Possibility for Participants Operating in the Istanbul Financial Center to Keep Their Books in Foreign Currency

ABSTRACT

Since its establishment, the Istanbul Financial Center (“IFC”) has been quickly advancing towards becoming a global attraction center, with a proactive vision that not only provides tax incentives to participants in the region but also continuously adds new operational conveniences. In this context, most recently, participants in the region are allowed to keep their books and records in any currency of their choice.

Keywords: Istanbul Financial Center, Book Records, Foreign Currency, Central Bank of the Republic of Türkiye, General Communiqué of the Tax Procedure Law.

I. INTRODUCTION

IFC, which set out with the goal of offering integration with international markets and an efficient ecosystem in the field of finance, aims to become a regional center in the short term and a global center in the medium term. In line with this vision, it brings together public and private sector banks, portfolio management companies, brokerage firms, insurance companies, professional service companies, international transit trade companies, and national and international financial institutions from various categories.

In line with this vision, in addition to offering various tax incentives and operational advantages to participants in the region, within the scope of providing new opportunities and conveniences over time, it is aimed to enable these participants to keep their books in the foreign currency of their choice, allowing more accurate reporting and facilitating integration with their headquarters through a common currency. Participants who utilize this option will also be able to minimize the additional tax burdens arising from expenses that are not legally accepted due to the changes in exchange rate, compared to institutions that keep their books in Turkish Lira.

In accordance with the authority granted to the Ministry of Treasury and Finance (“Ministry”) by Istanbul Financial Center Law numbered 7412[1] (“Law”), which allows participants in the region to keep mandatory books and issue documents in foreign currencies, the Ministry has published Tax Procedure Law General Communiqué numbered 569[2] (“Communiqué”), and the procedures and principles regarding the implementation, which is set to commence from the 2025 fiscal period, have been established. The procedures and principles introduced by the Communiqué are outlined in our article.

II. PARTICIPANTS INCLUDED IN THE SCOPE OF THE IMPLEMENTATION

Those who are eligible to keep their books in foreign currencies must first obtain a participant certificate and be a participant according to Law. As per Law, the “Participant” is defined as real and legal persons, their branches and representative offices, ordinary partnerships, liaison offices, regional management centers and sovereign wealth funds that will operate in the office area by obtaining a certificate of participation. Additionally, as per paragraph 2 of the Article 3 of the Communique, to be eligible to keep books in foreign currencies, the activities of these participants must exclusively consist of the activities that form the basis for the deductions and exemptions listed in the first paragraph of Article 6 of the Law, or of the activities that qualify for income deductions under subparagraph (i) of the first paragraph of Article 10 of the Corporate Tax Law numbered 5520 (“Covered Activities”).

In this context, financial institutions that obtain a participant certificate and operate in the IFC, whose activities are exclusively related to the export of financial services, as well as institutions that obtain a participant certificate and operate in the IFC by selling goods purchased from abroad without bringing them to Türkiye or by acting as intermediaries in the purchase and sale of goods from abroad, will be able to benefit from this implementation.

III. START TIME OF THE IMPLEMENTATION

A. Participants Whose Activities Consist Exclusively of the Covered Activities

As per paragraph 2 of the Article 3 of the Communique, participants whose activities consist exclusively of those within the scope of the eligible activities will be able to keep their books in any foreign currency for which the exchange rate is determined daily by the Central Bank of the Republic of Türkiye (“CBRT”), starting from the 2025 fiscal period (or from the fiscal period that begins in 2025 for those with a special accounting period). On the other hand, participants whose activities are exclusively within the scope but who have not yet obtained their participant certificate as of the publication date of the Communiqué which is 26.09.2024, but start operations by obtaining their participant certificate by 31/12/2024, can also keep their books in any foreign currency, the rate of which is determined daily by the CBRT, starting from the date they begin operations. Therefore, participants whose activities are exclusively within the scope of eligible activities may keep their books in any foreign currency, the rate of which is determined daily by the CBRT without the need for any application or permit.

B. Participants Whose Activities Do Not Consist Exclusively of the Covered Activities

As per paragraph 3 of the Article 3 of the Communique, in addition to the Covered Activities, participants who also conduct other activities within or outside the region and wish to keep their books in foreign currencies exclusively for their branches within the region, must submit a written application to the Revenue Administration (“Administration”) through the tax offices to which they are affiliated for income or corporate tax purposes.

For participants falling under this scope, who wish to keep their books in foreign currency for their activities in the region, as per paragraph 4 of the Article 3 of the Communique, the following conditions must be met in order to submit an application:

i. As of the application date, at least 30% of its capital must belong to businesses owned by persons whose residence, legal, and business headquarters are located outside of Türkiye.

ii. As of the end of the most recent fiscal period prior to the application date, at least 30% of the income from activities within the region must be derived from the Covered Activities.

The income condition mentioned in paragraph (ii) will not be required for participants starting their activities for the first time.

Participants falling under this scope must submit their request to keep books in a foreign currency at least two months prior to the start of the fiscal period in which the books will be kept. The application must be annexed with:

i. A copy of the participant certificate and the foreign currency in which the books are to be kept.

ii. Information regarding activities within and outside the office area, as well as details of the ownership structure.

iii. Information regarding the gross sales revenue reflecting the volume of activities within and outside the office area.

iv. The ratio of the gross sales revenue obtained from the Covered Activities to the total gross sales revenue from all activities within the region.

For participants starting operations in the region for the first time, it will be sufficient to provide the information specified in paragraphs (i) and (ii).

Applications will be concluded by the Administration by the end of the fiscal period in which the application is made. Upon review of the application, participants with a valid participant certificate whose situation is deemed appropriate can be granted permission by the Ministry to keep their books in foreign currency.

