First-step analysis: cryptoasset trading in Turkey

Cryptoasset trading

What rules and restrictions govern the exchange of fiat currency and cryptoassets?

No explicit rules and restrictions govern the exchange of fiat currency with cryptoassets. Cryptocurrency exchange and trading platforms usually determine their own exchange policy according to supply and demand equilibrium or other cryptoasset exchange markets with which they are partnered.

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

There is no regulatory framework determining specific marketplaces in which investors are allowed to trade. Numerous cryptoasset businesses currently operate in Turkey without obtaining a licence or permission from a Turkish regulatory authority. The existing legislative framework neither prohibits investors from trading cryptoassets nor provides a clear regulatory base for these trading transactions and systems. Alternatively, some financial regulatory authorities, such as the Capital Markets Board of Turkey (CMB) and the Banking Regulatory Supervision Authority (BRSA) have warned investors that cryptoasset trading is not yet regulated, thus they may incur serious risk.

How are cryptoasset custodians regulated?

There are no specific laws and regulation for cryptoasset custodians. In Turkey, custodian services are mainly regulated by the CMB and the BRSA. According to Law No. 6362, custody services refer to:

‘The services related to capital market instruments deposited or delivered in the dematerialised or physical form concerning capital market activities, whether due to capital market activities or as custodian or to manage or as a guarantee or regardless of the name.’ 

Since cryptoassets are not deemed to be capital market instruments, which is also mentioned in the Regulation Prohibiting Payments Through Cryptoassets (the Regulation on Cryptoassets) and by the CMB, it is unclear whether cryptoasset custodians can be regulated under Law No. 6362. If cryptoassets are considered as a security or a capital market instrument under Law No. 6362 in the future, the businesses that offer custody services for cryptoassets may be subject to licensing requirements in the same way as other authorised institutions holding securities.

How are cryptoasset broker-dealers regulated?

No specific regulations apply to cryptoasset broker-dealers. In Turkey, all intermediary institutions must be authorised by the CMB to be able to provide investment services. The licensing requirement is limited to various types of services such as securities trading, public offerings and derivatives trading. However, cryptoasset brokerage institutions cannot be considered as intermediary services that must be authorised by the CMB because cryptoassets are not yet qualified as capital market instruments by the CMB. Although cryptoassets are not currently considered as capital market instruments, pursuant to the Draft Bill, which is on the agenda, it is discussed that individuals who carry out activities as a cryptoasset service provider without permission will be sentenced to prison. It is considered that cryptoasset providers will have to obtain permission from the CMB for their operations.

What is the legal status of decentralised cryptoasset exchanges?

Even though the Regulation on Cryptoassets established a framework for the use of cryptoassets, the legal status of decentralised cryptoasset exchanges is not yet defined under Turkish Law. Alternatively, various cryptoasset exchange platforms are established in Turkey to provide decentralised cryptoasset exchange services.

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

No specific regulation determines the legal status of peer-to-peer cryptoasset transfers. However, under the Regulation on Cryptoassets, the direct and indirect use of cryptoassets for payments is prohibited.

Does the law permit trading cryptoassets with anonymous parties?

The existing regulatory framework does not include a regulation for cryptoasset trading with anonymous parties. However, under the Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism (the Regulation on Prevention of Laundering Proceeds of Crime), cryptoasset service providers are now obliged to adhere to specific KYC procedures for their customers. Cryptoasset service providers are also obliged to fulfil detailed procedures for suspicious transaction reporting, providing information and documents, regular reporting and retaining and submission. Also, the Regulation on Cryptoassets prohibits the following:

• the direct or indirect use of cryptoassets in payments;
• the provision of services for direct or indirect use of cryptoassets in payments;
• the development of business models by payment service providers regarding the direct or indirect use of cryptoassets in the provision of payment services and export of electronic money, and provision of services regarding the development of such business models by payment service providers; and
• the mediation of the payment and electronic money institutions regarding fund transfers from and to the platforms providing services on trading, depositing, transferring or exporting cryptoassets.

