INTERNATIONAL FINANCIAL CENTERS AND ARBITRATION

Abstract

In today’s ecosystem, the ability of capital to easily move between countries has elevated goods, services, and capital markets from a national level to a global scale. One of the consequences of this globalization is that international investors are required to operate under different legal systems and judicial mechanisms in each country where they conduct business. As a significant alternative in international financial practice, there are various institutions established for the resolution of disputes through arbitration.

In this study, firstly, the significance of arbitration in the field of international finance and the reasons for its preference will be examined. Subsequently, the arbitration institutions established in major international financial centers in the Middle East and Asia will be analyzed. In the final section, based on this analysis, we evaluate whether a structure similar to those found in other international financial centers can be established at the Istanbul Financial Center (“IFC”) in our country.

Keywords: International Financial Center, International Arbitration, Dispute Resolution, Istanbul Financial Center

I. INTRODUCTION

The world’s leading financial centers, with their status as being judicial domains independent of the jurisdiction of the country they are located in, provide investors an alternative other than being subject to the host country’s judicial system through private and independent courts established within their frameworks and specialized arbitration institutions. Investors, in turn, favor arbitration over other dispute resolution methods in international investment and trade activities, as it offers a mechanism where they are equally represented.

The primary expectations of the investors from international arbitration are the resolution of disputes in a swift and cost-effective manner, reaching an acceptable outcome, and the existence of a system that ensures the enforceability of decisions.

II. THE IMPORTANCE OF ARBITRATION IN THE FIELD OF INTERNATIONAL FINANCE

According to the Report on Financial Institutions and International Arbitration1 (“Report”) published by the Financial Institutions and International Arbitration Task Force of the International Chamber of Commerce (“ICC“) Commission on Arbitration and Alternative Dispute Resolution on November 24, 2016, financial institutions that prefer to litigate in local courts within major financial centers such as London, New York, Hong Kong, and Frankfurt are increasingly open to the use of international arbitration for cross-border banking and financial disputes due to the changing and increasingly stringent regulatory environment, globalization, and the growing participation of parties from emerging markets in international finance.

The Report indicates that financial institutions tend to prefer arbitration in the following circumstances:

  • When the transaction is significant and particularly complex;
  • When confidentiality is a concern;
  • When the counterparty is a state-owned entity;
  • When the counterparty is located in a jurisdiction where the recognition of foreign court judgments is problematic, or where the enforcement of an arbitration award may be more straightforward.

One of the most fundamental challenges for financial institutions to date has been the country where the counterparty with whom they have a contractual relationship is located or the country where their assets are situated. Since, the enforcement of an arbitration award will need to be sought in that country. At this point, it will be enlightening to examine the core advantages that international arbitration can offer to financial institutions.

The increasing complexity of financial transactions and the generally technical nature of disputes related to financial services have become significant factors in the preference for expert arbitrators, arbitration institutions, and rules designed to resolve complex financial disputes. Therefore, the ability of the parties to choose expert arbitrators with sector expertise and experience is cited by financial institutions as a key advantage of arbitration, as opposed to concerns that the national court may lack expertise to deal with complex financial products.

Another advantage, particularly in commercially sensitive areas such as advisory services, and mergers and acquisitions, is the confidentiality and privacy offered by arbitration. Unlike court cases, arbitration hearings are not open to the public, and the parties can agree that the arbitration award and documents resulting from the arbitration should be confidential.

In addition to all this, when a party from an emerging market is involved, the biggest advantage that international arbitration has over national court litigation is related to enforcement. Indeed, arbitration awards are generally more easily enforceable internationally than foreign court decisions, under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). Therefore, if the seat of the arbitration court is in a state party to the New York Convention, the award can be enforced in any of the other signatory states.

III. ARBITRATION INSTITUTIONS IN INTERNATIONAL FINANCIAL CENTERS

A. Dubai International Arbitration Centre

The Dubai International Financial Centre (“DIFC”) was designed as an independent financial-free zone to provide a legal and regulatory framework to create a safe environment for growth, progress, and economic development across a broad region, primarily in the United Arab Emirates (“UAE”). All businesses registered in the DIFC are subject to the DIFC laws (“DIFC Laws”), which govern the daily operations of firms and individuals in the DIFC.

