Beneficial owners – Turkey
The following types of beneficial owner are recognised for tax purposes in Turkey:
Debt securities:
Gold based government bonds and gold-based lease certificates
Beneficial owner | Withholding Tax Rate | Capital Gain Tax Rate |
All beneficial owner types (No withholding tax is deducted on interest or capital gains from such securities held in Clearstream Banking) | 0% | 0% |
Other types of bonds (Government bonds, Treasury Bills, Liquidity Bills and Corporate bonds)
Beneficial owner | Withholding Tax Rate | Capital Gain Tax Rate |
Capital corporations (a) | 0% | 0% |
Investment funds (b) | 0% | 0% |
Individuals | 0% (c) / 10% | 0% (c) / 10% |
Other beneficial owners (not capital corporations, investment funds or individuals) | 10% | 10% |
0% withholding tax on interest and capital gains from Turkish debt securities is applicable for both resident and non-resident capital corporations, such as joint stock companies, limited liability companies and “commandite” companies whose capital is divided into shares).
Non-resident capital corporations must have the same characteristics as Turkish resident corporations in order to qualify for the 0% rate.
There are no officially published criteria according to which a non-resident corporation can be considered similar to a Turkish resident corporation and therefore eligible for full tax exemption.
However, sources indicate that foreign companies with a legal personality that offer their shareholders limited liability in proportion to their equity in the company should be deemed similar to Turkish capital corporations and benefit from the 0% withholding tax rate.
b. Investment funds(not type A/B)
0% withholding tax on interest and capital gains from Turkish debt securities is applicable for both resident and non-resident investment funds.
Non-resident investment funds must have the same characteristics as Turkish resident corporations in order to qualify for the 0% rate.
All non-resident institutional portfolio investors are considered similar to a Turkish investment fund (established in line with the Capital Markets Law) and therefore eligible for full tax exemption, such as:
- Limited liability partnerships;
- Sovereign funds;
- Corporate and institution funds;
- Investment institutions.
However, such entities will only be considered eligible on condition that they are engaged solely in investing in securities and other capital market instruments in Turkey as their only business in Turkey, to derive income and capital gains from these instruments and to exert the rights attached to these instruments.
In this regard, there are two conditions, both of which must apply simultaneously:
- The sole activity of the non-resident investor in Turkey should be investment in securities and other capital market instruments.
- The investor should be an institutional portfolio investor.
c. Individuals
The withholding and capital gains tax rate on Turkish government bonds and treasury bills is 0% for individuals, who have purchased such securities during the period of 22 December 2021 – 31 December 2022. 10% is applicable in all other cases.
Equities:
Equities purchased prior 1 January 2006
Beneficial owner | Withholding Tax Rate | Capital Gain Tax Rate |
0% | 0% | |
DTT% | 32% |
Equities purchased on/ after 1 January 2006
Beneficial owner | Withholding Tax Rate | Capital Gain Tax Rate |
10% | 0% | |
DTT% | 0% | |
10% | 0% |
a. Represented Type-A Investment Funds (NRIFs)
0% withholding tax on dividend distributions and capital gains from Turkish equities purchased before 1 January 2006, is applicable for represented Non-Resident Investment Funds (NRIFs).
NRIFs - also called Type-A Investment Funds - are, under Turkish law, non-resident mutual funds, whose definition is determined in accordance with the following:
"For purposes of the Capital Market Board applications, it has been deemed as appropriate to consider the great variety of non-resident institutional portfolio management entities such as pension funds and social security institutions who are engaged in portfolio management activities, as well as foreign institutional portfolio management entities established by such funds, and institutions such as funds and partnerships, national funds, investment companies, mutual funds, and unit trusts as 'mutual funds established in accordance with the Capital Market Law' for purposes of financial legislation applications."
Based on the above definition and clarifications obtained from the market, Clearstream Banking’s understanding is that almost all corporate investors (not individual investors) are considered to be mutual funds. Consequently, the definition of a mutual fund is applicable to Clearstream Banking customers and those of their underlying clients that are not individual investors.
