Turkish tax law has been changed to include measures to protect the Turkish lira's value and a recent tax amnesty for the repatriation of foreign assets.
New withholding tax rates on savings
Turkey has recently faced currency problems, and the lira has been devalued by more than 40% against the US dollar since the beginning of the year.
The lira's weakness has led the government to introduce new monetary and fiscal policies, including recently issuing a presidential decree to counter lira volatility.
The decree introduced a temporary tax regulation on lira and foreign currency savings, the aim of which was to reduce lira fluctuations and create a stable investment environment in Turkey.
The regulation is applicable for three months from August 31 2018, and will allow interest and profit sharing to be paid to accounts which are opened or renewed in the next three months.
Accordingly, withholding tax rates applicable for the three-month period are shown in Table 1 alongside the previous ones.
Table 1 |
|||
Account Type |
Term |
Previous Ratio |
New Ratio |
Foreign Exchange Deposits and Foreign Exchange Participation Accounts |
Drawing and current call accounts and up to 6 months deposit accounts |
18% |
20% |
Up to 1-year deposit accounts |
15% |
16% |
|
More than 1-year deposit accounts |
13% |
13% |
|
Turkish Lira Deposits and Turkish Lira Participation Accounts |
Drawing and current call accounts and up to 6 months deposit accounts |
15% |
5% |
Up to 1-year deposit accounts |
5% |
3% |
|
More than 1-year deposit accounts |
12% |
0% |
|
The table shows a considerable decrease in withholding rates on lira deposits and participation accounts. Particularly for funds held in savings accounts for more than a year, no withholding tax is applicable. This clearly indicates that the government supports long-term lira savings with its tax policy.
Amendment of recent tax amnesty
Turkey has introduced a new tax amnesty law (No. 7143) for the repatriation of foreign assets. One important aspect of the amnesty is that it allows tax exemption for the following incomes of individual and corporate income taxpayers (including those obtained before October 30 2018):
Income from the alienation of foreign participation shares;
Income from foreign participation;
Income from subsidiaries and permanent establishments.
This exemption also includes income from liquidation of foreign entities by individual and corporate income taxpayers.
The single requirement to benefit from the amnesty programme is to transfer this income to Turkey by December 31 2018 (the start date was May 18 2018).
The president is authorised to extend these dates for six months under the tax amnesty law, and he has used this authorisation.
Accordingly, income from: (i) the alienation of foreign participation shares; (ii) foreign participation; (iii) subsidiaries and permanent establishments including that received by April 30 2019; and (iv) income from the liquidation of foreign entities, including that obtained by June 30 2019, will be tax-exempt provided that it is transferred to Turkey by June 30 2019.
