BLOCKCHAIN AND CRYPTO CURRENCY (BITCOIN) REGULATION IN TURKEY

Without reckoning the declarations issued by government agencies such as Banking Regulation and Supervision Agency (BRSA) – (Bankacılık Düzenleme ve Denetleme Kurumu (BDDK)) and Capital Markets Board (CMB) – (Sermaye Piyasası Kurulu (SPK)), Turkish Legislators attitude towards crypto currencies and traders has been a complete ignorance. Even though, tax offices have been collecting VAT and Corporate Income Tax from local Exchanges (which are located within country borders), authorities remained silent and avoided any specific regulation so far. Yet, one should expect similar, adopted regulations following any news from EU or US.

The Beginning

The very first legal document regarding Bitcoin was an official declaration[1] issued by Banking Regulation and Supervision Agency (BRSA) on November 25th, 2013. Starting with this declaration, citizens acknowledged that government agencies were aware of Bitcoin. Interestingly the announcement warned and advised people against Bitcoin without saying a word about blockchain technology. This declaration was simply announcing the conclusions of an evaluation concerning the Law No. 6493 “Code of Payment and Securities Consensus Systems, Payment Services and Electronic Money Institutions”. Bottom line, “Bitcoin” and cryptocurrency do not fit the definitions of law and therefore are beyond any control and supervision. People took that advice as if it was only a “do it at your own risk” caution. And the trade and investment on crypto-currencies grew almost epidemically. While government has the right and authority on financial and banking institutions and monitors almost everything, Bitcoin and its derivatives (aka Alt Coins) were being declared only out of Agency’s competency (jurisdiction) since they cannot be defined as electronic fund.

On December 2016 Capital Markets Board (CMB) – (Sermaye Piyasası Kurulu SPK)) announced a research report[2] regarding “Crypto Currency – Bitcoin”. This report has a positive approach to crypto currency and should be considered quite pro Bitcoin.

On the other hand, CMB made another announcement in its Bulletin[3] dated 27.09.2018 regarding the token sales and ICO’s. CMB stated the risks and declared ICO’s as a speculative investment as of being beyond its competency as similar to BRSA.

Another press release regarding crypto currencies is the one published by Department of Treasury on 10 January 2018. Department declared that, it’s been decided to “form a study group to develop regulation following an assessment on the new opportunities brought by new financial technologies”, which was big news then but we haven’t heard anything after almost two years.   Additionally, the department made an announcement to explain the risks of crypto currencies.

Those risks mentioned are:

“– Crypto currencies have no legal basis within the country and any crypto related transaction will not be assured by any official authority.  

– Crypto currencies (mostly known Bitcoin), have negative characteristics such as being extremely volatile, risks of possible theft, lost or unauthorized usage of digital wallets. Any hazardous action even made by mistake or intentionally made by malicious third parties, would not be reversible or being able to cancel.   

– Some business models who offers big gains based on crypto currencies may cause big losses to ill-informed people. devrimbozkurt.av.tr

– Since there is no regulation or supervision, the ICO’s (Initial Coin Offering) being made to raise capital are prone to possible fraud attempts.

– As a result of being decentralized, in a market beyond any supervision by any authority, crypto currencies may be easily used by illegal means at the same time.

In accordance with the above-mentioned matters those who made any transaction by using crypto currencies should be aware of danger and be careful to avoid possible damage.”

Study group haven’t shared any report, proposal or draft law so far. Ever since that press release, the legal and moral ground of crypto currencies are still the same. Consequently, we should focus on the current resources of law in force until then.

Current Situation

No matter how deep you look into the domestic legislation its not possible to find out single rule or legislative provision mentioning Bitcoin or crypto currency in particular. Still, any profit made by blockchain technology such as buying and selling (trading) Bitcoin or Altcoins would be considered taxable within the context of current tax regulations.

Following legislation of Tax Law should be considered by those who use or trade crypto currencies in Turkey:

Income Tax And Corporation Taxes Act.  Above all, Income Tax Law is applicable to any event which generates an income. Any kind of income is subject matter to this law. And terms are applicable to any event which occurred five years backwards. A well-known example for this is the backward taxation of famous youtubers. As in recent years, tax offices are sending payment warrants to those youtubers and other social media influencers who get paid regularly through their bank accounts for previous term of 5 years. Yet we are not aware of an example taxation of any real person who gains profit trading crypto. That goes without saying but no income gained by the increase on fiat currencies ever taxed in Turkey even those after big devaluations over national currency. Taking that as a solid example it’s needless to say that there is no need to worry about taxation of gains by price even when exchanging to fiat money.  

Value Added Tax Act. At the moment, there has been no example of an accrued VAT for trading crypto currencies. Buying and selling crypto currencies such as Bitcoin, Ethereum etc. cannot be considered as a supply of goods or services.  Considering Turkey’s long history of European Union candidacy and related laws of adjustment to EU, judgement in case Skatteverket v David Hedqvist made by Court of Justice of the European Union will be a good set of example to Turkish authorities. Therefore any application of VAT in future should be expected for individual traders. The exchange companies which provide a supply of service and gain profits over commissions fee are liable to pay VAT and of course income (/corporate tax) taxes without a doubt.

Law No. 5549 (Code of Anti Money Laundering). The high likely applicable and profound legal regulation and provisions related to crypto currency transactions are set by the Law No. 5549 (Law of Anti Money Laundering). According to this particular code all parties (banks and financial institutions) involved in this law are liable to inform FCIB, (Financial Crimes Investigation Board) (in Turkish, (MASAK) Mali Suçları Araştırma Kurulu) of any completed or intended transactions being made by the assets possibly gained by illegal way or any suspicious transaction attempted, being made for illegal intentions.

Article 4th of Law No. 5549 under heading “Suspicious activity reporting” also refers to a by-law which explains the rules and procedures. FCIB also publish sectoral guidelines for the banks and financial institutions which are obliged to report such suspicious activity related with the exercise of this law. Within this context, a guideline published on 03 August 2016 by FCIB, added “Money transfers from customer accounts to Bitcoin exchanges in order to buy Bitcoin”  in to the types of suspicious banking transactions activity.

The main concern of this new way of practice might be the tendency of using crypto currencies to cover illegal actions while committing crime. That is also provides a reason why to KYC (Know Your Customer) policies strictly applied by the almost all crypto exchanges despite being in wilderness compared to the local or international banks.  

A possible freeze of accounts by those exchanges like Bitfinex or Bittrex are more likely than those by local banks in Turkey. The well-known practice of freezing accounts by local banks in Turkey are related to the illegal gambling. Daily number of bank transactions or abnormal frequency in transactions even in small amounts may be found suspicious by your local bank branch du to possibility of betting money for several occasions.

 Any person related to crypto currency trading should be aware of possible monitoring of his transactions through banks or financial institutions (e.g. Western Union) by FCIB.

Possible Future Regulation

As a result of having the most crypto adopted nation around the world, Turkish legislators have every reason to avoid a leading regulation over crypto currencies for some time more. That’s the reason why one should focus on the current regulations of tax and anti-money laundering law.

If someone is not mining (producing) crypto coins, then he has to buy it through bank or credit card transactions using fiat currencies. Big amounts of money (fund) transfers are always take into consideration and being observed by governments all around the world. Turkish government is not an exception with that prospect.


[1] (See full text: http://www.bddk.org.tr/Duyurular/Bitcoin-Hakkinda-Basin-Aciklamasi/512 )

[2] http://www.spk.gov.tr/SiteApps/Yayin/YayinGoster/1130

[3] http://www.spk.gov.tr/Bulten/Goster?year=2018&no=42