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The Advantages of Using a Swiss Company to Hold Investments Owned by Turkish Residents or Companies
Turkish shareholders with foreign portfolio investments, should consider owning these investments through a Swiss company, in particular if these investments are held in Switzerland.
What are the Key Advantages?
a) Profit, taxed in Switzerland, will be at a rate of between 11.9% and 14% rather than the relevant corporate tax rate in Turkey of 22%, or rather than the individual income rate of 40% (marginal tax rate).
b) The exemption of equity fluctuations from tax at nil rate, rather than being subject to a tax rate of 40% in Turkey.
c) Reducing the information that needs to be provided to Turkey under CRS Regulations.
d) Turkey has a double taxation treaty with Switzerland, the tax clauses of which came into force on 1 January 2013.
Turkish CFC Rules and Swiss Corporate Tax
As described above Swiss companies present an interesting opportunity as their corporate tax rates vary between 11.9% and 14% (depending on which Swiss canton they are located in). This is helpful because Under Turkish CFC rules, undistributed income of foreign subsidiaries should not be payable in Turkey when the foreign company’s corporate tax is above 10%.
Investment Currency Fluctuations
The fluctuations of the Turkish Lira against major currencies can trigger taxable foreign exchange gains, when held by Turkish individuals and corporate taxpayers. Investment currency fluctuations are taxed in Turkey, even when not realised. A Swiss company is not taxed on investment currency fluctuations, as long as the gains are not realised.
Equities are registered at their acquisition value in Swiss financial statements, providing they are not sold and a profit is realised.
Should the Swiss company distribute dividends to a Turkish shareholder, the effective withholding tax rates are 15% for an individual shareholder and 5% for a corporate shareholder.
A tax credit is available in Turkey against Turkish income tax.
Exchange of Information – Swiss Portfolio Investments
The exchange of information between Switzerland and Turkey will come into force in January 2021, with the first exchange of data in 2022, covering the reporting period from 1st of January to 31st of December 2021.
The information exchanged will vary subject to the CRS classification of the Swiss company. Depending on the services provided to the Swiss company and on its activity in Switzerland, Swiss companies and their UBOs are treated to varying degrees of transparency under CRS rules.
If you would like additional information regarding the use of a Swiss company to hold portfolio investments, owned by Turkish residents and/or companies, please contact Christine Breitler or Thierry Groppi at the Dixcart Switzerland Office: email@example.com