Since its establishment in 2004, the DIFC Administration has introduced a wide range of civil and commercial DIFC Laws. One of these is the DIFC Arbitration Law, which was introduced in 2008 and amended in 2013. In case the parties agree that any dispute between them will be resolved by arbitration and specify the DIFC as the seat of arbitration, the arbitration provisions of the UAE Civil Procedure Code do not apply. Where the DIFC is the seat of arbitration, all aspects of such arbitration are governed by the DIFC Arbitration Law. Unlike the arbitration provision of the UAE Civil Procedure Code, the Arbitration Law is an English language law.

Prior to Dubai Law No. 34, which came into force in 2021, DIFC’s own arbitration institution was the DIFC-LCIA Arbitration Centre, which was established in 2007 as a joint venture between DIFC and the London International Arbitration Centre (“LCIA”) and was governed by the DIFC-LCIA Arbitration Rules. However, with Dubai Law No. 34, DIFC-LCIA was abolished and subsequent arbitrations were begun to be administered by the Dubai International Arbitration Centre (“DIAC”). DIAC has a branch in DIFC, one of the leading financial centers in the Middle East, Africa and South Asia.

DIAC was established in 1994 as the Commercial Conciliation and Arbitration Centre, an initiative of the Dubai Chamber of Commerce and Industry. Then, by Dubai Decree No. 10 dated 2004, it was renamed the Dubai International Arbitration Centre. Since September 2021, DIAC is no longer an initiative of Dubai Chambers, and has a three-tiered structure consisting of a board of directors, an arbitration tribunal and an administrative body.

DIAC has a portfolio of experienced arbitrators from six continents and with a variety of legal and industry backgrounds. Dispute resolution methods cover a variety of sectors including real estate, engineering and construction, corporate and commercial, finance and investment, logistics, energy, oil and gas.

As part of Dubai’s efforts to consolidate its position as an international dispute resolution hub, DIAC has introduced new Arbitration Rules in 2022. DIAC’s 2022 Arbitration Rules promote speed, efficiency and sustainability of proceedings. Under the 2022 Arbitration Rules, DIFC is the default seat of arbitration for DIAC, and the DIFC Arbitration Law applies to arbitration proceedings.

B. International Arbitration Centre (Astana)

The Astana International Financial Centre (“AIFC”) is one of the most important financial centers in the Eastern Europe and Central Asia region. The AIFC is an independent jurisdiction that began operating in 2018. The International Arbitration Centre (“IAC”) provides an economical and expeditious alternative to court litigation to resolve civil and commercial disputes at the AIFC. It considers disputes that the parties have agreed to be resolved by arbitration.

It has its own procedural rules modelled on international practice. It has a panel of international arbitrators and mediators with many years of experience in arbitration and mediation in commercial law, including trade, construction, oil and gas, financial services, banking, energy, Islamic finance, intellectual property and insurance. The IAC is also an appointing authority, appointing arbitrators and mediators from its panel for arbitrations and mediations conducted at the IAC or elsewhere.

The IAC offers parties flexibility in choosing the rules and procedures they wish to use to resolve their disputes at the IAC. Parties may agree that the IAC:

  • Administer arbitration under the IAC Arbitration and Mediation Rules. (These rules include procedures for expedited arbitrations, appointment of emergency arbitrators, and resolution of investment treaty disputes.);
  • Administer arbitration under the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules or special arbitration rules.
  • Administer mediation under the IAC Arbitration and Mediation Rules or special mediation rules.
  • Provide other alternative dispute resolution methods.

The IAC has an e-Justice system that allows parties to file cases electronically from anywhere in the world without the need to be physically present at the IAC premises. Video hearings take place when an arbitrator or mediator determines that an in-person hearing or meeting is not necessary or appropriate.

C. Abu Dhabi Global Market Dispute Resolution Hearing Centre

Abu Dhabi Global Market (“ADGM”) is one of the world’s leading international financial centers, located in the capital of the UAE. ADGM was established in 2013 as a financial free zone with its own civil and commercial laws in the Emirate of Abu Dhabi, under the Federal and Abu Dhabi legislation.

The ADGM Board of Directors enacted the ADGM Arbitration Regulation on December 17, 2015. This Regulation is based on the Model Law on International Commercial Arbitration published by UNCITRAL (“UNCITRAL Model Law”). The UNCITRAL Model Law is a widely recognized global standard for arbitration regulation. Judges of the ADGM courts can serve as arbitrators under the ADGM Arbitration Regulation.

