Newsletter on the Change in “BITT” On Foreign Exchange Transactions and Deposit Witholding Rates
With the Presidential Decree No. 3031 dated 29.09.2020 (“Decree No. 3031”) and Presidential Decree No. 3032 (“Decree No. 3032”) published in the Official Gazette dated 30.09.2020; the rate of banking and insurance transaction tax on foreign exchange transactions and withholding tax rates on the deposit interest rates and the rates regarding the dividends (interest) paid by participation banks for participation accounts were decreased
- Changes in the Rate of Bank and Insurance Transaction Tax on Foreign Exchange Transactions
With the Presidential Decree No. 2568 published in the Official Gazette dated 24.05.2020, the annex of the “Decree of the Council of Ministers dated 28.08.1998 and numbered 98/11591” (“Decision”) regulating the Banking and Insurance Transaction Tax (“BITT”) included in Article 33 of the Expenditure Tax Law No. 6802 had been amended.
Accordingly, it was regulated by this Decision published in the Official Gazette that “BITT” would be applied at the rate of 1% (one percent) over the sales amount in foreign exchange transactions. This rate was reduced to “two per thousand” in accordance with the Decree No. 3031.
- Changes in Withholding Tax rates on Deposit Interest Rates
With the Presidential Decree numbered 1015 published in the Official Gazette dated 01.05.2019, the withholding rate to be made on deposit interest in the sub-clause (2) of the first paragraph of Article 1 of the decision annexed to the “Decree of the Council of Ministers” dated 22.07.2006 and numbered 2006/10731 regarding the withholding rates was changed in accordance with the Decree No. 3032, as follows:
The withholding tax rate;
- is reduced to 5% from %15 in current deposit and call accounts and in deposit accounts with a maturity up to 6 months (including 6 months),
- is reduced to %3 from %12 in deposit accounts with maturity of up to one year (including one year),
- is reduced to %0 from %10 in deposit accounts with a maturity longer than 1 year, and
- the %0 rate remained the same in deposit accounts with maturity longer than 1 year with variable interest rates depending on inflation rate.
- Dividends (Interest) Paid by Participation Banks in Return for Participation Accounts
With the Decree No. 3032, the withholding tax rate applicable to the dividends paid by the participation banks for participation accounts is determined as follows;
“From the dividends paid by participation banks in return for a participation account;
- %5 in drawing accounts, call and private checking accounts and in time deposit accounts up to 6 months (including 6 months),
- %3 in deposit accounts with a maturity of up to 1 year (including 1 year),
- %0 in deposit accounts with a maturity longer than 1 year.
NOTE: Changes regarding the deposit interest rates and the rate of dividends paid by the participation banks in return for a participation account is applied to;
- Drawing and private checking accounts until 31.12.2020 (including this date)
- Rates to be applied to interest and dividends to be paid to accounts opened between 30.09.2020 and 31.12.2020 (including this date) or whose maturity is renewed between these dates.
The aim of these changes is to protect the value of the Turkish Lira through ensuring that savings are kept in Turkish Lira-denominated deposit and participation accounts, and to encourage savings to be invested in these accounts. Thus, BITT rate in foreign exchange commitments were reduced to two per thousand and the withholding tax rates on income from Turkish Lira deposits and participation accounts were reduced until 31 December 2020.