Turkey Abolishes Withholding Taxes For Foreign Investors

by Lorys Charalambous, Tax-News.com, Cyprus

26 June 2006

Turkish Finance Minister Kemal Unakitan has announced that withholding tax on securities held by foreign investors will be abolished.

The move has been made in a bid to inject more confidence into the country's financial system where foreign investors are concerned, and to bring its investment rules into line with those of the European Union, which Turkey hopes to join in due course.

Under the proposed changes, the withholding tax on income and dividends from financial instruments held by non-residents would be eliminated. Rates applied to Turkish residents would also be cut by 5% to 10%, although the 15% withholding tax rate on deposits and repos held by domestic investors would be retained.

A tax exemption for Eurobonds issued by Turkey will be unaffected by the proposals.

The announcement has helped to bolster Turkey's capital markets, which have suffered since investors turned against emerging markets last month; the Turkish currency, the lira, hit a three-year low last Thursday since the reversal in emerging markets began last month, sparked by fears over further hikes in global interest rates. Meanwhile, the value of shares traded on the Istanbul Stock Exchange has tumbled by about 20%.

Following its warning to Turkey that fiscal indiscipline could jeopardise a $10 billion loan agreement, the International Monetary Fund has welcomed the move.

"We think the government has taken a strong set of steps to stabilize the situation," IMF chief spokesman Masood Ahmed told reporters.

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