Recent Development
Banking and Insurance Transactions' Tax (''BITT'') imposed on foreign currency (''FX'') transactions increased to 1% from 0.2%
The BITT rate in respect of FX transactions increased to 1% from 0.2% via the presidential decree published in the Official Gazette dated May 24, 2020 and no. 31136. The new rate entered into force on May 24, 2020.
The BITT for FX transactions will be calculated over FX sales. The BITT will continue to be 0% for the following transactions:
- FX sales made between banks and authorized foreign exchange dealers (among themselves or to each other)
- FX sales made to Ministry of Treasury and Finance (''Ministry'')
- FX sales made to the borrower of an FX loan by the lender or the intermediary bank that mediated the utilization of the FX loan, for the purposes of repaying the FX loan
- FX sales made to enterprises holding industrial registration certificates
- FX sales made to exporters that are members of exporters' associations
Non-physical gold sales are considered FX transactions
The Revenue Administration assessed the gold trading transactions in terms of Turkish foreign exchange laws via its letter to the Banks Association of Turkey dated May 21, 2020 (''Letter'').
Considering the assessment of the Ministry's Financial Markets and Foreign Exchange Directorate presented in its letter to the Revenue Administration dated May 21, 2020 and no. 276064, the Revenue Administration stated via the Letter that gold sales made without physical delivery via investment accounts or other accounts (e.g. savings accounts) in banks fall under the scope of a ''foreign exchange transaction''.
As per the Revenue Administration's Letter, non-physical gold sales will also be considered FX transactions; accordingly, gold sales without physical delivery will be subject to 1% BITT over the sale amount as of May 24, 2020.
Prior to the abovementioned Letter, the Revenue Administration's approach was to impose 5% BITT over the earnings that banks received for non-physical gold transactions.
The withholding rate applicable to income generated from lease certificates (sukuk) issued with a maturity less than one year by asset leasing companies (''ALC''); financing bonds (short term bonds issued by Turkish banks); and earnings arising from the disposal of these instruments increased from 10% to 15%
As per the presidential decree no. 2569 published in the Official Gazette dated May 24, 2020 and no. 31136, the withholding rate applicable under the scope of Provisional Article 67 of the Income Tax Law to income generated from lease certificates issued with a maturity less than one year by ALCs and financing bonds; and earnings arising from the disposal of these instruments increased from 10% to 15%.
The 15% withholding rate will be valid for earnings generated from financing bonds and lease certificates with a maturity less than one year, acquired as of May 24, 2020.
Earnings generated by securities investment funds (including stock exchange investment funds, mortgage funds and asset finance funds) and securities investment associations incorporated under the Capital Markets Law will continue to be subject to 0% withholding tax.
Conclusion
Considering the inclusion of the non-physical gold purchases under the scope of FX transactions and the increase of the tax rates imposed on these transactions, we believe the intention is to prevent speculative FX transactions and provide an additional financial source for budget revenues adversely affected by the COVID-19 outbreak.
The increase on the withholding rate imposed on earnings generated from financing bonds and lease certificates with a maturity less than one year also creates an additional budget revenue. The withholding rate applied by banks to the income obtained through deposit accounts and the withholding rate applied to income from financing bonds, which are alternative investment instruments, were became equal via those amendments.
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