Turkey Cuts Withholding Tax On Domestic Securities

by Lorys Charalambous, Tax-News.com, Cyprus

25 July 2006

A cut in withholding taxes on income from certain securities has taken effect for domestic investors in the Turkey's financial markets.

A cabinet decree cutting the withholding tax to 10% from 15% was published in the government gazette on Sunday, and has now entered into effect.

The tax cut applies to Treasury domestic currency securities, private sector securities, and profits of stock exchange trading.

The reduction in rates for domestic investors follows the elimination of withholding tax for foreign investors, made in a bid to inject more confidence into the country's financial system after investors began to desert emerging markets in May as global equity prices slumped.

The tax cut will also help to bring the country's investment rules into line with those of the European Union, which Turkey hopes to join in due course.

Last month, the Turkish parliament approved a substantial cut in the country's rate of corporate tax, a move thought essential by the centre-right government led by Prime Minister Recep Tayyip Erdogan to make Turkey more competitive as it prepares for possible accession to the EU.

The bill will cut corporate tax by 10% to 20%, and the reduction will apply retroactively to January 1, this year.

As a result of the legislation the total tax burden on foreign investment in Turkey will fall to 28% from 37%.

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