Turkey rescinds withholding tax on foreign investors

| June 22, 2006 | 0 Comments

Turkey will discontinue a 15 percent withholding tax that was imposed on foreign investors in January. The change in policy brings the nation in line with European Union provisions on domicile and residence rules for the taxation of individuals, according to Turkey’s finance minister. The rule changes come at a time when the Istanbul equities market has dropped by more than 20 percent and the Turkish currency has lost around 20 percent of its value in a month.

Analysts in Turkey call the change “a step in the right direction” but doubt that it will halt the sell-offs that have sent the market and currency plunging. They say that only continued political stability and resolution of issues that are making negotiations toward Turkey’s entrance into the EU will stop the declines. While the finance minister said that the government is determined to enforce fiscal discipline and hold to an inflation target of 4 percent for the next two years, analysts said that more than that will be needed to restore investor confidence.

The rules changes will mean that income and dividends from financial instruments held by non-residents of Turkey will not have any tax withheld from them. Residents of Turkey will see their withholding go from 15 percent to 10 percent on income and dividends, but will still have 15 percent withheld from deposits and repos. The tax exemption for derivative instruments will remain in place.

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