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Türkiye has long aimed to position Istanbul as a financial center to boost the country’s financial competitiveness internationally.
For this purpose, the Istanbul Financial Center Law (“IFC“) (“Right“), which was written to clarify the creation of the IFC, i.e. a financial center and to provide a general framework on the center, entered into force on 28.06.2022.
The law provides very significant tax, employment, and other operational benefits to financial institutions that will operate within IFC.
It should be noted that the possibility of benefiting from the discounts, exemptions and other tax advantages provided for by the Law depends on the presence in the office space and financial services exporter by obtaining a certificate of participation. In other words, the exemptions available on the corporate tax side will be limited to activities related to the export of financial services. This should attract foreign players to Turkey.
On the other hand, to attract qualified human resources or benefit from certain operational arrangements, the condition of being present in the office space by obtaining a certificate of participation is considered sufficient.
Details of the law are below;
1. Which financial institutions and financial activities does the law concern?
“Financial institutions” are defined in the law as legal persons that can carry out the financial activities specified in the law (see below), their branches, representative offices, general partnerships, liaison offices, regional management centers and national funds.
“Financial Activities” are defined in the Law as those activities, services and transactions which are regulated by the laws:
- Turkish Currency Value Protection Law
- Private Retirement Savings and Investment Plans Act
- Bank right
- Debit Cards and Credit Cards Act
- Insurance law
- Law of leasing, factoring, financing and savings financing companies
- Capital market law
- Law on payment and securities settlement systems, payment services and electronic money institutions
In this context, securities, derivatives, payment systems, payment services, electronic money, public banking and similar activities, services and transactions covered by banking, capital markets, insurance, leasing, factoring and similar can be carried out as financial activities at the IFC.
It should be noted that if crypto-asset service providers become regulated under the legal framework of the Türkiye Capital Markets Board (SPK), these service providers may also become IFC participants.
2. What is the purpose of the law?
To increase Turkey’s financial competitiveness in the international arena, contribute to the development and deepening of financial markets and products and services, strengthen integration with international finance and capital markets, and thus make MFI one of the world’s major financial centers are the goals of the law.
3. What does the law regulate?
The law governs IFC’s domain; arrangements for the management and operation of the IFC; the activities to be carried out at the IFC; and the incentives, discounts, exceptions and exemptions that may be offered for these activities.
4. What must be done to operate in IFC? What are the conditions of participation?
A certificate of participation must be obtained from the Office of Finance of the Presidency to operate in the IFC and benefit from the applicable discounts, incentives and exceptions.
Although only the financial institutions specified above are eligible to obtain a certificate of participation, the procedures and principles relating to certificates of participation, in particular the issuance of certificates of participation, the conditions applicable to the exemption from having a certificate of participation, the suspension, and the cancellation of the certificates of participation, have not yet been determined. These details will be specified in a separate regulation.
5. Will exemptions and reductions for 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 export of financial services or not. Details are available in the questions and answers below.
6. What is the export of financial services? What discounts and exemptions will these activities benefit from?
Financial services provided by participants to nonresidents are defined as financial services exportsprovided that these services are ultimately used abroad.
In addition, derivative transactions executed by financial institutions in their name and on their behalf; asset trading for their portfolios; and the activities, services and transactions of residents who deposit their savings abroad will not be considered as an export of financial services.
In this regard, for transactions considered to be the export of financial services and carried out at the IFC;
- 100% of the income generated by these transactions between 2022 and 2031, and 75% of this income generated in the following years, will be deducted from corporate income to determine the corporate tax base, provided they are indicated separately on corporation tax. Return;
- These transactions and the sums received in connection with them will be exempt from the tax on banking and insurance transactions (BSMV);
- Transactions related to the activities will be exempt from all fees and documents issued in relation to these transactions will be exempt from stamp duty.
Whereas 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 serving on IFC and enable them to compete with financial institutions operating in other financial centers. in the world.
7. Is there an exception for employment and real estate?
60% for staff with at least five years of work experience abroad, and 80% for staff with at least ten years of work experience abroad, of the actual net value of monthly salaries due to staff employed by institutions that hold a certificate of participation in the SFI, are exempt from income tax according to law.
In addition, participants who will operate within the IFC, participants active in at least three countries, and regional treasury and financial management centers are permitted to employ foreign nationals based on work permits issued by the Ministry of Finance. Labor and Social Security in accordance with international labor law numbered 6735 dated 28/7/2016.
With these regulations, the objective is for IFC to become a center of attraction for qualified human resources who will come from abroad and are expected to create added value in their field.
On the other hand, transactions that involve the rental of buildings sitting in IFC are exempt from all costs, and the documents issued concerning these transactions are exempt from stamp duty.
8. Are there special regulations for international companies?
Among international companies that perform certain operational functions by concentrating some of their units through treasury and regional management offices, participants operating in at least three countries are eligible to benefit from the aforementioned exemptions offered for employment, real estate and export. of the financial service in terms of the activities of the regional treasury and financial management centres.
9. What are the other common arrangements for participants?
In addition to the above, the law also provides operational opportunities to facilitate participant processes to be handled by the IFC.
In this context,
- The Ministry of Treasury and Finance is authorized to authorize participants to keep their obligatory books and to issue their documents and instruments in foreign currency;
- The obligation to use the Turkish language in contracts and documents to be drafted for the acts and actions carried out by the participants among themselves and at the IFC has been removed;
- Participants are permitted to freely choose the applicable law for all transactions and contracts they enter into under private law in connection with their activities carried on by the Participants among themselves at IFC, provided that they are not not contrary to the legislation to which the participants are subject; and
- It is regulated that no fees for financial activity, which must be levied according to the law on fees at the headquarters and branches of financial institutions holding a certificate of participation, will be levied for a period of 5 years.
10. Who will manage the applications to be filed for permits, licenses and similar approvals relating to the activities of the participants? Who will be in charge of managing the IFC?
The law provides for the creation of the one-stop shop where the competent units of public bodies and entities will take care of the filing of requests for authorizations, licenses and similar consents to be obtained for the activities of the participants, and requests for authorizations and approvals of their employees and dependents of such employees, and to expedite such application processes.
The management and administration of the Single Window will be ensured by the Finance Office of the Presidency.
In addition, the management of the IFC has been entrusted 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.
Within this framework, the company concerned is responsible for the operation and management of all the infrastructure and superstructure elements available at IFC, the rental of sections and independent spaces, and the management of roads, squares , green spaces, parks and similar places, which are reserved for public services, excluding the areas assigned to the institutions concerned in accordance with the functions specified in the zoning plan.
Originally posted by Medium
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.