Turkish Parliament Passes New Law to Encourage Repatriation of Funds (Varlık Barışı)
The Turkish Parliament passed a law on August 3, 2016 for the restructuring of certain tax obligations and to encourage the repatriation of funds to Turkey. The “Law for the Restructuring of Certain Receivables” (Bazı Alacakların Yeniden Yapılandırılmasına İlişkin Kanun) (the “Law”), published on August 19, 2016 in the Official Gazette, is seen by many as a tax amnesty.
Article 7 of the Law, “Bringing Funds to the National Wealth” (Bazı Varlıkların Milli Ekonomiye Kazandırılması) seeks to encourage the repatriation of funds located outside of Turkey. Following the enactment of the Law, the Ministry of Finance issued a Communiqué on August 23, 2016 providing further details on the process and structure of the legislation. Several news reports stated that the amount repatriated as of December 2016 was around US$400 million.
A recent decision by the Council of Ministers, dated December 30, 2016, extended the initially defined repatriation timeframe from December 31, 2016 to June 30, 2017.
Funds and assets repatriated or recorded pursuant to the Law will enjoy immunity from any tax assessment, audit or investigation.
Applicable Funds and Assets
Individuals and legal entities resident in Turkey may freely dispose of the cash, gold, foreign currency, securities and other capital markets instruments repatriated from abroad provided that such assets are transferred by June 30, 2017. Free disposal includes, among other things, recording of these assets in corporate books, addition of them to share capital or withdrawal of them from the corporate asset register without incurring a tax base increase or being treated as a distributable profit.
The Law also allows the use of foreign funds to repay loans granted by foreign banks or financial institutions provided that such loans have been recorded in corporate books and all repayments are completed by June 30, 2017. In this situation, the so-called repatriation is made by direct transfer to the lending entity and the pay-down is duly recorded by the borrowing entity.
The Communiqué defines “repatriation” in three ways: 1) the physical movement of cash or cash equivalents to the territory of Turkey; 2) the transfer of funds to an account held in a bank or intermediary institution located in Turkey; or 3) the notification and declaration of securities or other capital markets instruments with intermediary institutions in Turkey. Repatriation of sums may be done at one time or at different times but in either case must be completed by June 30, 2017 to take advantage of the tax immunity.
The Law also allows for income or corporate income taxpayers to record cash, gold, foreign exchange, securities and other capital instruments or immovable property which has been held in Turkey but not recorded in corporate books. The deadline for recording such assets is also June 30, 2017.
Limitation of Tax Assessment and Investigations
Funds or assets repatriated or recorded pursuant to the Law will not be subject to any tax assessment, tax audit, inspection, investigation or prosecution. It is important to note that such funds or assets may trigger other investigations or inspections not within the scope of the Law. In addition, no tax penalty or other administrative penalty will be issued to individuals or legal persons or their legal representatives who benefit from the Law.