Good news: No withholding tax for Turkish bonds and stocks (1)

The most popular question is the following: "Is there any withholding tax applied to foreigners who invest in Turkish stocks and bonds?"

In earlier articles, I had mentioned that the government was working on an equalization of both local and foreign investors in benefits, with the exception of some circumstances. Local investors, who didn't have the advantage of zero withholding tax, tried to find a solution. If you are not a legal foreign person, then the only thing you can do is create a legal foreign entity abroad and benefit from the advantages provided for foreigners. These types of investors are called "foreigners with a moustache," which indicates that they are not really foreign investors but rather Turks who created legal entities abroad and invested in Turkey through those entities.

Before the government changed legislation, Article 67 of the income-capital gains tax law did not differentiate between local and foreign investors. After the changes, the 0 percent rate was provided for foreign investors while locals were subject to a 15 percent withholding tax. This 15 percent was later reduced to 10 percent by communiqué.

An important act was recently enacted that erases almost all questions about the withholding tax for investors in Turkish stocks and bonds.

The government has published a communiqué as a measure against the waves of recession that are expected to reach Turkey. Reducing withholding tax rates is a way that the government hopes to attract more local investors to the falling Turkish stock exchange. The communiqué did not make any changes to the 0 percent rate applied for foreign investors but changed the 10 percent rate of withholding tax for stock gains to 0 percent for local Turkish investors. The withholding tax was automatically deducted by the banks after the income was earned by local investors. This reduction in withholding tax rates aims to provide same benefits to locals while ending the positive discrimination in favor of foreign investors.

The wording of the change in legislation -- the new communiqué -- is as follows:

The communiqué dated 22 July 2006 and numbered 2006/ 10731, Article 1, sub clause (a) is changed as follows;

"a) The rate cited in sub clauses (1), (2), and (3) is 0% for full taxpayer real persons and legal entities for the income gained from stocks (excluding the stocks of securities investment trusts) and 10 percent for other incomes gained by these persons."

I guess the matter is now clear for everyone -- for locals, for foreigners and for foreigners living in Turkey with residence and work permits.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not just rely on the information in this corner.