The ADGM Dispute Resolution Hearing Centre (“DRHC”), established to support dispute resolution in the Middle East and North Africa region, is a center for arbitration hearings and mediations, providing services in line with international practices and equipped with advanced hearing facilities.

The DHRC has an arbitration framework based on the UNCITRAL Model Law and ADGM arbitration awards are internationally enforceable under the New York Convention. In addition, as an independent and impartial hearing venue, the DRHC can be booked by the parties regardless of the governing arbitration institution or seat of arbitration.

IV. STRUCTURES THAT CAN BE ESTABLISHED WITHIN THE ISTANBUL FINANCIAL CENTER

The IFC, which sets out to integrate with international markets in the field of finance and to provide an effective ecosystem and aims to become a global center, does not currently have an independent arbitration institution established within its own structure. In particular, within the scope of the realization of the goal of becoming a global financial center, the IFC can contribute to the realization of this goal by following the path followed by some other important international financial centers with the same goal in terms of dispute resolution and by establishing an internationally accepted, independent and impartial arbitration institution and specific arbitration rules to be applied to the arbitrations to be held.

In determining the arbitration rules to be applied, the arbitration rules that are applied and accepted internationally can be taken as a basis. In this way, the hesitation of the parties to be subject to rules that they do not know or are not familiar with can be prevented. Especially as stated under heading II above, when the tendency of financial institutions to prefer arbitration and the advantages provided by arbitration are taken into consideration, it is evaluated that an impartial and independent arbitration institution to be established and the arbitration rules to be implemented in the IFC can make a significant contribution to the IFC becoming a global financial center by increasing its attractiveness.

V. CONCLUSION

Considering the tendency of international financial institutions to resolve their disputes through arbitration and the advantages provided by arbitration, a special arbitration institution can be established within the IFC in order to increase the IFC’s attractiveness, as in some other important international financial centers. While the establishment of an arbitration institution within the IFC is not a necessity, it is evaluated that the establishment of the relevant arbitration institution will provide added value to the IFC in terms of the attraction it will provide for financial institutions to be located in the financial center within the scope of dispute resolution.

References

  1. https://iccwbo.org/wp-content/uploads/sites/3/2016/11/icc-financial-institutions-and-international-arbitration-icc-arbitration-adr-commission-report.pdf ↩︎
Read more
No Comments

EXPORT OF FINANCIAL SERVICES WITHIN İSTANBUL FINANCIAL CENTER

Abstract

The provisions governing the management and operation of İstanbul Financial Center, as well as the activities conducted within and the incentives, discounts, exemptions, and exceptions related to these activities, are regulated by İstanbul Financial Center Law numbered 7412, and the İstanbul Financial Center Regulation, which outlines the procedures and principles for implementing the law. İstanbul Financial Center Law defines financial institutions and financial service exports, and establishes exemptions, discounts on taxes and other financial obligations applicable to financial institutions engaged in activities classified as financial service exports. The details of these matters, as regulated by the law and the regulation, constitute the subject of our study.

Keywords: Finance, Istanbul Financial Center, Export of Financial Services, Exemption, Exception, Financial Activities

I. INTRODUCTION

With İstanbul Financial Center (“IFC”), it is aimed to increase financial competitiveness on the international stage, contribute to the development and deepening of financial markets, products, and services, strengthen its integration with international financial and capital markets, and thus make IFC one of the leading global financial centers.

IFC aims to bring together a wide range of financial institutions and organizations, including banks, capital market institutions, participation finance companies, financial investment and portfolio management companies, and insurance companies, under a single platform. It seeks to promote sustainable and participatory approaches to all financial services, particularly in the field of international trade. IFC aims to enhance financial development by uniting local and global financial institutions. In this context, advantages such as tax reductions, exemptions and transaction facilities granted to institutions exporting financial services make IFC an attractive option on the international stage.

II. PRINCIPLES FOR RESPONSIBLE MANAGEMENT AND IMPLEMENTATION RECOMMENDATIONS

İstanbul Financial Center Law numbered 74121 (“Law“) and the İstanbul Financial Center Regulation2 (“Regulation“) mainly regulate the procedures and principles regarding the management and operation of IFC, application for certificate of participation (“Certificate“), issuance and cancellation of Certificate, leasing of the properties in IFC and various exemptions and advantages.

