According to new tax legislation that came into affect as of 01.01.2006, all types of resident and non-resident investors are subject to withholding tax as follows:

Cash dividend paying public companies are subject to 15% income withholding tax when such payments are made to resident and non-resident individuals. If cash dividends are paid to resident institutions and non-resident institutions with a permanent representative, dividend paying company is not subject to income withholding tax. (Provisions of Double Tax Treaties are reserved)

The new tax regime covers equities purchased/ government bonds and treasury bills issued after 01.01.2006 and investment funds.

In order to be exempt from taxation on capital gains and interest income under the new tax regime; non-resident individual investors are required to provide a certificate of residence. The certificate of residence must be renewed by non-resident individual investors every year.
If non-resident individual investors do not submit certificate of residence, they will be treated as resident investors and income derived by such investors will be subject to 10% withholding tax. (except for the income derived from the sale of equities; tax for this income has been determined as 0% for all investors)

The following tax rates are applicable in the new tax legislation

Equities purchased before 01.01.2006 and government bonds and treasury bills issued before 01.01.2006 are taxed under permanent tax rules applicable as of 31.12.2005. Gains must be filed via special tax return within 15 days of the date of the receipt of gains.

According to the old tax regime; 

• Capital gains derived from disposal of equities purchased before 01.01.2006 and government bonds and treasury bills issued before 01.01.2006 are subject to progressive tax rate in range of 15% to 35% (Provisions of Double Tax Treaties are reserved).

On the other hand, if the shares are held for a period of 3 months or more, individual investors are exempt from income tax. If the shares are sold within 3 months following their acquisition and the yearly capital gains exceed TRY 17.900 (for 2009; exemption is TRY 18.000 for 2010) after the application of cost adjustment, the exceeding part must be declared via a special tax return.

• Interest income derived from government bonds and treasury bills are subject to tax at 0%

In order to be exempt from taxation on capital gains and interest income under the new tax regime; non-resident corporate investors are required to provide a certificate of incorporation.

If non-resident corporate investors do not submit certificate of incorporation, they will be treated as resident investors and income derived by such investors will be subject to 10% withholding tax.

The following tax rates are applicable in the new tax legislation

Non-resident corporate investors
Equities purchased before 01.01.2006 and government bonds and treasury bills issued before 01.01.2006 are taxed under permanent tax rules applicable as of 31.12.2005. Gains must be filed via special tax return within 15 days of the date of the receipt of gains.

According to the old tax regime;

“Mutual fund” status of the existing non-resident funds will continue in future (as long as necessary) until their equities held as of 31.12.05 are completely sold and/or bonds issued before 31.12.05 are completely sold and/or redeemed. The permanent representative role and legal bookkeeping will be continued for these securities.

New purchases of the same non-resident investors are subject to new legislation.

The method of taxation on income arising from investment funds and investment trust portfolio management has been abandoned and the method of taxation on the basis of investor has been adopted on 01.10.2006. From the said date, regardless of being individual or institutional, all investors are subject to %10 income taxation at redemption.

In addition to these explanations, investors who keep the shares of mutual funds that invest more than 51% of their portfolio in Turkish Equities are exempt from taxation on the condition that the investors hold these shares for 1 year. Related to the calculation of taxation, the price of mutual fund shares purchased before 01.10.2006 is accepted to be equal to the price announced on 30.09.2006. Since 01.10.2006, non-resident investors that can submit certificate of residence (for individuals) or certificate of incorporation (for corporate investors), they will be exempt from taxation on income arising from mutual funds.