117 / 521
significant in the issuance of lease certificates based on businesses
which include elements both compliant and non-compliant with Sharia
rules. There are currently four participation banks in Turkey all of
which are member of TKBB, the association for participation banking
which acts as a superior authority setting out guidelines. According to
the website of the TKBB, goods and services that are allowed accord-
ing to
Sharia
may be subject to Islamic Financing even if the provider
also engages in prohibited activities. However, there is no clarity as to
how this rule may be applied in case of lease certificate issuances.
Depreciation of the assets may also pose a risk. The Communiqué
sets forth that the value of the issued lease certificates shall not exceed
90% of the total value of the relevant asset or rights for ownership
based lease certificates.
Tax Incentives
ALCs and investors in sukuk market enjoy numerous tax exemp-
tions.
Proceeds from transfer of assets and rights to ALCs and the hold-
ers of the lease certificates are tax-exempt. The same rule applies to
VAT as Value Added Tax Law No. 3065 exempts the delivery of lease
certificates issued by ALCs, the transfer of assets to the ALC and their
subsequent lease and transfer back to the originating entity. Documents
and certificates executed for the purposes of lease, transfer and pledge
transactions regarding relevant assets or rights for the purposes of lease
certificates also enjoy stamp tax-exemption. The transfer, lease and
pledge transactions are exempt from duties. Withholding tax percent-
ages vary from 10% of the lease proceeds obtained from lease certifi-
cates with a term of up to 3 years, to 3% for those with a term of 3 to
5 years. Government issued lease certificates (
sovereign sukuk
) as well
as privately issued lease certificates with a term of over 5 years are not
subject to withholding tax. For proceeds obtained from lease certificate
trading and coupon payments; non-resident and resident stock corpo-
rations’ are free of withholding tax whereas non-stock corporations,
other institutional investors and real persons are subject to a withhold-
ing of 10% on income. The income obtained from lease certificates
issued abroad is also exempt from tax.
CAPITAL MARKETS LAW
101