To benefit from the exemptions and other tax advantages outlined in Law, participants must obtain Certificate and operate within IFC office area. The Finance Office of the Presidency of the Republic of Türkiye (“Finance Office“) is authorized and responsible for evaluating Certificate applications, issuing Certificates to eligible applicants, rejecting ineligible applications, and suspending or canceling Certificates. Participants wishing to operate within IFC office area must apply to Finance Office. The application process is conducted electronically via IFC portal, which is established and managed by Finance Office.

Law stipulates that a “One-stop Bureau” shall be established to involve relevant departments of public organizations and institutions. This bureau aims to facilitate applications such as permits, licenses, approvals related to participants’ activities, as well as permits and approvals for their employees and dependents3. Once the participants complete the application process and obtain Certificate, they will be eligible to benefit from discounts, exemptions, and other tax advantages stipulated by Law and Regulation.

III. FINANCIAL INSTITUTIONS AND THE EXPORT OF FINANCIAL SERVICES IN IFC

According to Law, financial institutions eligible to operate within IFC include legal entities engaged in financial activities, their branches, liaison offices, representative offices and sovereign wealth funds4. Central Bank of the Republic of Türkiye, regulatory and supervisory institutions, banking and non-banking finance institutions, capital market institutions, financial investment firms and portfolio management companies operate within IFC5.

Financial services offered by organizations holding Certificate, provided that the services are ultimately utilized abroad by non-residents, are considered as financial service export6. Additionally, it is stipulated that derivative transactions conducted on their own behalf and account, acquisition or disposal of assets in their portfolios, and activities, services, and transactions transferring domestic residents’ savings abroad by financial institutions, shall not be considered as financial service exports.

Article 2 of Law defines the transactions eligible for financial services exports as “financial activities” and specifies these activities, services and transactions by reference to the relevant legislation:

• Purchase and sale of foreign exchange, coins, stocks, bonds, precious metals, precious stones and all kinds of goods and assets containing these materials, as well as commercial bills and payment instruments within the scope of Protection of the Value of Turkish Currency Law numbered 15677,

• Activities of pension companies, transactions of pension mutual funds and brokerage services under the Private Pension Savings and Investment System Law numbered 46328,

• Activities of deposit banks, participation banks, development and investment banks, banks established under special laws, and financial holding companies regulated by the Banking Law numbered 54119,

• Operations of entities establishing card systems, issuing cards and entering into merchant agreements under the Bank Cards and Credit Cards Law numbered 546410,

• Activities of insurance and reinsurance companies, intermediaries, actuaries and insurance experts operating in Türkiye in line with the Insurance Law numbered 568411,

• Activities of financial leasing, factoring, financing, and savings finance companies under the Financial Leasing, Factoring, Financing, and Savings Finance Companies Law numbered 636112,

• Issuance and public offering of capital market instruments, capital market activities, stock exchange transactions under the Capital Markets Law numbered 636213,

• Activities of payment institutions, electronic money institutions, and operations of payment services, payment, and securities settlement systems under the Payment and Securities Settlement Systems, Payment Services, and Electronic Money Institutions Law numbered 649314.

IV. ADVANTAGES PROVIDED TO FINANCIAL INSTITUTIONS EXPORTING FINANCIAL SERVICES

IFC participants benefit from various exemptions and advantages under Law. Many of these benefits are exclusive to financial institutions engaged in the export of financial services as defined by the Law.

A. Tax and Financial Liability Exemptions and Discounts

1. Corporate Tax Base Reduction

Provided that they are separately reported on the corporate tax return, 75% of the earnings obtained within the scope of financial service export activities will be deducted from the corporate income when determining the corporate tax base15. To encourage financial institutions to relocate to the IFC, this deduction rate will be applied at 100% for corporate earnings during the taxation periods from 2022 to 203116.

Additionally, pursuant to Article 10 of the Corporate Tax Law numbered 552017, institutions operating in IFC area and holding Certificate are entitled to deduct 50% of the income generated from the sale of goods purchased abroad without bringing them into Türkiye, or from intermediating in transactions involving the purchase and sale of goods abroad18. This deduction applies to the determination of the corporate tax base, provided that such income is separately reported in the corporate tax return. To benefit from this deduction, the income must be transferred to Türkiye by the deadline for filing the annual corporate tax return for the relevant fiscal period, and neither the seller nor the buyer involved in the intermediary transactions may be based in Türkiye.

