurring any fee. Furthermore, according to the Income Tax Law No. 193, to avoid paying income tax on the value appreciation gain from the disposal of immovable properties, it is necessary to wait five (5) years from the date of acquisition. However, if the relevant shares are bonded and two (2) years have elapsed from the date of acquisition of the shares, no income tax is collected from the taxpayer as a value appreciation gain on the disposal of the relevant shares. For taxpayers subject to the Corporate Tax Law No. 5520, the provision exempting 50% of the gain from corporate tax upon the disposal of immovable properties after two (2) years was abolished by Law No. 7456 dated July 15, 2023. Nevertheless, 75% of the gain is exempt from corporate tax if two years have passed since the acquisition date of the relevant shares.

In conclusion, the capital-in-kind method may provide advantages to the investor in terms of operational management of immovable property investments under a single umbrella, mitigating the impact of disputes between joint owners and heirs, and facilitating the transfer of immovable property to new investors. However, it cannot be said that this method will be advantageous for the investor under all circumstances and conditions, and a tailored assessment should be made for each specific case.