Besides, the relevant obligation is included in the Guidelines for Crypto Asset Service Providers published by MASAK in May 2021. The most important measure to be taken within the scope of the obligation is the customer’s identification. Identification must be completed before establishing a business relationship or making a transaction.

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

No. As the only regulation in Turkey that governs cryptoasset transactions is the Regulation on Cryptoassets, which does not provide a specific provision on foreign cryptocurrency exchanges, such foreign cryptocurrency exchanges are not yet subject to specific regulation for cryptoasset exchanges.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

Although the Regulation on Cryptoassets establishes a framework for the use of cryptoassets, no specific laws apply to Turkish citizens wishing to exchange cryptoassets on a foreign exchange. However, the Regulation on Cryptoassets clearly prohibits the mediation of payment and electronic money institutions regarding fund transfers from and to the platforms providing services on trading, depositing, transferring or exporting cryptoassets. Therefore, the activities of payment and electronic money institutions regarding foreign cryptoassets can be considered shut down. Although several cryptocurrency platforms provide foreign exchange services to their customers, these businesses are not specifically governed by any Turkish regulatory body, except the Financial Crimes Investigation Board of Turkey under the Regulation on Prevention of Laundering Proceeds of Crime.

Decree 32 on the Protection of Value of Turkish Currency (Decree 32) regulates the details of restrictions on payments made with a foreign currency to protect the value of the Turkish lira. The agreement or contract price and any other payment obligation arising from the following cannot be denominated in foreign currency or be indexed to foreign currency (except in circumstances determined by the Ministry of Treasury and Finance):

• sale and purchase agreements or contracts for movable and immovable assets;
• lease or rent agreements for any movable and immovable assets, including vehicles and financial leasing;
• employment;
• service; and
• construction agreements, executed by and between persons residing in Turkey.

Accordingly, depending on where the exchange of cryptoassets takes place and where the parties of the exchange are residing, the foreign currency ban or the exceptions arising from Decree 32 may also be applicable.

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

No specific tax regulations apply to the exchange of cryptoassets. According to the Income Tax Law (Law No. 193), the income of individuals is subject to income tax. The following types of income are subject to income tax:

• commercial income;
• agricultural earnings;
• wages;
• self-employment earnings;
• real estate capital income;
• securities capital income; and
• other earnings and revenue.

The gains derived from cryptoassets do not fall into any of these categories. If cryptoassets were to be qualified as a commodity in Turkey, the income derived from the exchange of cryptoassets would be subject to income tax as commercial income (depending on the volume and continuity of the exchange). Also, in line with the Corporate Income Tax Law (Law No. 5520), any corporate income (eg, income derived from cryptocurrency) is subject to taxation. Although the Regulation on Cryptoassets provides a definition for cryptoassets, there is still uncertainty as to whether cryptoassets meet Turkish taxation requirements. Under the Value Added Tax Law (Law No. 3065) the exchange of cryptoassets is likely to be exempt from the scope of the law since the exchange of cryptoassets cannot be included in the type of transactions listed in article 1 of Law No. 3065. However, if an intermediary service is provided for the exchange of cryptoassets, this business will be subject to Law No. 3065.

As a result, according to Turkish law and income tax legislation, since there is no regulation regarding cryptoassets, taxation of income generated by cryptoassets is not in question. On the other hand, it is clearly stated that a permanent income should be subject to tax. In article 37 of the Income Tax Law, it is stated that ‘earnings arising from all kinds of commercial and industrial activities should be taxed as they are considered commercial income’.

It should also be noted that based on the ‘Digital Assets Report’ dated 7 February 2022 published by the Banks Association of Turkey (TBB), it has been stated that establishing a transparent taxation policy on cryptoasset incomes, and the inflow of high transaction volumes around the world to Turkey, even if the taxation is based on the declaration method, will reinforce the opportunities for both direct and indirect tax revenues to be brought to the Turkish Treasury.