2. Banking and Insurance Transactions Tax Exemption

Financial institutions that have obtained Certificate are exempt from bank and insurance transaction tax in terms of financial service export transactions and the profits derived from these transactions19.

3. Stamp Duty and Fee Exemption

Transactions related to financial service export activities conducted in IFC by financial institutions that have obtained Certificate are exempt from all kinds of fees, and the papers issued in relation to these transactions are exempt from stamp duty20.

Additionally, transactions concerning the leasing of immovable properties in IFC are also exempt from all kinds of fees, and the papers issued in relation to these transactions are exempt from stamp duty21.

Furthermore, financial activity fees, which collected from the headquarters and branches of financial institutions holding Certificate in IFC in accordance with the Fees Law numbered 49222, will not be collected for a period of five years starting from 28.06.2022, the effective date of Law23.

4. Income Tax Exemption on Employee Salaries

The net monthly salary paid to personnel employed by financial institutions holding Certificate is exempt from income tax as follows: %60 for personnel with a minimum of five years of professional experience abroad, and 80% for personnel with a minimum of ten years of professional experience abroad. This exemption is applicable to the salary income of personnel who have not worked in Türkiye during the three years preceding their employment at IFC24.

B. Choice of Law

Within the scope of the activities conducted at IFC, participants at IFC have the freedom to select the governing law for any transactions and contracts subject to private law, provided that such activities do not violate the legislation applicable to the participants25.

C. Bookkeeping in Foreign Currency and Language

Notwithstanding the provisions of the Turkish Commercial Code numbered 610226 and Tax Procedure Law numbered 21327, the Ministry of Treasury and Finance is authorized to regulate the participants to keep and issue their books and documents in foreign currency28.

Participants are not obliged to keep their transactions, contracts, letters of undertaking and account books in Turkish29.

Furthermore, Law stipulates that exceptions concerning bookkeeping in foreign currencies and languages, as well as the choice of law, shall also apply to regional treasury and financial management centers of participants operating actively in at least three countries30.

D. Employment of Foreign Personnel

Participants operating in IFC are permitted to employ foreign nationals who hold work permits issued by the Ministry of Labor and Social Security. The work permit applications for these individuals will be considered exceptional under Article 16 of the International Labor Law numbered 673531. During the application and evaluation process, certain exceptions under the mentioned law may be granted for the foreign employee32 such as exception from five to one rule.

V. CONCLUSION

IFC offers a range of advantages and exemptions that make it highly attractive for financial institutions to operate within the center. These benefits include tax incentives such as discounts on the corporate tax base, exemptions from banking and insurance transaction taxes, and exemptions from stamp duty and fees. Additionally, regulations provide further conveniences, such as income tax exemptions on employee salaries, the option to choose applicable law, and the ability to maintain bookkeeping in foreign currencies and languages. These comprehensive facilities position IFC as a global hub for financial institutions and represent a significant step towards enhancing Türkiye’s competitiveness in the international financial arena.

