In brief
A new compliance requirement is now imposed on companies doing business in Turkey, calling for annual declaration of the ultimate beneficial ownership (UBO) information to the tax office. In addition, designated institutions and professions covered by the anti-money laundering law (such as banks, payments agencies, finance companies, lawyers, accountants, notaries etc) are also required to report the beneficial owner information of their clients, when and if requested by the Revenue Administration. Tax Procedural Communiqué No.529 published in the Official Gazette on 13 July 2021 sets out the rules for determining who falls under the definition of an UBO and includes explanations on the content and timeframe of the declaration.
In detail
The availability of beneficial owner information, i.e. the natural person behind a legal entity or arrangement, is a key requirement of tax transparency and the fight against tax evasion and other financial crimes. Consequently, the transparency standards set out by the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) for its member countries includes beneficial ownership information requirements as well.
On 13 July 2021, the Ministry of Treasury and Finance published Tax Procedural Communiqué No.529 to adapt the domestic legislation to comply with the international standards for ensuring the availability beneficial ownership information. The purpose of our bulletin is to provide with an overview of the key elements provided by the Communiqué on beneficial ownership declaration requirement.
Definition of an UBO
The Communiqué provides a definition of beneficial ownership. According to this definition, beneficial owners are individuals who ultimately own or control a legal entity or arrangement such as a company, a trust. The criteria for deciding who should be considered a beneficial owner are as follows:
For legal entities,
- Individuals owning more than 25% of the legal entity
- Individuals who have ultimate control of the legal entity, if the individuals holding more than 25% of the legal entity are suspected of not being the beneficial owner or if there is no individual holding 25% of the legal entity
- Individuals with the highest level of executive power (i.e. the general manager), if the beneficial owner cannot be determined as above.
For entities without legal status,
- Individuals with ultimate control
- Individuals with the highest level of executive power, if the beneficial owner cannot be determined.
For trusts,
- Founders, trustees and those who have the title of directors, auditors or beneficiaries or those who have influence over these institutions.
Who is required to annually report UBO information?
Corporate taxpayers as well as other entities without legal status that have been listed in the Communiqué (i.e. commandite companies, trusts and similar institutions) which are active as of 1 August 2021 (including those in the liquidation process) are required to regularly report the UBO information to the Revenue Administration.
Corporate taxpayers will declare their UBO information in their advance tax returns and annual corporate tax returns. Parties other than corporate taxpayers will declare the UBO information to the Turkish Revenue via electronic forms by the end of August every year. In case of change in the declared information, the changes must be declared within one month. For the first UBO declarations, however, all taxpayers and other parties mentioned in the Communiqué must declare the UBO information via electronic form by the end of August 2021.
On-demand reporting obligation
In addition, financial institutions (such as banks, payment service companies, financing and factoring companies, insurance companies, private pension companies, brokers, portfolio/asset management companies among others) and designated non-financial businesses and professions (DNFBs) covered by the anti-money laundering law are also required to report the beneficial owner information of their clients, when and if requested by the Revenue Administration. DNFBs with anti-money laundering obligations in Turkey include, but not limited to:
- Accountants
- Independent audit institutions authorised to conduct audit in financial markets
- Real estate agents
- Notaries
- Lawyers, when dealing with real estate trade, establishment, management and transfer of companies, foundations and associations
- General Directorate of Post and cargo companies
- Directorate General of Turkish Mint pertaining only to its activities of minting gold coins
- Precious metals exchange intermediaries
- Dealers of any kind of sea, air and land transportation vehicles including construction machines
- Dealers and auctioneers of historical artifacts, antiques and works of art
- Those who operate in the field of lotteries and betting including Turkish National Lottery Administration, Turkish Jockey Club and Football Pools Organization Directorate
- Sports clubs
This second -on demand reporting obligation- piece of the Communiqué is actually nothing completely new, because in essence such UBO identification requirements have already been in place since 2008 based on the Law 5549 and the MASAK Regulation on Measures on Prevention of Laundering Proceeds of Crime and Financing of Terrorism.
Content of the declaration
The Communiqué prescribe a variety of items of information and documents which will be submitted by a taxpayer to the Revenue Administration with respect to each of its UBOs including the following:
- Full name;
- Country of citizenship;
- Identification Card Number;
- Passport;
- Residential address, email and contact phone number;
- Reason for being considered a beneficial owner
Penalty for non-compliance
Where the taxpayer refuses or fails to provide the Revenue Administration with all required information or provides incorrect information, irregularity penalty may be imposed under Tax Procedural Code.
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