Türkiye has been aiming to position Istanbul as a finance center for a very long time to boost the country's financial competitiveness in the international area.
With this aim, The Law on Istanbul Financial Center ("IFC") ("Law"), which was drafted to specify the establishment of the IFC, i.e. a financial hub and provide a general framework about the center, has entered into force as of 28.06.2022.
The Law provides very serious advantages in terms of taxation, employment, and other operational aspects to financial institutions that will carry out their activities within the IFC.
It should be noted that the opportunity to benefit from the discounts, exemptions and other tax advantages anticipated in the Law depends on the presence in the office space and exporting financial services by obtaining a certificate of participation. In other words, the exemptions available on the side of corporate taxes will be limited to activities related to the export of financial services. This is expected to draw foreign players to Turkey.
On the other side, in terms of attracting qualified human resources or benefiting from some operational arrangements, the condition of being present in the office space by obtaining a certificate of participation is considered sufficient.
The details of the Law are here below;
1. Which financial institutions and financial activities does the Law concern?
"Financial Institutions" are defined in the Law as legal entities that can carry out the financial activities specified in the Law (see below), their branches, representative offices, ordinary partnerships, liaison offices, regional management centers and national wealth funds.
"Financial Activities" are defined in the Law as the activities, services and transactions that are regulated in the laws:
- The Law on the Protection of the Value of the Turkish Currency
- Private Pension Savings and Investment System Law
- Banking Law
- Debit Cards and Credit Cards Law
- Insurance Law
- Financial Leasing, Factoring, Financing and Savings Financing Companies Law
- Capital Market Law
- Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions
In this context, securities, derivative instruments, payment systems, payment services, electronic money, open banking and similar activities, services and transactions covered by banking, capital markets, insurance, financial leasing, factoring and similar markets can be performed as financial activities at IFC.
It should be noted that if crypto-asset service providers become regulated under the legal framework of the Capital Markets Board of Türkiye (SPK), these service providers can also become participants of IFC.
2. What is the purpose of the law?
Increasing the financial competitiveness of Türkiye in the international arena, contributing to the development and deepening of financial markets and products and services, strengthening the integration with international finance and capital markets, and thus to make IFM one of the leading global financial centers are the purposes of the Law.
3. What does the Law regulate?
The Law regulates the sphere of IFC; the provisions on management and operation of IFC; the activities to be carried out at IFC; and incentives, discounts, exceptions and exemptions that may be offered for these activities.
4. What should be done to operate in IFC? What are the conditions of participation?
A certificate of participation must be obtained from the Finance Office of the Presidency to operate at IFC and benefit from applicable discounts, incentives, and exceptions.
Although only the financial institutions specified above are eligible to obtain a certificate of participation, the procedures, and principles regarding the certificates of participation, including the issuance of certificates of participation, the conditions applicable for exemption from having a certificate of participation, the suspension, and cancellation of certificates of participation, have not yet been determined. These details will be specified in a separate regulation.
5. Will the exemptions and discounts regarding taxation and other financial liabilities be applied to all activities?
No. The Law lists the discounts and exceptions to be applied separately depending on whether the service rendered involves the export of financial services or not. Details are available in the Q&A below.
6. What is the export of financial services? What discounts and exemptions will such activities benefit from?
Financial services provided by participants to non-residents are defined as financial service exports, provided that such services are ultimately utilized abroad.
In addition, derivative transactions executed by financial institutions on their behalf and account; trading of assets for their portfolios; and activities, services and transactions of residents that take their savings abroad will not be considered as the export of financial service.
In this regard, for the deals that are deemed as the export of financial service and realized at IFC;
- 100% of the earnings generated from such deals between 2022 and 2031, and 75% of such earnings generated in the following years, will be deducted from the corporate income to determine the corporate tax base, provided that they are shown separately on the corporate tax returns;
- Such deals and monies received in connection therewith will be exempt from banking, and insurance transactions tax (BSMV);
- Deals related to activities will be exempt from all charges, and papers issued regarding these deals will be exempt from stamp tax.
Considering that these regulations are limited to activities that involve the export of financial services, it is understood that the relevant exceptions are intended to reduce the transaction costs of financial institutions seated in IFC and to enable them to compete with financial institutions operating in other financial centers in the world.
7. Is an exception provided for employment and real estate?
Yes.
60% for the personnel who have at least five years of professional experience abroad, and 80% for the personnel who have at least ten years of professional experience abroad, of the actual net value of the monthly wages payable to the personnel employed by the financial institutions that hold a certificate of participation for IFC, are exempted from income tax pursuant to the Law.
In addition, participants who will operate in IFC, participants who are active in at least three countries, and regional treasury and financial management centers are allowed to employ foreign nationals based on the work permits issued by the Ministry of Labor and Social Security in accordance with the International Labor Law numbered 6735 dated 28/7/2016.
With these regulations, it is aimed that IFC becomes a center of attraction for qualified human resources that will come from abroad and are expected to create added value in their field.
On the other hand, transactions that involve the leasing of immovables seated in IFC are exempt from all charges, and papers issued regarding these transactions are exempt from stamp tax.
8. Are there any special regulations for international companies?
Yes.
Out of international companies that fulfill certain operational functions by focusing some of their units through the treasury and regional management offices, those participants operating in at least three countries are allowed to benefit from the above-mentioned exemptions offered for employment, real estate, and export of financial service in terms of the activities of regional treasury and financial management centers.
9. What are the other common arrangements for participants?
Apart from the above, the Law also provides operational opportunities to facilitate the processes of the participants to be handled through IFC.
In this context,
- The Ministry of Treasury and Finance is authorized to allow the participants to keep their mandatory books and to issue their documents and instruments in foreign currencies;
- The obligation to use Turkish language in contracts and documents to be drawn up for acts and actions carried out by the participants among themselves and at IFC has been abolished;
- The participants are allowed to freely choose the governing law for all deals and contracts they make under private law in connection with their activities carried out by the participants among themselves at IFC, provided that they are not contrary to the legislation to which the participants are subject; and
- It is regulated that no financial activity charges, which are required to be collected in accordance with the Law on Charges from the headquarters and branches of the financial institutions that hold a certificate of participation will be collected for a period of 5 years.
10. Who will manage the applications to be filed for permits, licenses, and similar approvals regarding the activities of the participants? Who will be in charge of the management of IFC?
The Law anticipates the establishment of the One Stop Shop where relevant units of public bodies and entities will take charge with respect to the filing of applications for permissions, licenses, and similar consents to be obtained for the activities of the participants, and of applications for permissions and approvals of their employees and dependents of these employees, and for speeding up these application processes.
The management and administration of the One Stop Shop will be carried out by the Finance Office of the Presidency.
In addition, the management of IFC has been assigned to a joint stock company, which is to be established by the Türkiye Wealth Fund and will operate subject to the provisions of private law.
In this context, the relevant company is responsible for the operation and management of all infrastructure and superstructure items available at IFC, the rental of independent sections and spaces, and the management of roads, squares, green areas, parks, and similar places, which are reserved for public services, excluding the areas allocated to the relevant institutions in line with the functions as specified in the zoning plan.
Originally Published by Medium
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
