Recent Development
The Law setting out the general framework of the Istanbul Financial Center’s (“IFC“) activities and regulating the applicable tax exemptions, incentives and exceptions (“Law“) was published in the Official Gazette dated June 28, 2022 and it is entered into force through its publication.
What Does the Law Say?
The Law regulates the geographical area, management and operations of the IFC; the activities and services that the IFC will host; and various incentives, discounts, exemptions and exceptions which will make the IFC more attractive for financial institutions.
Management of the IFC and the Participants
The operation and management of the IFC will be conducted for a period of twenty years by a managing company (the “Managing Company“) to be established by the Turkey Wealth Fund as a joint stock company.
The Law defines the financial activities that can be carried out at the IFC as banking, pension and private pension, insurance, financial leasing, factoring, savings financing, payment services, electronic money services, and capital markets services.
To operate in the IFC, financial institutions will need to obtain the Presidential Finance Office’s participant certificates. An implementation regulation will set forth the conditions to obtain these certificates.
Financial Service Export
Pursuant to the Law, financial services provided by the IFC resident financial institutions to clients residing abroad will be considered financial service exports if the clients ultimately benefit from these services abroad. Derivative transactions, asset purchase and sale transactions for own account, and activities that carry the savings of the domestic residents abroad undertaken by these financial institutions will not be considered financial service exports.
Tax Exceptions, Exemptions and Deductions
The Law provides the following exemptions and deductions regarding the activities realized at the IFC:
- 75% of the profit generated through these activities will be indicated in the corporate income tax returns separately and deducted from the business profit in the calculation of the corporate income tax base. The deduction rate is 100% for FYs 2022 to 2031. Fiscal years starting in the mentioned years will be considered for those utilizing special accounting periods.
- Funds received by the IFC resident financial institutions within the scope of the mentioned transactions will be exempt from the banking and insurance transaction tax.
- All transactions related to these activities will be exempt from all types of charges.
- Papers issued concerning these transactions will be exempt from stamp duty.
The Law also provides certain exemptions in respect of the the monthly salaries paid to personnel that participants employ at the IFC. Accordingly, the following portions of the monthly gross salaries paid to the mentioned personnel will be exempt from income tax:
- 60% for those with at least five years of experience abroad; and
- 80% for those with at least ten years of experience abroad.
This income tax exemption will also apply to the salary income of employees who worked outside of Turkey in the last three years before working at the IFC.
Transactions related to the leasing of the real estate in IFC will be exempt from all types of charges. In addition, the papers issued in connection with these transactions will be exempt from the stamp duty.
The exemptions and deductions explained above will also apply to regional treasury and financial management offices of participants that are actively operating in at least three countries.
In addition, charges on financial activities provided under the Law on Charges No. 492 will not apply to participants’ centers and branches at the IFC.
Books and Records, Language and Governing Law
Under the Law, the Ministry of Treasury and Finance will be entitled to issue regulations in connection with the maintenance of the participants’ books and records in foreign currency, without being bound by the restrictions in the Tax Procedure Law No. 213 and the Turkish Commercial Code No. 6102.
Within the scope of their activities among themselves and at the IFC, the participants will not be required to prepare any kinds of agreements, accounts, communications, notifications or books in the Turkish language. In addition, the participants will be able to freely choose the applicable law in any private law transaction within the scope of their activities among themselves and at the IFC to the extent permissible under the special laws that their activities are subject to.
These exemptions also apply to the regional treasury and financial management offices of the participants who are active in at least three countries.
Provisions Regarding Real Properties
The real properties in the IFC may only be used for the purposes determined in the operation and management plan to be registered by the Managing Company. If the participant’s participation certificate is cancelled for any reason, their lease agreement will automatically terminate.
Conclusion
The Law aims to make Istanbul a global financial hub and covers operational and financial incentives that will attract the attention of the finance world to Istanbul. The implementation regulation will be issued following the Law and will contain detailed regulations, including the conditions of the participation certificate to be provided to the institutions that can operate at the IFC.
