Turkey: Lease Certificates As Sukuk Financing Model In Turkey

Last Updated: 23 January 2018
Article by Av. Gözde Yolal

Despite the fact that a considerable Muslim population lives in Turkey, the legal basis of Sukuk as the financial instrument, which is a free interest financing model has been set up with the Communiqué Series III No: 43 on Lease Certificates and Asset Lease Companies in April 2010, in which ijara sukuk has been adopted. After the adoption of tax exemptions for the issuance of Sukuk, Kuveyt Turk Katılım Bankası was issued the first Sukuk in Turkey in 2011. Despite this issuance of Kuveyt Türk and Sukuk has not been used as a financing model and its market has not been enhanced as expected, since it has not been familiar as financing model, there has been no much market players and the market players have not had huge volumes to enable the SUKUK market to be developed and there have been deficiencies in its legal framework enacted in 2011. In 2013, the Communique Series III No: 61 on Lease Certificates having abrogated the Communique Series III No: 43 and in which the new types of lease certificates have been introduced was entered into force.

Definition of Lease Certificates and Types of Lease Certificates

Lease Certificate is defined as a security which is issued by an asset lease company ("ALC") for the purpose of financing all kinds of assets and rights, and which enables its holders to get a proportionate share from the revenues derived out of such assets and rights

The Communique has regulated five types of lease certificates, which have been based on ownership, management, trading, and partnership and EPC contract or through combined use of those five models. Besides, without limitation of such, any capital market instrument deemed to have the nature of lease certificates may be accepted by the Capital Markets Board as a lease certificate,

  • Ownership based lease certificates: are lease certificates issued to finance the assets and rights to be acquired by ALC from originator[1] in order to be leased to originator or third parties or to be managed in the name of ALC.
  • Management agreement-based lease certificates: are lease certificates issued for the purpose of transfer , of revenues obtained as a result of management of assets or rights owned by the originator in favor of ALC, also including the lease of them until the end of maturity, to ALC within the frame of provisions of the management agreement
  • Trading-based lease certificates: are lease certificates issued to finance the purchase of certain assets or rights by ALC in order to be soldon deferred payment basis to companies described in the first paragraph of article 12.
  • Partnership-based lease certificates: are lease certificates issued by ALC for the purpose of partnership in a joint venture.
  • EPC contract-based lease certificates: are lease certificates issued for the purpose of creation of works pursuant to an EPC contract to which ALC is a party as work owner.

Regardless of its type, lease certificates may be issued by sales through or without public offering or in the form of private placement or sales to qualified investors. Lease certificates to be offered to public must be listed and traded in the exchange, and an application must be filed to the exchange for this purpose.

Disposal in portfolio assets/rights

Until redemption of lease certificates, the assets and rights included in the portfolio of an ALC cannot be disposed of for any purpose other than collateralization, even in the case of transfer of management or supervision of ALC to public authorities, and cannot be pledged, or shown as a collateral, or attached for any purpose including the collection of public receivables, or included in bankrupt's estate, or be subject to an interlocutory injunction.

Asset Lease Companies

The lease certificates may be issued by Asset Lease Companies ("ALCs"), which have to be formed as joint stock companies. ALCs may be founded by (i) banks; (ii) intermediary institutions which operates in any one of portfolio brokerage, general custody services or underwriting activities; (iii) mortgage finance institutions; (iv) real estate investment companies listed in the exchange; (v) public corporations included in first and second groups determined within the frame of Board's corporate governance regulations; (vi) companies which are granted a long-term investment grade rating upon demand in the currency which the issue is denominated ; and (vii) companies of which 51% or more of capital shares are held directly by the Undersecretariat of Treasury.

ALC may only make expenditures required to be incurred for issue of lease certificates, and performance of base transactions of issue, and continuity of its activities and operations pursuant to the applicable laws. Accordingly, ALC cannot incur expenditures in conflict with arm's length principle. The responsibility of expenditures is borne by ALC's board of directors.

Tax Incentives for the Lease Certificates

No VAT tax is to be imposed on (i) the sale of the asset by Originator to ALC; (ii) the leasing of the asset by ALC to Originator; (iii) the delivery of the leasing certificates by ALC; or (iv) the sale-back of the asset by ALC to Originator.  

Lease certificates, sale of movables, immovable and intangible assets to ALC, sale back of these assets to the originator, all the hypothec transactions based on these sales/transfers, the papers issued due to the lease of such assets by ALC are exempted from the stamp tax

Gains from the sale of the asset by Originator to ALC, and later by ALC to Originator, are exempted from corporate tax, regardless of the holding period of the asset.  

While 15% as withholding tax is to be applied tot he 6months participation accounts, the applicable withholding tax ratio for a lease certificate having the same maturity is 10%. 10% withholding tax is the final tax for natural person investors and is not included in the annual income tax return. Gains of joint-stock, limited and commandite companies, investment funds and investment trusts subject to Capital Market Board, foreign funds and partnerships, which are alike to these and those determined by the Ministry of Finance from the purchase and sale of lease certificates and such gains of the same arising from the lease payments are exempted from the withholding tax

The withholding tax ratios for profit shares gained from the lease certificates offered to abroad vary depending on maturity dates of the lease certificates. 0% as withholding tax is to be applied, if the lease certificates maturity date is 5 years or more.


[1] A capital company or to an ordinary partnership founded by natural persons or legal entities possessing a merchant's qualities in reliance upon a written agreement by coming together and combining their properties, which transfers assets and rights to an asset lease company in issuance of ownership based lease certificates, or to companies as described in first paragraph of article 12 hereof, which manage the assets and rights in the name of an asset lease company in issuance of management agreement-based lease certificates.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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