Recent Development

The Presidential Decree No. 842 (“Decree”), published in the Official Gazette dated 21 March 2019 and No. 30721, introduced new withholding tax rates for income derived from certain securities.

What Does the Decree Say?

1. The following amendments were made to the withholding tax rates applied on interests derived by Turkish resident companies from notes issued abroad. The new rates entered into force on 21 March 2019.

  • The withholding tax rate for notes with maturities of less than one year decreased from 10% to 7%.
  • The withholding tax rate for notes with maturities of one to three years decreased from 7% to 3%.
  • The withholding tax rate for notes with maturities of at least three years was determined as 0%.*

*In accordance with the legislation prior to the amendment, the withholding tax rate for notes with maturities of three to five years was 3%; for notes with maturities of at least five years, it was 0%.

2. The following amendments were made to the withholding tax rates applied on income derived by Turkish resident asset lease companies from lease certificates issued abroad. The new rates entered into force on 21 March 2019.

  • The withholding tax rate for lease certificates with maturities of less than one year decreased from 10% to 7%.
  • The withholding tax rate for lease certificates with maturities of one to three years decreased from 7% to 3%.
  • The withholding tax rate for lease certificates with maturities of at least three years was determined as 0%.*

*In accordance with the legislation prior to the amendment, the withholding tax rate for lease certificates with maturities of three to five years was 3%; for lease certificates with maturities of at least five years, it was 0%.

  1. The following amendments were made to the withholding tax rates applied to interests on foreign exchange deposit accounts and to dividends paid by participation banks to foreign exchange participation accounts. These rates will apply to interests and dividends paid to checking accounts and private current accounts as of 21 March 2019, as well as interests and dividends paid to deposit accounts opened or renewed as of 21 March 2019.
  • The withholding tax rate for lease certificates with maturities of less than one year decreased from 10% to 7%.

*In accordance with the legislation prior to the amendment, the withholding tax rate for those with maturities of less than six months was 18%; for those with maturities of six months to one year was 15%.

  • The withholding tax rate for those with maturities of more than one year increased from 13% to 18%.
  1. The withholding tax applied on interests paid for secondary subordinated loans granted by banks under the Banking Law No. 5411 and loans granted by banks and other institutions based on a flow or asset portfolio by securitization abroad decreased from 1% to 0%. This rate entered into force on 21 March 2019.

Conclusion

The amendments, on the one hand, aim to facilitate foreign borrowing of resident corporations and banks by reducing the withholding rates and on the other hand, aim to reduce demand in FX deposits by increasing the withholding tax rates applied to interest and dividends derived from foreign exchange deposit accounts and foreign exchange participation accounts.