Turkey Introduces Capital Gains Tax On Securities Income

by Lorys Charalambous, Tax-News.com, Cyprus

31 October 2005

The Turkish government sought to reassure investors last week that the introduction of a 15% tax on profits gained from the trading of securities will not adversely affect investors or stymie the development of one of Europe's largest emerging investment markets.

The tax, which applied to stocks and bonds bought after January 1, 2006, is being introduced as part of wider reforms aimed at simplifying Turkey's tangled taxation system. At present, it is estimated that about half of all economic activity in Turkey is unregistered and untaxed, while those who do pay tax are often penalised by punitive rates.

The government's programme of tax reforms has come about largely as a result of recommendations from the International Monetary Fund. However, some investors fear that the 15% capital gains tax on equity and bond gains may add further complexity to the system and deter investment in the country's stock market.

Speaking last week, Kemal Unakitan, Turkey's finance minister, attempted to restore calm to worried investors, saying that the tax will only have to be paid if stocks or bonds are held for less than one year, while foreign investors will be able to reclaim the tax through double taxation treaties.

Furthermore, Mr Unakitan stated that the tax would make "all investors and investment instruments equal".

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