İstanbul Financial Center

The Law on the İstanbul Finance Center (“the Law”) has been published in June 2022 regulating the establishment of the İstanbul Financial Center (“IFC”), its activities and management as well as the exemptions and incentives foreseen for the participants of the IFC. The Law has the aim to promote İstanbul as an international finance center and strengthen its participation to international finance and capital markets.

What is IFC? IFC is an area located in Ataşehir, İstanbul whose coordinates are determined as per the Law and comprises of both the office area where the financial institutions would  operate and an out of scope area including commercial and social units where employees and visitors would meet their daily needs. According to the official web site of the IFC, IFC will include 1.4 million m² of office space, a 100,000 m² shopping mall, a congress center (with the capacity to hold up to 2,100 people), a 30,000 m² 5-star hotel, a car park (with capacity for 26,000 vehicles) and would be a hub for international and national finance institutions.[1] The offices of Central Bank of the Republic of Türkiye (CBRT), Banking Regulation and Supervision Agency (BRSA), Capital Markets Board of Türkiye (CMB), Borsa İstanbul, Türkiye Sigorta, Ziraat Bank, Halkbank, Vakıfbank and İŞ REIC would be located in the IFC.

How would be IFC operated? The operation and management of the IFC will be conducted for a period of 20 years by a managing company to be established by the Turkey Wealth Fund as a joint stock company.

What are the conditions to operate in IFC? According to the Law, national and international institutions wishing to conduct their activities in the IFC need to obtain a participation certificate from the Presidential Finance Office. Real and legal persons, their branches, representatives, joint ventures, representation offices, regional management centers and national wealth funds might participate to the IFC.  A one-step office is to be established in order to evaluate the applications such as permits, licenses and similar approval applications of the participants, as well as the permits and approvals of their employees. The aim is to conduct all administrative processes of the participants from one location only and accelerate the application process.

What are the advantages of participating to the IFC? The Law foresees certain incentives and exemptions for financial institutions providing financial services to clients abroad. A financial service is considered as an export provided that ultimately the clients in abroad benefit from such service. Below are mentioned some of the important exemptions and incentives:

• 75% of the profit generated through the above mentioned activities will be separately indicated in the corporate income tax returns and deducted from the business profit in the calculation of the corporate income tax base. The deduction rate is 100% from 2022 to 2031,
• Funds received by the IFC resident financial institutions within the scope of the mentioned transactions will be exempt from Banking and Insurance Transaction Tax (“BITT”),
• All transactions related to these activities will be exempt from all types of charges,
• Papers issued concerning these transactions will be exempt from stamp duty,
• With respect to the employees with at least five years of professional experience, 60% of the net value of the monthly wage is exempted from income tax whereas for employees having a professional experience of at least 10 years, this ratio is to be applied as 80%. Please note that this exemption is applied for employees who did not work in Turkey in the last three years before working for an institution participating in the IFC.
• Transactions related to the leasing of the real estate in IFC will be exempt from all types of charges. Also, the papers issued in connection with these transactions will be exempt from stamp duty.
• Within the scope of the activities between themselves and the IFC, the participants will not be required to prepare any kinds of agreements, communications, notifications or books in Turkish. In addition, the participants will be able to freely choose the applicable law in any private law transaction within the scope of their activities among themselves and at the IFC to the extent permitted under the law applicable to their activities.

These exemptions do also apply to regional treasury and financial management offices of the participants active in at least three countries.

Provisions regarding the real estates in the IFC: The real properties in the IFC might only be used for the purposes stipulated under its project and management plan. In case the participation certificate is cancelled for any reason whatsoever, the lease agreement terminates automatically.

The Law aims to provide for an financial ecosystem delivering growth to Turkish economy by attracting foreign investors and making from İstanbul one of the important financial centers of the world. It is important to note that the Law does not foresee any special judicial regime or settlement of disputes within the IFC but introduces important tax exemptions and benefits for the participants.

[1] https://www.ifm.gov.tr/i/2/about

(31.10.2022)

Av. Derya ŞAHİNER