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15% withholding tax on dividends: Application step backwards

Turkey

Effective from 1 January 2006, a new regime was put into effect on taxation of portfolio earnings. The new regime had foreseen taxation of all kinds of portfolio income(*) for all investors -residents and nonresidents- at the same rate, 15%, through withholding. Withholding tax represents final tax liability for non residents.

However, some revisions have been made in the new regime for purposes of attracting more foreign portfolio investments into Turkey and withholding rate on the portfolio income derived by non-resident taxpayers has been reduced from 15% down to nil (0), effective from 7 July 2006. 0% tax is given to portfolio income other than repo and deposit interests.
As a result of new measures, withholding tax rate on portfolio earnings (except for repo and deposit gains) for resident investors have been reduced to 10%, effective from 23 July 2006.
After the recent amendments, taxation on the investment instruments will be applied as follows:

Resident Investors:
Repo and Deposit Interest Income: 15%

Gains derived from Treasury bills and Government and Private Sector Bonds*: 10%

Capital Gains derived from Stock Exchange*: 10%

Gains derived from Mutual Funds: 10%

Gains derived from Derivative Instruments (excluding real persons): 0%

Foreign Investors:
Repo and Deposit Interest Income: 15%

Gains derived from all other Investment Instruments*: 0%

(*) Equities acquired before 1 January 2006 and bonds/treasury bills issued before that date do not fall within the scope of withholding tax. Gains from those securities will be taxable according to the rules applicable on 31 December 2005.

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