Turkey proposes another tax amnesty for repatriation of foreign assets

By Ramazan Biçer, Centrum, Turkey

The Turkish government on July 8 sent a new draft law to the Turkish Parliament covering a new tax amnesty for repatriation of foreign assets such as money, gold, foreign exchange, securities, and other capital market instruments.

This is Turkey’s third tax amnesty in three years. The measure is expected to be first ratified by the Parliament and then approved the President in the coming weeks.

This latest measure reflects how Turkey repeatedly tries to tax the foreign assets of Turkish residents to stimulate the Turkish economy. It also suggests that previous tax amnesties did not likely bring the expected amount of assets. Further, it shows how the Turkish government continues to allow Turkish investors to benefit from very low taxation of their foreign assets.

What does the new tax amnesty mean for Turkish investors?

The new tax amnesty program will be applicable for individual and corporate investors that have undeclared overseas assets.

Accordingly, Turkey resident investors can benefit from this favourable tax amnesty provided that they meet all conditions. Under new tax amnesty, if Turkish investors declare their foreign assets to a financial institution incorporated in Turkey and repatriate them, there will be only 1% tax applicable on the value of such assets.

It is worthy to underline that, similar to previous tax amnesty (regulated under the Law No. 7143), it is not sufficient to only declare foreign assets to benefit from the tax amnesty provisions of the new law but also one must repatriate the foreign assets to Turkey to benefit from the 1% tax option.

Due dates

Based on the draft law, Turkish investors who have foreign assets should declare these assets before December 31, 2019.

Accordingly, the first condition to benefit from the new tax amnesty program is that Turkish investors declare their overseas assets to a financial institution in Turkey by the due date.

As a second condition to benefit from the program, Turkish investors must also repatriate their foreign assets to Turkey within three months of the declaration date.

For instance, if one resident taxpayer owns a capital market instrument in an overseas account and declares his assets to a Turkish bank on the date of December 31, 2019, under the new tax amnesty law, he must actually repatriate his assets to Turkey and transfer these assets to the account opened at a Turkish bank or brokerage house until March 31, 2020.

How to prove foreign assets repatriation

Turkish tax authorities are expected to publish the procedures of new tax amnesty program through general statements or circulars. Nevertheless, we expect that, as in the previous tax amnesties, a bank receipt or intermediary institution transaction result forms could be used to prove that the foreign assets have been transferred to Turkey in line with the new tax amnesty program.

In the previous tax amnesties, a special form was also used when the foreign assets were repatriated or the securities and other capital market instruments were notified to banks or intermediary institutions.

Potentially, the new law will be implemented in the same manner and the same bank receipt or intermediary institution transaction result forms or special forms will be used to prove that foreign assets have been repatriated to Turkey by the respected taxpayer.

No tax assessment and investigation

Turkish investors that have repatriated their foreign assets under the new tax amnesty program will not be investigated by Turkish tax authorities and any tax assessment, tax penalty, and administrative fines will not be applicable due to such transfers.

That means that Turkish tax authorities will not carry out retrospective tax examinations or any other type of tax assessment.

This is also applicable to companies that repatriate their overseas assets: no tax investigation or tax assessment shall be retrospectively carried out by the Turkish tax authorities against the legal representatives, partners, and deputies of such companies.

Automatic exchange of information

Turkish taxpayers can apply for the repatriation program until December 31. As Turkey has committed automatic exchange of information (AEOI), we believe this might indeed be the last chance for Turkish taxpayers that have undeclared overseas assets to repatriate them with a very favourable taxation (1%).

We have also observed the quite large number of Turkish investors holding overseas assets have not applied for previous tax amnesty programs due to expectations about future amnesties. 

Now, Turkish investors are again faced with a new opportunity, but the critical question is: “Should they really apply for the new tax amnesty or wait for another one?”

Our answer is affirmative as this is really could be the last chance before the AEOI begins for Turkish investors.

Mostly likely new tax amnesty laws to be enacted by Turkish governments in the future, as we consider the last three years. Nevertheless, while there likely will be reduced tax rates for repatriation of foreign assets held by Turkish investors, zero or 1% is unlikely.

This is because the AEIO will allow the Turkish government to be informed about the foreign assets of Turkish investors and based on the financial information to be exchanged by other countries the Turkish government can apply full taxation (up to 35% for individual taxpayers or flat rate of 22% for corporate investors).

For that reason, the Turkish government will unlikely be reluctant to apply very low tax rates for such undeclared assets, instead of applying 35% individual income tax or 22% corporate income tax, based on the AEIO.

Also, we expect that additional tax assessments for the Turkish investors who have not repatriated their foreign assets would be possible in the upcoming years when the AEOI is truly in force.

Consequently, we recommend that Turkish individual and corporate taxpayers repatriate their assets and benefit from this program. Thus, they will have a tax shield for the past years and can reinvest those assets into overseas investments without any tax issue.