On 15 October 2009, the Turkish Constitutional Court (TCC) annulled the 0% withholding tax on qualifying interest income and capital gains derived by non-resident individuals and companies. The TCC decision will enter into force nine months after its publication in the Official Gazette, with no retroactive effect. The details of the annulment decision are not yet made public.

Background

By way of Law 5281, effective from 1 January 2006, a 15% withholding tax was introduced on qualifying interest income and capital gains derived from the disposal of securities, bonds and other capital market instruments by non-resident and resident individuals and companies. However, by Law 5527, effective as of 7 July 2006, the withholding tax rate on the interest and capital gains derived by non-resident individuals and companies was reduced to 0%. The rate reduction did not cover resident investors. Subsequently, the Council of Ministers reduced the withholding tax rate on qualifying income and capital gains derived by resident individuals and companies from 15% to 10% by way of Decree No. 2006/10731.

In 2006, an application for annulment was filed by a group of Members of Parliament before the TCC on grounds of equality principle, claiming that the different tax treatment of resident and non-resident taxpayers was unconstitutional. Meanwhile, by way of Decree No. 2008/14272, with effect as of 14 November 2008, the Council of Ministers reduced the withholding tax rate on certain qualifying capital gains derived by resident individuals and companies from 10% to 0%.

Constitutional Court decision

In a press release of 16 October 2009, the TCC announced that Law 5527 granting a different tax treatment for non-resident individuals and companies on qualifying interest income and capital gains was annulled.

Ministry of Finance response

In a press release, also of 16 October 2009, the Ministry of Finance announced that until the entry into force of the TCC decision the current legislation will continue to apply. Furthermore, legislative action will be taken within a reasonable time and no additional tax burden will be imposed on non-resident taxpayers.