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New tax benefits

In reaction to the recent financial turmoil, Turkey has adopted a new law introducing tax benefits for taxpayers who repatriate or declare their unrecorded assets, including cash, foreign currency, securities and other capital market instruments, and even real estate. These benefits will cover both domestic and foreign-source income, and no tax inspections or reassessments will be made based on the declared assets.

Turkey previously made two unsuccessful attempts to encourage declaration of unrecorded assets. In 1998, the government promoted recording of undeclared assets without tax exposure, and in 2002 assets injected into the share capital of companies were exempt from tax inspection. Following the failure of these laws, the Turkish parliament enacted Law 5811 on the Introduction of Some Assets to the National Economy (Law), which entered into force on November 22 2008. The rationale behind the new Law, which apparently commingles the laws of 1998 and 2002, is the promotion of asset repatriation with little or no tax exposure, and injection of such assets into the share capital of companies, thereby enhancing their capital cushion.

Applicable assets

The tax benefits apply to cash, foreign currency, gold, securities and other capital market instruments, real estate owned abroad and the same type of assets owned in Turkey, which are not recorded as shareholders' equity. Additionally, capital gains and periodic revenues obtained from foreign participations, or branches and gains arising from liquidation, can benefit from the tax exemptions afforded by the Law. Existence of applicable assets must be evidenced by a credible document such as records kept by, or under the protection of, the state, or issued by banks, brokerage companies and other financial institutions, or certified by notaries public or Turkish embassies and consulates in the relevant foreign jurisdiction.


In order to benefit from the Law, the first group of assets must be acquired before or on October 1 2008 and declared to banks, brokerage companies or tax offices by the close of business on March 2 2009 (within three months of the entry into force of the Law). Foreign-source movable assets must be repatriated or transferred to a bank or brokerage company within one month of the declaration. Capital gains and periodic revenues, including those obtained at any time up to April 30 2009, are tax exempt if repatriated to Turkey by May 31 2009. Gains from liquidation are tax exempt if repatriated to Turkey by October 31 2009.

Tax advantages

Reduced tax rates

A tax of 2% is imposed on assets of foreign origin repatriated to Turkey, and 5% on domestic assets registered as shareholders' equity. Tax rates are calculated over the value of declared assets.

Tax exemption

No income or corporate tax will be applicable to full tax payers on income they generate from: (i) sale of their shares in legal entities established outside of Turkey; (ii) dividends of legal entities established outside of Turkey; or (iii) their commercial activities conducted abroad, provided that these incomes are transferred to Turkey by May 31 2009. In order to benefit from tax exemption, gains obtained from liquidation of legal entities established abroad must be transferred to Turkey by October 31 2009.

Limitation of tax investigations or assessment of declared assets

With respect to declared assets, no tax investigation or assessment will be conducted for the fiscal periods ending before January 1 2008. In this respect, declared assets will not even be subject to tax investigations on the basis of tax evasion or money-laundering charges. This exemption does not cover investigations and prosecutions based on breach of trust, counterfeiting, fraud, embezzlement, drug dealing, forgery, human trafficking, theft, bribery or manipulation, among others. In addition, the exemption extends neither to investigations and prosecutions initiated before the entry into force of the Law (November 22 2008) nor to those initiated after the entry into force of the Law, which are unrelated to the declaration or repatriation.

Given that under Turkish law the statute of limitations for assessment is five years starting from the year following the calendar year in which the tax arises and the tax exemption is applicable to fiscal periods before January 1 2008, the exemption applies to taxable events for which the statute did not expire before or on January 1 2008 (those of 2003, 2004, 2005, 2006 and 2007).

Critical view

The Law has been the subject of fierce discussion since its promulgation. Some consider it a tax amnesty, a highly criticised taxation policy of Turkish governments. Criticism directed at limiting tax investigation is twofold: some critics highlight the dangers that could arise from excluding tax evasion and money laundering from the scope of tax investigation. On the other hand, some think that the limited scope of the tax advantage provides insufficient protection, as it is not applicable to several infractions listed above. In addition, the Law may be challenged before the Constitutional Court because it clearly privileges those subject to tax investigations initiated after the entry into force of the Law. In any case, the Turkish government is of the opinion that any asset declared and repatriated is a gain for Turkey, and that if it had not been for the Law these assets would never have been repatriated at all. The competent authorities have yet to publish official figures on the application of the Law. We will see in the near future whether the Law served its purpose.

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