IV. EXCHANGE RATES TO BE USED IN BOOK KEEPING

As per paragraph 8 of the Article 3 of the Communique, participants who keep their books in foreign currencies will convert transactions made in Turkish Lira into the foreign currency in which the records are kept, using the buying rates of exchange announced by the CBRT on the date the transaction occurred. For transactions made in foreign currencies other than the currency in which the records are kept, the cross-exchange rates announced by the CBRT on the date of the transaction will be used. In cases where no cross-exchange rate is available, the transactions in foreign currency will first be converted into Turkish Lira using the buying rates of exchange announced by the CBRT, and then converted from Turkish Lira into the foreign currency in which the records are kept, based on the buying rates of exchange announced by the CBRT on the same day.

Example 1: The participant (A) J.S.C., operating in the IFC and keeping its books in U.S. Dollars, issues an invoice in Euros on 20/8/2026.

Accordingly, (A) J.S.C. will convert the invoice amount, which is in Euros, into U.S. Dollars using the Euro/U.S. Dollar cross exchange rate announced by the CBRT on the date the invoice was issued, and will record the transaction in its books accordingly.

Example 2: The participant (B) J.S.C., operating in the IFC and keeping its accounting records in Euros, receives an invoice in Romanian Leu on 9/9/2026. As of the invoice date, the CBRT has not announced a Romanian Leu/Euro cross exchange rate.

In this case, (B) J.S.C. will first determine the Turkish lira equivalent of the invoice amount in Romanian Leu using the CBRT’s buying rate of exchange on the invoice date. The Turkish lira equivalent will then be converted into Euros, and the transaction will be recorded in the company's books accordingly.

V. DECLARATIONS TO BE SUBMITTED BY PARTICIPANTS KEEPING THEIR BOOKS IN FOREIGN CURRENCY

As per Article 4 of the Communique, participants who keep their books in foreign currency will convert their declarations, including the balance sheet and income statements attached to the declarations, into Turkish lira using the exchange rate announced by the CBRT on the first day of the month in which the declarations must be submitted. They will submit their reports and declarations in Turkish lira. For declarations related to provisional tax periods, the exchange rates announced on the first day of the month in which the provisional tax return must be submitted will be used. For the payment, offsetting, and refund of taxes subject to the declaration, Turkish lira will be used.

Example 3: The participant (D) J.S.C., operating in the IFC and keeping its books in Russian rubles starting from the 2025 fiscal period, will submit its corporate tax return for the 2025 fiscal period in Turkish Lira, based on the Russian ruble buying rate of exchange announced by the CBRT on the first day of April 2026.

In cases where the CBRT does not announce the exchange rate on the first day of the month in which the declaration is due, the exchange rates announced on the first business day prior to that date will be taken into account.

VI. NOTIFICATION OBLIGATION OF PARTICIPANTS KEEPING BOOKS IN FOREIGN CURRENCY

As per Article 5 of the Communique, participants whose activities exclusively consist of Covered Activities, and who can keep their books in any foreign currency determined daily by the CBRT without the need for any application or permission, must notify the tax office to which they are affiliated for income or corporate tax purposes about the foreign currency they will use for their book records. This notification must be made by the end of the first month of the fiscal period in which they begin keeping books in foreign currency.

Participants who begin their activities for the first time during the fiscal period must notify the tax office to which they are affiliated for income or corporate tax purposes of the foreign currency they will use for their book records by the end of the month following the date they begin keeping books in foreign currency.

Those who fail to notify on time or provide misleading information will be subject to the relevant penalty provisions of the Tax Procedure Law numbered 213.

Participants who are granted permission by the Ministry to keep books in foreign currency as a result of their application do not need to make any further notifications under this scope.

VII. OTHER PRINCIPLES REGARDING THE IMPLEMENTATION

i. Those approved to keep books in foreign currency must keep their books based on the balance sheet method.

ii. Participants keeping books in foreign currency will determine the values of the assets included in the business and their tax bases at the end of the period (including provisional tax periods) according to the currency in which the records are kept.

iii. The date of delivery of goods or performance of services will be considered as the transaction date. However, if an invoice is issued before the delivery of goods or performance of services, the date the invoice is issued will be accepted as the transaction date.

iv. No switch to another foreign currency other than the one initially used for the records can be made until the end of the third fiscal period, including the first fiscal period in which book records are kept in foreign currency.

Example 4: The participant (C) J.S.C., operating in the IFC, starts keeping books in Euros from the 2026 fiscal period. Accordingly, this participant cannot keep books in any other foreign currency until the end of the 2028 fiscal period. However, from the 2029 fiscal period onward, books can be kept in U.S. Dollars or any other foreign currency, the exchange rate of which is determined daily by the CBRT.

v. Taxpayers operating in the IFC and keeping books in foreign currency may switch to keeping books in Turkish lira from the beginning of the following fiscal period. However, taxpayers who switch to keeping books in Turkish lira must continue to do so for three consecutive fiscal periods.

vi. Participants operating in the IFC and keeping books in foreign currency, whose participant certificates are canceled during the fiscal period, must switch to keeping books in Turkish lira from the beginning of the following fiscal period.

VIII. CONCLUSION

Allowing financial institutions engaged in financial service exports, as well as institutions involved in transit trade and intermediary activities for transit trade, who are included in the ecosystem of IFC, to keep their mandatory books and issue documents in foreign currency under the relevant regulations and incentives provided by the IFC is a significant step towards making the region a center of attraction.

Similar proactive measures to be taken within this scope will make important contributions to the vision of the IFC becoming a major financial and trade center in the world and will help Türkiye secure a larger share of the global investments.