References

  1. Official Gazette (“OG”) dated 28.06.2022 and numbered 31880 ↩︎
  2. OG dated 07.07.2023 and numbered 32241 ↩︎
  3. Article 4 of Law ↩︎
  4. Article 2 of Law ↩︎
  5. Presidency of the Republic of Türkiye, About the Istanbul Financial Center (Access Date: 17.12.2024)
    https://www.cbfo.gov.tr/en/about-istanbul-financial-center ↩︎
  6. Article 5 of Law ↩︎
  7. OG dated 25.02.1930 and numbered 1433 ↩︎
  8. OG dated 07.04.2001 and numbered 24366 ↩︎
  9. OG dated 01.11.2005 and numbered 25983 ↩︎
  10. OG dated 01.03.2006 and numbered 26095 ↩︎
  11. OG dated 14.06.2007 and numbered 26552 ↩︎
  12. OG dated 13.12.2012 and numbered 28496 ↩︎
  13. OG dated 30.12.2012 and numbered 28513 ↩︎
  14. OG dated 27.06.2013 and numbered 28690 ↩︎
  15. Subparagraph (a) of Paragraph 1 of Article 6 of Law ↩︎
  16. Provisional Article 1 of Law ↩︎
  17. OG dated 21.06.2006 and numbered 26205 ↩︎
  18. Article 10 of Corporate Tax Law ↩︎
  19. Subparagraph (b) of Paragraph 1 of Article 6 of Law ↩︎
  20. Subparagraph (c) of Paragraph 1 of Article 6 of Law ↩︎
  21. Paragraph 3 of Article 6 of Law ↩︎
  22. OG dated 17.07.1964 and numbered 11756 ↩︎
  23. Provisional Article 1 of Law ↩︎
  24. Paragraph 2 of Article 6 of Law ↩︎
  25. Paragraph 3 of Article 7 of Law ↩︎
  26. OG dated 14.02.2011 and numbered 27846 ↩︎
  27. OG dated 10.01.1961 and numbered 10703 ↩︎
  28. Paragraph 1 of Article 7 of Law ↩︎
  29. Paragraph 2 of Article 7 of Law ↩︎
  30. Paragraph 4 of Article 6 and Paragraph 4 of Article 7 of Law ↩︎
  31. OG dated 13.08.2016 and numbered 29800 ↩︎
  32. Paragraph 1 of Article 8 of Law ↩︎
Read more
No Comments

POSSIBILITY FOR PARTICIPANTS OPERATING IN THE ISTANBUL FINANCIAL CENTER TO KEEP THEIR BOOKS IN FOREIGN CURRENCY

Abstract

Since its establishment, the Istanbul Financial Center (“IFC”) has been quickly advancing towards becoming a global attraction center, with a proactive vision that not only provides tax incentives to participants in the region but also continuously adds new operational conveniences. In this context, most recently, participants in the region are allowed to keep their books and records in any currency of their choice.

Keywords: Istanbul Financial Center, Book Records, Foreign Currency, Central Bank of the Republic of Türkiye, General Communiqué of the Tax Procedure Law

I. INTRODUCTION

IFC, which set out with the goal of offering integration with international markets and an efficient ecosystem in the field of finance, aims to become a regional center in the short term and a global center in the medium term. In line with this vision, it brings together public and private sector banks, portfolio management companies, brokerage firms, insurance companies, professional service companies, international transit trade companies, and national and international financial institutions from various categories.

In line with this vision, in addition to offering various tax incentives and operational advantages to participants in the region, within the scope of providing new opportunities and conveniences over time, it is aimed to enable these participants to keep their books in the foreign currency of their choice, allowing more accurate reporting and facilitating integration with their headquarters through a common currency. Participants who utilize this option will also be able to minimize the additional tax burdens arising from expenses that are not legally accepted due to the changes in exchange rate, compared to institutions that keep their books in Turkish Lira.

In accordance with the authority granted to the Ministry of Treasury and Finance (“Ministry”) by Istanbul Financial Center Law numbered 74121 (“Law”), which allows participants in the region to keep mandatory books and issue documents in foreign currencies, the Ministry has published Tax Procedure Law General Communiqué numbered 5692 (“Communiqué”), and the procedures and principles regarding the implementation, which is set to commence from the 2025 fiscal period, have been established. The procedures and principles introduced by the Communiqué are outlined in our article.

II. PARTICIPANTS INCLUDED IN THE SCOPE OF THE IMPLEMENTATION

Those who are eligible to keep their books in foreign currencies must first obtain a participant certificate and be a participant according to Law. As per Law, the “Participant” is defined as real and legal persons, their branches and representative offices, ordinary partnerships, liaison offices, regional management centers and sovereign wealth funds that will operate in the office area by obtaining a certificate of participation. Additionally, as per paragraph 2 of the Article 3 of the Communique, to be eligible to keep books in foreign currencies, the activities of these participants must exclusively consist of the activities that form the basis for the deductions and exemptions listed in the first paragraph of Article 6 of the Law, or of the activities that qualify for income deductions under subparagraph (i) of the first paragraph of Article 10 of the Corporate Tax Law numbered 5520 (“Covered Activities”).

In this context, financial institutions that obtain a participant certificate and operate in the IFC, whose activities are exclusively related to the export of financial services, as well as institutions that obtain a participant certificate and operate in the IFC by selling goods purchased from abroad without bringing them to Türkiye or by acting as intermediaries in the purchase and sale of goods from abroad, will be able to benefit from this implementation.

