Istanbul Finance Center Law numbered 7412, which regulates the management and operating of the Istanbul Finance Center (“IFC”), financial activities to be provided in the IFC and the incentives, deductions, exemptions and exceptions to apply to these activities, was published in the Official Gazette on 28 June 2022 and came into force upon its publication (the “Law”). The Law mainly aims to increase financial competitiveness of Turkey, to strengthen integration into international financial and capital markets, to develop high value-added financial products and services and to promote IFC as an international finance center. We summarized below the details of the relevant regulations for you:

Management and operating of IFC

The management, operating, leasing of the IFC and all management activities related to the sections reserved for public services excluding the areas allocated to the relevant institutions will be conducted for a period of twenty years by a managing company to be established as a joint stock company by the Turkey Wealth Fund in order to exercise and fulfill the powers and duties specified in this Law (“Managing Company”).

Participant certificates, one-stop office

As per the Law, participants that will operate in the IFC must obtain a participant certificate issued by the Presidential Finance Office. Participants are real and legal persons, their branches and representative offices, ordinary partnerships, liaison offices, regional management centers and national wealth funds, who will operate in the office areas.

A one-stop office will be established in order to facilitate the application processes for the applications of participants in relation to their permit, license, approval and other similar applications and applications for their employees. The Presidential Finance Office will manage the one-stop office and relevant departments of public institutions and organizations will be assigned to work in the one-stop office. Procedures and principles such as the issuance of the participant certificate, exemption conditions, suspension and cancellation as well as the rules for the operation of the one-stop office will be regulated separately by an implementation regulation.

Financial activities and financial services exports 

Within the scope of the Law, financial institutions will be able to carry out financial activities in the IFC that are specified in the Law including banking, insurance, pension and private pension, financial leasing, factoring, financing, savings financing, payment services, electronic money services, services within the scope of capital market legislations.

Pursuant to the Law, financial services provided by the financial institutions operating in the IFC with a participant certificate to persons residing abroad are considered as financial services exports, provided that the services are ultimately benefitted abroad. That being said, derivative transactions, portfolio asset purchases and asset sales carried out by financial institutions on their own behalf and activities carrying the savings of local residents abroad will not be considered as financial services exports.

Tax andother financial exceptions, exemptions and deductions  

The following exemptions and deductions will apply to financial services exports to be carried out in the IFC:

• 75% of the profits generated by the financial activities will be deducted from income in the calculation of the corporate income tax base, provided that it is separately shown on the corporation tax return. That being said, this deduction rate will be 100% for the for the fiscal years between 2022 and 2031. For institutions using a special accounting period, these periods will be the accounting periods starting within the relevant years.
• Money received in favor of these transactions will be exempt from the banking and insurance transaction tax.
• All transactions related to the financial services exports will be exempt from all charges and all papers issued for these transactions will be exempt from stamp duty.

Moreover, the Law stipulates that the following exemptions and deductions will apply in relation to the monthly salaries of the personnel that are employed in the IFC: 

• 60% of the monthly gross salaries for those with at least 5 years of professional experience abroad, and
• 80% of the monthly gross salaries for those with at least 10 years of professional experience abroad

will be exempt from income tax. The said exemption will apply to the monthly salary of employees who worked outside of Turkey in the last three years before working at the IFC. 

In addition, all transactions relating to the leasing of the real estate in the IFC will be exempt from all charges. The papers issued in connection with the said transactions will also be exempt from stamp duty.

Lastly, financial activity fees, which are required to be collected from the headquarters and branches of financial institutions operating in the IFC with a participant certificate, will not be collected for a period of five years from the effective date of the Law. The deductions and exemptions mentioned above will also apply to the regional treasury and financial management centers of the participants who are actively operating in at least three countries.

Currency for books and records; language and governing law

According to the Law, the Ministry of Treasury and Finance is authorized to determine the regulations under which the participants may keep their books and records in foreign currency, without being bound by the restrictions in the Tax Procedure Law numbered 213 and the Turkish Commercial Code numbered 6102.

Furthermore, the participants are not under the obligation to have their transactions, agreements and communications in Turkish for activities among themselves and those carried out in the IFC. The Law also allows participants to freely choose the governing law in private law transactions and agreements within the scope of the activities among themselves and carried out in the IFC, provided that it is not contrary to the special legislations to which they are subject to.

The abovementioned provisions are also applicable to the regional treasury and financial management centers of the participants who are actively operating in at least three countries.

Provisions for real estate

The real estate in the IFC can only be used for the purposes indicated in the operation project and the management plan. As per the Law, the IFC management plan and operation project are prepared and registered by the Managing Company. In case of a cancellation of a participation certificate, the lease agreement executed for operating in the IFC of the relevant participant shall automatically terminate.