Turkey: Ratification Of The Foreign Account Tax Compliance Act ("FATCA")

Ratification of FATCA

Turkey finally ratified FATCA on March 16th, 2016 with the publication of the Law No. 6677 approving the Agreement between the Government of Turkey and the Government of the United States of America to Improve International Tax Compliance Through Enhanced Exchange of Information in the Official Gazette dated March 16th, 2016 and No. 29655.

FATCA

The Foreign Account Tax Compliance Act ("FATCA") was enacted on March 18th, 2010 by the US Department of the Treasury and Internal Revenue Service (IRS) and went into effect as of July 1st, 2014. The objective of the act is to prevent tax avoidance by natural and legal entities who are taxpayers in the US with respect to US taxation on their income and assets, and to establish a transparent and recordable tax system.

For the application of FATCA, international bilateral agreements have been signed between the US and other countries for the purpose of exchange information. FATCA Agreement is signed between the Republic of Turkey and the Government of United States on July 29th, 2015. Following the ratification of FATCA Agreement by the Turkish Parliament, FATCA has become a national legislation.

In accordance with FATCA, financial entities outside the US must identify their customers who may be taxpayers in the US, obtain required information and documents from their customers and report the asset information of these customers to the Turkish Ministry of Finance – Revenue Administration. The ratification of FATCA by the Turkish Parliament will have an obligation over the financial institutions to provide information regarding the real persons who are associated with the United States (even as a citizen, resident in US or green card holder) and the legal persons who are associated with the United States (having US address, established or headquartered in the US) and certain financial institutions.

In accordance with FATCA and the FATCA Agreement signed between the US and Turkey and ratified on March 16th, 2016 with the publication of the Law No. 6677 approving the Agreement between the Government of Turkey and the Government of the United States of America to Improve International Tax Compliance Through Enhanced Exchange of Information in the Official Gazette dated March 16th, 2016 and No. 29655, for natural and legal entities who do not provide the information and documents required to identify whether or not they are taxpayers in the US, and refuse to declare their taxpayer status, a 30% withholding tax over their US source income may be imposed by the US or the authorized bodies entitled to withhold tax on behalf of the US.

Conclusion

Even before the ratification of the FATCA Agreement by the Turkish Parliament, the national and international financial institutions had been adapting their agreements and internal regulatory documents in accordance with the FATCA Agreement; after the ratification of the FATCA Agreement, compliance with the FATCA provisions is now mandatory under the Turkish law for financial institutions.

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