III. START TIME OF THE IMPLEMENTATION

A. Participants Whose Activities Consist Exclusively of the Covered Activities

As per paragraph 2 of the Article 3 of the Communique, participants whose activities consist exclusively of those within the scope of the eligible activities will be able to keep their books in any foreign currency for which the exchange rate is determined daily by the Central Bank of the Republic of Türkiye (“CBRT”), starting from the 2025 fiscal period (or from the fiscal period that begins in 2025 for those with a special accounting period). On the other hand, participants whose activities are exclusively within the scope but who have not yet obtained their participant certificate as of the publication date of the Communiqué which is 26.09.2024, but start operations by obtaining their participant certificate by 31/12/2024, can also keep their books in any foreign currency, the rate of which is determined daily by the CBRT, starting from the date they begin operations. Therefore, participants whose activities are exclusively within the scope of eligible activities may keep their books in any foreign currency, the rate of which is determined daily by the CBRT without the need for any application or permit.

B. Participants Whose Activities Do Not Consist Exclusively of the Covered Activities

As per paragraph 3 of the Article 3 of the Communique, in addition to the Covered Activities, participants who also conduct other activities within or outside the region and wish to keep their books in foreign currencies exclusively for their branches within the region, must submit a written application to the Revenue Administration (“Administration”) through the tax offices to which they are affiliated for income or corporate tax purposes.

For participants falling under this scope, who wish to keep their books in foreign currency for their activities in the region, as per paragraph 4 of the Article 3 of the Communique, the following conditions must be met in order to submit an application:

i. As of the application date, at least 30% of its capital must belong to businesses owned by persons whose residence, legal, and business headquarters are located outside of Türkiye.

ii. As of the end of the most recent fiscal period prior to the application date, at least 30% of the income from activities within the region must be derived from the Covered Activities.

The income condition mentioned in paragraph (ii) will not be required for participants starting their activities for the first time.

Participants falling under this scope must submit their request to keep books in a foreign currency at least two months prior to the start of the fiscal period in which the books will be kept. The application must be annexed with:

i. A copy of the participant certificate and the foreign currency in which the books are to be kept.

ii. Information regarding activities within and outside the office area, as well as details of the ownership structure.

iii. Information regarding the gross sales revenue reflecting the volume of activities within and outside the office area.

iv. The ratio of the gross sales revenue obtained from the Covered Activities to the total gross sales revenue from all activities within the region.

For participants starting operations in the region for the first time, it will be sufficient to provide the information specified in paragraphs (i) and (ii).

Applications will be concluded by the Administration by the end of the fiscal period in which the application is made. Upon review of the application, participants with a valid participant certificate whose situation is deemed appropriate can be granted permission by the Ministry to keep their books in foreign currency.

IV. EXCHANGE RATES TO BE USED IN BOOK KEEPING

As per paragraph 8 of the Article 3 of the Communique, participants who keep their books in foreign currencies will convert transactions made in Turkish Lira into the foreign currency in which the records are kept, using the buying rates of exchange announced by the CBRT on the date the transaction occurred. For transactions made in foreign currencies other than the currency in which the records are kept, the cross-exchange rates announced by the CBRT on the date of the transaction will be used. In cases where no cross-exchange rate is available, the transactions in foreign currency will first be converted into Turkish Lira using the buying rates of exchange announced by the CBRT, and then converted from Turkish Lira into the foreign currency in which the records are kept, based on the buying rates of exchange announced by the CBRT on the same day.

Example 1: The participant (A) J.S.C., operating in the IFC and keeping its books in U.S. Dollars, issues an invoice in Euros on 20/8/2026.

Accordingly, (A) J.S.C. will convert the invoice amount, which is in Euros, into U.S. Dollars using the Euro/U.S. Dollar cross exchange rate announced by the CBRT on the date the invoice was issued, and will record the transaction in its books accordingly.

Example 2: The participant (B) J.S.C., operating in the IFC and keeping its accounting records in Euros, receives an invoice in Romanian Leu on 9/9/2026. As of the invoice date, the CBRT has not announced a Romanian Leu/Euro cross exchange rate.

In this case, (B) J.S.C. will first determine the Turkish lira equivalent of the invoice amount in Romanian Leu using the CBRT’s buying rate of exchange on the invoice date. The Turkish lira equivalent will then be converted into Euros, and the transaction will be recorded in the company’s books accordingly.

