Tax amnesty laws introduced by Turkish governments closely concerns Turkish investors who have overseas assets. We observe that Turkish international investors benefit from time to time the tax amnesty laws which are issued in 4-5 years on average.
Enacted in 2016 as the last tax amnesty, "the Law No. 6736 on Re-structuring of Certain Public Receivables" allowed Turkish taxpayers to benefit from tax free program without repatriating foreign assets, on the condition that they declared such assets before a financial institution in Turkey until June 30, 2017.
On May 11, 2018, Turkish Assembly passed a new tax amnesty law which covers repatriation of foreign assets and provides a new opportunity for Turkish investors who hold assets in their overseas accounts but have not declared, yet. As we consider the upcoming international automatic exchange of information on the financial accounts (known as Common Reporting Standard), the new tax amnesty law becomes more of an issue for Turkish investors.
What Does the New Tax Amnesty Bring for Turkish Investors?
Under new tax amnesty law No. 7143, if Turkish investors, who have foreign assets such as money, gold, foreign exchange, securities, and other capital market instruments, declare these assets before a financial institution in Turkey and repatriate them to Turkey until July 30, 2018, they will freely use such assets without paying any taxes. Accordingly, if a Turkish taxpayer fulfils the condition of declaration and repatriation of foreign assets until the above-mentioned date, he will not face with any taxation in Turkey.
However, if a tax payer prefers to declare and transfer his foreign assets between dates of August 1 and November 30, 2018, there will be 2% tax applicable. Taxes will be collected and paid by financial institutions by December 31, 2018 upon the declaration of foreign assets.
As can be easily understood, there is a requirement to declare and repatriate foreign assets to Turkey until either 31 July or November 30, 2018 if one wishes to benefit from the new tax amnesty. It is worthy to underline that contrary to previous tax amnesty, it is not sufficient to only declare foreign assets to benefit from the provisions of the new tax amnesty law.
Consequently, under both options, one should repatriate his foreign assets to Turkey to benefit from the either tax free or 2% tax option.
Due Date to Repatriate Foreign Assets to Turkey
Based on the new tax amnesty law, there is a condition that taxpayers repatriate their foreign assets to Turkey to benefit from the tax amnesty within 3 months after their declaration.
For instance, if one holds foreign exchange in an overseas account and declares his assets on the date of July 31, 2018 under the new tax amnesty law, he has to either actually repatriate his assets to Turkey or transfer these assets to the new account to be opened at a Turkish bank or brokerage house until October 31, 2018.
How can the Corporates Benefit from the New Tax Amnesty Law?
It is also possible for the corporates to benefit from the new tax amnesty. In this sense, Turkish taxpayers may use their foreign assets;
- to pay off their corporate loans which were obtained from the foreign banks or financial institutions and
- to write down the capital advance payments recorded in their corporate books (on the condition that the assets were repatriated to Turkey before enactment of the tax amnesty law).
In addition, individual and corporate taxpayers in this scope may either include their foreign assets in their legal books or withdraw these assets later on with no consideration as they determine their taxable income and distributable profits of their corporations.
Here two options are also available for the corporates. Thus, those who repatriate and include their foreign assets in their corporate books until July 31, 2018 will be allowed to benefit from the option where no tax is applicable; however, those who carry out repatriation and inclusion of foreign assets in their corporate books until November 30, 2018 will have to pay 2% tax to benefit tax amnesty program.
Should Turkish International Investors Benefit from the New Tax Amnesty?
We can say there would be some other tax amnesties to be announced in the future years. Turkish governments will definitely decide this. However, the upcoming period will be different from the previous one even if Turkish governments introduce new tax amnesty laws in the future years.
We observe in practice that Turkish international investors have an understanding that "do not declare the foreign assets, wait for the next tax amnesty and pay taxes at that time if requested in Turkey".
However, we believe that this is not a sustainable approach, anymore. The reason is in fact simple: details of financial accounts of Turkish international investors will be regularly exchanged each year by other countries with Turkey.
This will be handled by the countries through international automatic exchange of information mechanism introduced by OECD and G-20 countries, based on Multilateral Convention on Mutual Administrative Assistance in Tax Matters which was also ratified by Turkey in 2017.
By this mechanism, Turkish Tax Authorities will be informed about the foreign assets held in the overseas accounts by Turkish investors and accordingly, they will be able to question whether any income was declared by taxpayer for the relevant tax year in relation to those assets. If no income declaration made on these foreign assets, there would be tax penalties in addition the main taxes applicable on such income.
At this point, we advise that Turkish investors who own foreign assets apply for the tax amnesty program before the due date and benefit from the favourable options if they never declared and paid taxes for their overseas assets in the previous financial years.
For the future years, it is also advisable that Turkish investors restructure their foreign assets by considering international automatic exchange of information on the financial accounts.