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Turkish Blockchain Regulatory Framework - 2023

The government is working on an Unofficial Draft Legislation on crypto assets and crypto asset service providers amending Capital Markets Law No. 6362 (CML)

Turkey has quickly emerged as a significant adopter of cryptocurrency, with over 5 million individuals estimated to own digital assets, as reported by the Crypto Currency Research Report published by the Information Technologies and Communication Authority of Turkey in May 2020. However, the absence of a legal framework for investor protection leaves the market exposed to potential risks. Currently, there is no specific scheme in place to protect investors who hold crypto assets, creating a need for regulatory measures to safeguard their interests. The government is working on an Unofficial Draft Legislation on crypto assets and crypto asset service providers amending Capital Markets Law No. 6362 (CML) to address this issue, and once implemented, it will set requirements for crypto asset service providers, trading platforms, wallets, and custody services, providing a much-needed layer of protection for investors. Although there is no official press release regarding the timeline of the Unofficial Draft Legislation, it is expected to be submitted to the Grand National Assembly of Turkey in the near future and will impose additional requirements for crypto asset service providers (CASPs) operating in the country. In general, the Unofficial Draft Legislation seeks to regulate crypto assets, crypto asset trading platforms, crypto wallets, crypto asset custody services and CASPs in Turkish legislation for the first time, providing a much-needed layer of protection for investors. Capital Asset Security Platforms (CASPs) will be required to obtain a license from the Capital Markets Board of Turkey (CMB) in order to be established and operated, and will be subject to the CMB's supervision to ensure compliance with applicable Capital Markets Law (CML) regulations. In the Unofficial Draft Legislation Crypto Asset Service Providers (CASPs) are defined as entities that provide services related to crypto assets, such as crypto asset exchanges, crypto asset custodians, and other related services. In These providers are essential for the safe and secure exchange of crypto assets.

From a taxation point of view according to the third paragraph of Article 73 of the Turkish Constitution, taxes, fees, duties, and other fiscal obligations can only be imposed, amended, or revoked by law, thus emphasizing the principle of the legality of taxation. This principle has been further developed in Turkish tax law doctrine, which states that all aspects of taxation, including the main elements of the tax, as well as duties and procedural issues related to the assessment, notification, accrual, and collection of the tax, and penalties arising from non-compliance, should be regulated by law. As of now, there is no specific tax regime in place for the taxation of crypto assets in Turkey. This is due to the absence of any specific tax regulations governing the exchange and holding of crypto assets. Therefore, there is a need for further legal clarity and regulation to ensure the taxation of crypto assets is in line with the constitutional and legal principles of Turkey. In short, it depends on how we classify these assets.From a corporate tax perspective, the classification of crypto assets is essential for determining the taxation of income generated from them. If crypto assets are deemed to be securities, they will be subject to the same taxation principles as other securities, meaning any profits derived from the appreciation of crypto assets will be taxed as commercial income. On the other hand, if crypto assets are considered commodities, the continuity of the activity realised with crypto assets will change the nature of the gain, which will be taxed according to the Corporate Income Tax Law. In principle, from a Turkish taxation perspective, crypto asset proceedings are not subject to Value Added Tax (VAT) if they are exchanged for other virtual currencies or fiat currencies, as this is likely to be deemed a money remittance transaction since it is not listed in Article 1 of Value Added Tax Law No. 3065.

Having said that recent developments in the European Union regarding the Markets in Crypto-Assets (MiCA) have highlighted that the Unofficial Draft Legislation proposed by Turkey does not adopt a strict regulatory approach. Instead, it establishes a regulatory framework that will allow for the creation of future secondary pieces of legislation. Once the Unofficial Draft Legislation, or its amended version, comes into effect, it is expected that the Capital Markets Board of Turkey (CMB) will focus on implementing secondary pieces of legislation to ensure regulatory harmonization with the EU. This will enable Turkey to keep pace with the rapidly evolving regulatory landscape of the global crypto market, while also ensuring investor protection and market integrity.

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