V. DECLARATIONS TO BE SUBMITTED BY PARTICIPANTS KEEPING THEIR BOOKS IN FOREIGN CURRENCY

As per Article 4 of the Communique, participants who keep their books in foreign currency will convert their declarations, including the balance sheet and income statements attached to the declarations, into Turkish lira using the exchange rate announced by the CBRT on the first day of the month in which the declarations must be submitted. They will submit their reports and declarations in Turkish lira. For declarations related to provisional tax periods, the exchange rates announced on the first day of the month in which the provisional tax return must be submitted will be used. For the payment, offsetting, and refund of taxes subject to the declaration, Turkish lira will be used.

Example 3: The participant (D) J.S.C., operating in the IFC and keeping its books in Russian rubles starting from the 2025 fiscal period, will submit its corporate tax return for the 2025 fiscal period in Turkish Lira, based on the Russian ruble buying rate of exchange announced by the CBRT on the first day of April 2026.

In cases where the CBRT does not announce the exchange rate on the first day of the month in which the declaration is due, the exchange rates announced on the first business day prior to that date will be taken into account.

VI. NOTIFICATION OBLIGATION OF PARTICIPANTS KEEPING BOOKS IN FOREIGN CURRENCY

As per Article 5 of the Communique, participants whose activities exclusively consist of Covered Activities, and who can keep their books in any foreign currency determined daily by the CBRT without the need for any application or permission, must notify the tax office to which they are affiliated for income or corporate tax purposes about the foreign currency they will use for their book records. This notification must be made by the end of the first month of the fiscal period in which they begin keeping books in foreign currency.

Participants who begin their activities for the first time during the fiscal period must notify the tax office to which they are affiliated for income or corporate tax purposes of the foreign currency they will use for their book records by the end of the month following the date they begin keeping books in foreign currency.

Those who fail to notify on time or provide misleading information will be subject to the relevant penalty provisions of the Tax Procedure Law numbered 213.

Participants who are granted permission by the Ministry to keep books in foreign currency as a result of their application do not need to make any further notifications under this scope.

VII. OTHER PRINCIPLES REGARDING THE IMPLEMENTATION

i. Those approved to keep books in foreign currency must keep their books based on the balance sheet method.

ii. Participants keeping books in foreign currency will determine the values of the assets included in the business and their tax bases at the end of the period (including provisional tax periods) according to the currency in which the records are kept.

iii. The date of delivery of goods or performance of services will be considered as the transaction date. However, if an invoice is issued before the delivery of goods or performance of services, the date the invoice is issued will be accepted as the transaction date.

iv. No switch to another foreign currency other than the one initially used for the records can be made until the end of the third fiscal period, including the first fiscal period in which book records are kept in foreign currency.

Example 4: The participant (C) J.S.C., operating in the IFC, starts keeping books in Euros from the 2026 fiscal period. Accordingly, this participant cannot keep books in any other foreign currency until the end of the 2028 fiscal period. However, from the 2029 fiscal period onward, books can be kept in U.S. Dollars or any other foreign currency, the exchange rate of which is determined daily by the CBRT.

v. Taxpayers operating in the IFC and keeping books in foreign currency may switch to keeping books in Turkish lira from the beginning of the following fiscal period. However, taxpayers who switch to keeping books in Turkish lira must continue to do so for three consecutive fiscal periods.

vi. Participants operating in the IFC and keeping books in foreign currency, whose participant certificates are canceled during the fiscal period, must switch to keeping books in Turkish lira from the beginning of the following fiscal period.

VIII. CONCLUSION

Allowing financial institutions engaged in financial service exports, as well as institutions involved in transit trade and intermediary activities for transit trade, who are included in the ecosystem of IFC, to keep their mandatory books and issue documents in foreign currency under the relevant regulations and incentives provided by the IFC is a significant step towards making the region a center of attraction.

Similar proactive measures to be taken within this scope will make important contributions to the vision of the IFC becoming a major financial and trade center in the world and will help Türkiye secure a larger share of the global investments.

References

  1. Published in the Official Gazette dated 28.06.2022 and numbered 31880. ↩︎
  2. Published in the Official Gazette dated 26.09.2024 and numbered 32674. ↩︎
Read more
No Comments