Presidential Decree No. 9487, published in the Official Gazette on 1 February 2025, introduces several key changes in withholding tax (WHT) rates on investment instruments, deposit accounts, and government securities. (For background, see EY Global Tax Alert, Turkiye extends and amends WHT rates on income/gains from various sources dated 19 November 2024.)

Increased WHT on investment fund earnings

Presidential Decree No. 9487 increases from 10% to 15% WHT on income from investment fund participation certificates.

Under Temporary Article 67 of the Income Tax Law, WHT is applied on income derived from investment fund participation certificates as follows:

• Earnings from participation certificates held for longer than one year in mutual funds that consist of at least 51% of their portfolio of equities traded on the Borsa Istanbul (BIST) are not subject to WHT.
• Earnings from participation certificates of equity-intensive funds, where at least 80% of the fund's total value is composed of equity securities traded on the BIST, excluding equity securities of securities investment trusts are subject to 0% WHT.
• The WHT rate for income from participation certificates of venture capital investment funds and real estate investment funds held for more than two years is also set at 0%.

The WHT rate was applied as 10% for the income or gains derived from investment fund participation certificates other than the above.

The new 15% WHT rate will be applied to income and gains derived from investment fund participation certificates acquired as of 1 February 2025.

Revised withholding for foreign exchange (FX)-protected and gold-indexed deposits

Presidential Decree No. 9487 did not extend the application period of Provisional Article 2, thereby ending a reduced WHT rate and reintroducing the general WHT rates.

Accordingly, the following rates of WHT will be applied for the accounts opened or renewed as of 1 February 2025.

Return to standard withholding for Turkish Lira deposits and participation accounts

As the Presidential Decree did not extend the application period of Provisional Article 2, the following withholding rates will be applied to the interest and dividends paid to demand and special current accounts as of 1 February 2025 (including this date) and to the interest and dividends to be paid to the accounts opened as of 1 February 2025 (including this date) or whose maturity is renewed as of this date:

Extension of 0% withholding for government bonds and lease certificates

Under Presidential Decree No. 9487, the 0% withholding rate on Turkish government bonds, treasury bills and lease certificates issued by the Treasury Asset Leasing Joint Stock Company was extended until 30 April 2025.

WHT rate on income/gains from bank-issued bonds/bills and lease certificates issued by asset-leasing companies for banks

The WHT rates determined under two temporary measures for income and gains obtained from (1) bank-issued bonds and bills and (2) lease certificates issued by asset leasing companies, where the users of the funds are banks, were reduced based on the maturity of the bond or lease certificate or the holding period.

Specifically, temporary Article 67 of the Income Tax Law and temporary Article 3 of the Council of Ministers Decision No. 2006/10731 had been in effect between 23 December 2020 and 31 March 2021. Various subsequent Presidential Decrees extended the duration of this application and new WHT rates were determined, although still at a reduced rate.

Presidential Decision No. 9487 does not extend the application period of the Temporary Article 3, thus terminating the reduced WHT rate application and effectively reinstating the general WHT rates.

Accordingly, starting from 1 February 2025, a 10% WHT will be applied to income and gains obtained from bank-issued bonds and bills and lease certificates issued by asset leasing companies, where the users of the funds are banks.

Further, a 15% WHT will be applied for income and gains obtained from bank-issued bonds with a maturity of less than 365 days and short-term lease certificates issued by asset leasing companies, where the users of the funds are banks, acquired from 1 February 2025.

WHT rate on income and gains from certain securities issued by mortgage financing institutions

Presidential Decision No. 9487 does not extend the application period of Temporary Article 5 of the Council of Ministers Decision No. 2006/10731, which set a 5% WHT rate on income and gains obtained from certain securities issued by mortgage financing institutions acquired between 28 June 2022, and 31 December 2022 (inclusive). The duration of this application had been extended by various Presidential Decrees, and the WHT rate was set at 7.5% for the securities acquired between 1 May 2024, and 31 January 2025 (inclusive).

The new Presidential Decision effectively terminates the discounted WHT rate application and reinstates the general WHT rate. Accordingly, starting from 1 February 2025 (inclusive), a 15% WHT will apply for income and gains obtained from securities issued by mortgage financing institutions established under Law No. 6362 (including the asset financing funds and housing financing funds established by these companies) from (1) asset-backed securities, (2) mortgage-backed securities, (3) mortgage-collateralized securities and (4) asset-collateralized securities with a maturity of less than 365 days. And, a 10% WHT will be apply for those with a maturity of 365 days or more.

The WHT rate change discussed immediately above does not have any effect on the WHT rate (0%) applied to the income and gains of capital companies (joint stock, limited liability companies etc.) or to the income and gains of investors who are considered similar to the investment funds and investment partnerships established under the Capital Markets Law, as determined by the Ministry of Finance.

Implications

Considering the Presidential Decree's shift to standard WHT rates by ending reduced WHT rate applications on various income and gains, it will be important for multinational entities to evaluate their financial assets in Turkiye and the potential effect of new WHT rates on their tax position and ensure compliance with the amended withholding tax rates.