Type-A investment funds must:
- Qualify for Turkish tax purposes as a mutual fund as defined in Turkish law;
- Have appointed only one permanent tax representative in Turkey;
- Be registered as a taxpayer; and
- Maintain at least 25% of its Turkish securities portfolio in equities on a monthly average basis, throughout the year.
Clearstream Banking customers that qualify as non-resident mutual funds can hold the assets either for their own account or on behalf of individuals. All underlying corporate investors must qualify as mutual funds and have their own Turkish Tax IDs.
The permanent representative is responsible for the book-keeping of an investment fund’s portfolio and the preparation of the legal tax declaration on behalf of the beneficial owner. Local brokers and other custodians with which the investment fund is dealing must be aware of who has been appointed permanent representative.
Note: The Type B funds status (that is, with less than 25% of its Turkish securities portfolio in equities on a monthly average basis throughout the year) is no more applicable as all pre-2006 bonds have now expired.
b. Unrepresented beneficial owners
Unrepresented beneficial owners are investors who have no permanent tax representative in Turkey.
15% withholding tax on dividend from Turkish equities is applicable for unrepresented beneficial owners.
Relief at source of withholding tax on dividends from Turkish equities is available if the beneficial owner is eligible under the provisions of a Double Taxation Treaty (DTT), provided the required certification is provided.
c. Residents of a Double Taxation Treaty (DTT) country
Under the current regime, relief at source of withholding tax on dividends from Turkish equities is available if the beneficial owner is eligible for a reduced rate through a Double Taxation Treaty (DTT).
Name change, change of legal status, incorrect tax rate applied etc.
Beneficial owners holding a Tax ID or national ID number in Turkey are obliged to inform the Turkish Tax Office, via Clearstream Banking, of the following:
- Articles 157 to 159 of Turkey’s Tax Procedure Law (VUK) require corporate taxpayers to notify the Tax Office of changes to their:
- taxation status;
- Workplaces (mainly applicable for Turkish corporate entities with branches located in different workplaces that are registered/ recorded in the trade registry and tax offices);
- windups/liquidations.
- Pursuant to the Tax Procedure Law Communiqué No. 240 A/2 (published in the Official Gazette No. 22327 on 28 June 1995) changes to a taxpayer’s name, changes resulting from mergers and other changes of the taxpayer’s taxation status must be communicated to the Tax Office within a month. While the Tax Procedure Law Communiqué No. 240A/2 is primarily targeted at Turkish resident taxpayers, it is recommended that foreign investors comply with the Communiqué’s provisions.
- Personal bankruptcies, incapacitations, deceases or other changes to an individual (non-corporate) taxpayer’s status are not clearly governed by Turkish tax law. It is however recommended that such changes is notified by the taxpayer, its successor, guardian or legal representative to the Tax Office within a month pursuant the Tax Procedure Law Communiqué No. 240 A/2.
- Any taxpayer who realises that a wrong taxation status or tax rate was applied that resulted in a tax underwithholding on a past income or capital gain must declare this to the Tax Office. Clearstream’s depository will assist in declaring the underwithholding upon the beneficial owner’s request. The declaration is mandatory whenever the taxpayer (beneficial owner) identifies the underwithholding within five years of the date on which the income was paid/the capital gain occurred. No declaration needs to be made whenever the taxpayer identifies the underwithholding later than five years after the date on which the income was paid/the capital gain occurred.
Whenever a notification to the Tax Office is required pursuant to the above beneficial owners should notify Clearstream. Clearstream will then forward the beneficial owners notification to its depository, who in turn will notify the Tax Office accordingly.
The following documents will be needed:
- Instruction by SWIFT MT599 free-format message;
- An official apostilled Certificate of Name Change showing the former name and the new name of the investor and the effective date of change, when applicable. The hard copy of this document should be provided via courier.
- NRIF name change letter (only applicable to NRIF status accounts), when applicable.
Note: Clearstream’s depository will take care of the translation, if required.