As a result of soaring exchange rates and significant inflation in the Turkish economy, many individuals have entered the cryptocurrency markets to preserve the purchasing power of their cash. Due to its numerous benefits, including minimal transaction costs, 24/7 transaction capacity, and simplicity of international money transfers, cryptocurrencies, and associated exchange platforms have lately come into sharp focus with many local and foreign investors. The situation of cryptocurrencies under Turkish legislation and associated laws will be examined in the sections that follow.
First Efforts at Legitimizing Cryptocurrencies
In Turkey, cryptocurrencies were first restricted by “The Regulation on Prohibiting Payments with Crypto-Assets” (“Regulation”), which was issued in the Official Gazette on April 16, 2021. By means of this rule, the Central Bank of the Republic of Turkey (“CBRT”) restricts the use of crypto assets as legal tender. Nevertheless, none of its articles pertain to trading in crypto assets. Moreover, the Regulation is ground-breaking in that it offers a definition of “crypto assets” for the first time. Article 3 of the rule defines crypto assets as “assets generated digitally using distributed ledger technology or a similar technology and disseminated across digital networks, but not money, fiat money, electronic money, payment instruments, securities, or other capital market instruments.” The Rule forbids the following:
Payments made using crypto assets, either directly or indirectly
Offering services for the direct or indirect usage of crypto assets in payment transactions
The offering of intermediary services by payment and electronic money institutions to platforms offering trading, deposit, transfer, or issuance of services related to crypto assets or fund transfers from these platforms.
Development by payment service providers of business models enabling the use of crypto assets, directly or indirectly, in the provision of payment services and electronic money issuance, and provision by payment service providers of any services linked to such business models.
As a result of this rule, crypto-asset service providers are now obligated parties under the Regulation on Measures Regarding the Prevention of Money Laundering and the Financing of Terrorism. The Financial Crimes Investigation Board (“MASAK”) has produced a “Guide” on the essential requirements of crypto-asset service providers to avoid the laundering of criminal profits and funding of terrorism. This Regulation and Guidance, which are currently in effect, aim to prohibit the use of cryptocurrencies in terrorist or criminal operations due to their decentralized and anonymous characteristics. All of this follows one of the largest cryptocurrency frauds in Turkey’s history, which occurred in 2021 when over 400 thousand people were scammed of over $2 billion.
The authorities’ outlook on cryptocurrencies is improving.
Before this date, legislation and public declarations have always sought to prohibit or reduce cryptocurrency use. The first draft of a cryptocurrency law was released at the end of December 2021. The draft emphasized the following points:
A Modification to the Capital Markets Law in Turkey Pertaining to Crypto Assets
Initial definitions of related terms, including crypto asset, crypto-asset trading platform, crypto-asset custodian, and crypto-asset service providers.
The Capital Market Board’s ability to select the crypto assets to be traded on the platforms, to govern the termination of trading, to dispose of the crypto assets for which trading has been ended, and permit crypto platforms and service providers to operate has not yet been accepted.
President Recep Tayyip Erdogan said on January 7, 2022, following a meeting with Tesla CEO Elon Musk, that TOGG, the national vehicle brand of the Republic of Turkey, will collaborate with the AVAX cryptocurrency network. In addition, on January 26, 2022, the President announced that Turkey should be among the first nations in the Metaverse.
Crypto Asset Tax Regulation Passed by the Grand National Assembly (TBMM) Planning and Budget Commission
It can be said that a three-layer taxation model has been introduced for crypto assets:
1. Transaction Tax
A tax of 0.03% (3 per ten thousand) will be applied to sales and transfer transactions conducted through crypto asset service providers.
(Estimated annual revenue expectation: approximately TRY 4.2 billion)
2. Capital Gains Tax
A) Platforms Subject to the Capital Markets Board (CMB) – Local Exchanges:
A 10% withholding tax will be applied to trading gains obtained through CMB-licensed platforms.
However, it is important to emphasize that, in practice, this withholding tax will not initially be implemented. Due to legislative technique, the 10% rate is written into the law, but it will be reduced to zero by a Presidential decree. Therefore, users trading on local licensed platforms will effectively only pay the 0.03% transaction tax.
B) Non-CMB Platforms or Foreign Platforms:
Gains obtained through non-regulated platforms or foreign exchanges will be taxed through declaration, based on progressive income tax rates.
This means that if you use a global exchange, your income will be subject to taxation ranging between 15% and 40%, depending on your tax bracket.
3. VAT Exemption
Crypto asset deliveries falling within the scope of the transaction tax are exempt from VAT, in order to prevent double taxation.
Discussions and Debates in the Parliamentary Commission
Concerns Raised by Sector Representatives and Officials
Industry representatives (such as the Turkish Capital Markets Association) argued that imposing both a transaction tax and a capital gains tax simultaneously would create a heavy burden.
They also pointed out that:
The definition of “transfer” is overly broad
Investors may shift to foreign platforms
No platform has yet received a CMB license
At least six months is required for infrastructure readiness
Accordingly, they proposed postponing the implementation until 2027.
Concerns Raised by Opposition Members of Parliament
Opposition members generally supported the taxation of crypto assets but raised several concerns:
The simultaneous application of transaction tax and capital gains tax may result in double taxation
Domestic platforms may become disadvantaged compared to foreign exchanges
Certain concepts (such as “same type of crypto asset”) remain ambiguous
The authority granted to the President to change tax rates is excessively broad
Sadullah Kısacık from the New Path Party emphasized that crypto platforms recently established by banks would become economically unviable under this tax burden. He warned that investors could easily migrate to foreign platforms by downloading a single application, describing the situation as “leaving the door of the coop open while taxing those inside.”
He also submitted a motion to remove the 0.03% transaction tax, arguing that such a tax does not exist in stock exchange or forex markets. However, this proposal was rejected following a vote.
General Political View
Members of Parliament from various parties acknowledged that the taxation of crypto assets is a delayed but necessary and positive development.
Some opposition members argued that, given the complexity and technical nature of crypto markets, regulation should not be introduced through a few provisions within an omnibus law. Instead, they suggested adopting a comprehensive and standalone “code law” specifically designed for crypto assets.
Response from the Revenue Administration
Deputy Head of the Revenue Administration, Mehmet Arabacı, stated that:
The inclusion of capital gains tax in the law is required due to legislative technique
However, the 10% withholding tax for platform-based transactions will be reduced to zero by Presidential decision
Therefore, in practice, double taxation will not occur
He also noted that:
The scope of “transfer” will be narrowed through secondary legislation (communiqués)
Transactions such as transfers to and from custodians will be excluded
Additionally, he highlighted that:
Starting from 2027, the OECD’s Crypto-Asset Reporting Framework (CARF) will come into effect
This will enable the tracking of transactions conducted on foreign platforms
The Chairman of the Capital Markets Board added that licensed platforms are perceived as a “safe harbor,” and therefore, a significant migration of users is not expected.
Conclusion
It appears that Turkey, like other nations, has begun creating the legal framework and foundations for cryptocurrencies in light of their fast-growing popularity worldwide. Yet, given the autonomous, decentralized, and unregulated character of cryptocurrencies, it appears that it will take some time to define the legal nature of these assets and establish the regulatory frameworks for these assets. Contact us today to learn more.
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