Preparations for comprehensive legal regulation regarding crypto assets in Turkey have materialized. The draft text outlines a definition of crypto assets and plans to take significant steps regarding market regulation and operation, particularly concerning taxation.
In the draft, crypto assets are defined as intangible assets that can be created and stored using distributed ledger technology or similar technologies, distributed over digital networks, and representing value or rights, within the scope of the Capital Markets Law No. 6362.
The rationale behind the regulation notes the rapid growth of the cryptocurrency market both globally and in Turkey, emphasizing the need for new regulations to ensure the market operates more efficiently, controllably, and reliably due to increasing trading volumes. The aim is to develop a viable model for taxing cryptocurrencies in Turkey.
One of the most striking points in the draft text is the introduction of a “crypto asset transaction tax.” According to this, sales and transfer transactions carried out or brokered by crypto asset service providers will be subject to tax. The taxpayer will be the service providers themselves, and the taxation period is planned to be monthly. Furthermore, the President is authorized to determine the tax rate, while the Ministry of Treasury and Finance is authorized to determine the procedures and principles for its implementation.
The draft also includes significant changes regarding income tax. Crypto assets are included within the scope of the Income Tax Law, and clear provisions are introduced for the taxation of income derived from these assets. Accordingly, gains from the disposal of crypto assets will be considered “capital gains”; and income derived from crypto assets included in commercial enterprises will be taxed as commercial income.
On the other hand, it is planned that income from crypto assets obtained through platforms authorized by the Capital Markets Board will be ultimately taxed through withholding. Income from transactions carried out outside of authorized platforms is expected to be taxed through declaration. It is stated that the tax withheld by the platforms will be considered final tax for individuals and limited liability companies, excluding those subject to commercial income tax.
The draft also includes details regarding the determination of the tax base, loss offsetting, and the responsibilities of platforms. The Ministry of Treasury and Finance is authorized to hold those involved in or facilitating taxable transactions responsible for the payment of taxes, while the President is granted broad powers to determine withholding tax rates.
How Will Cryptocurrency Taxation Be Calculated?
According to the regulation, a 10% tax withholding will be applied by platforms subject to the Capital Markets Law No. 6362 to profits and income derived from cryptocurrency transactions conducted through these platforms. This withholding will be applied on a quarterly basis throughout the calendar year. Whether the income recipient is a natural or legal person, whether they are a full or limited taxpayer, or even whether they are exempt from tax, will not affect this withholding.
The draft also includes technical details on how the tax base will be calculated. Accordingly, if purchases of the same crypto asset are made on different dates followed by sales, the “first-in, first-out” (FIFO) method will be used. Furthermore, commissions paid during purchases and sales, as well as transaction taxes, will also be taken into account in the tax base calculation. Multiple transactions involving the same type of crypto asset will be considered as a single transaction for withholding purposes.
An important framework is also being established regarding loss offsetting. Losses arising from the same type of crypto assets can be deducted from the tax base of subsequent periods, provided they remain within the same calendar year. In addition, when transferring crypto assets from one platform to another, the purchase price and purchase date must be reported to the new platform. For assets transferred to the platform for the first time, the investor’s declaration will be accepted as the basis, provided it is supported by documentation.
According to the new regulation, individual investors will not be required to file a separate annual tax return for earnings obtained through platforms and subject to withholding tax. These incomes will not be included in the declaration along with other income elements. However, earnings obtained within the scope of commercial activities will be calculated according to the provisions for commercial income, and the withheld taxes can be offset in the annual tax return.
A different system is envisioned for off-platform transactions. Income from cryptocurrency assets obtained from transactions conducted through platforms not authorized by the Capital Markets Board, or directly from such transactions, will be declared in the annual income tax return. Losses arising from this will only be deductible from cryptocurrency gains.
The draft also clearly defines the responsibilities of intermediaries. Those who act as intermediaries in the buying and selling of crypto assets may be held liable for tax assessments based on the information and documents they possess. In case of incomplete or erroneous reporting, action will be taken directly against the person who made the reporting.
The platforms’ obligations have also been clarified. Accordingly, the taxes withheld will be reported to the relevant tax office by the evening of the 26th day of the following month, using a declaration form determined by the Ministry of Treasury and Finance, and will be paid within the same period.
The President is given the authority to reduce the tax rate to zero or increase it by up to one fold, while the Ministry of Treasury and Finance is authorized to determine the procedures and principles regarding the implementation, as well as to identify the parties responsible for paying the tax.
*This is not investment advice.