Assisting a Crypto Trading Company in Turkey to Leverage Tax Gray Zones
The global cryptocurrency market has grown exponentially in recent years, and Turkey has emerged as one of the pivotal hubs for crypto trading due to its strategic location, evolving regulations, and vibrant tech community.
At Bayraktar Attorneys, we were approached by a crypto trading company, which we will refer to as CryptoTradeX for confidentiality purposes, to help them establish operations in Turkey while minimizing their tax obligations.
The Client’s Situation
CryptoTradeX was a rapidly growing company in the cryptocurrency trading industry.
Their founders were based across multiple countries but had identified Turkey as the ideal location for their headquarters due to the country's business-friendly environment and its relatively undefined stance on crypto taxation.
However, they were concerned about the potential tax liabilities that might arise from their trading activities and were looking for ways to optimize their legal structure to ensure compliance while benefiting from the tax gray zones surrounding cryptocurrency transactions.
Turkey’s legal framework on cryptocurrency was still in its infancy, with no definitive taxation laws specifically targeting crypto trading profits.
This regulatory ambiguity presented both an opportunity and a challenge. The founders of CryptoTradeX wanted to capitalize on this legal gap while avoiding unnecessary risks.
Legal Strategy and Assessment
We began by thoroughly assessing the existing legal landscape in Turkey regarding cryptocurrency operations.
After extensive research and consulting with tax and regulatory experts, we identified a potential legal path that would allow CryptoTradeX to operate within the framework of Turkish law while benefiting from the lack of explicit regulations concerning cryptocurrency trading profits.
1. Company Formation and Structuring: First, we advised CryptoTradeX to establish a local entity in Turkey, ensuring full compliance with the local laws governing business operations. Our team took care of all legal requirements for incorporation, from drafting the company’s articles of association to registering the business with the Turkish Chamber of Commerce.
2. Optimizing the Legal Structure: While Turkey does not have formal regulations specifically targeting crypto trading, our approach focused on placing CryptoTradeX in a gray zone where its trading activities would not be subject to taxation. Since Turkish tax laws at the time did not classify cryptocurrencies as taxable assets, crypto-to-crypto trades were not subject to capital gains tax. Additionally, since CryptoTradeX was not trading fiat currencies or dealing with goods subject to VAT (Value Added Tax), there was no VAT applicable to their transactions.
3. Minimizing Fiat Transactions: To ensure that no tax liabilities were triggered by converting cryptocurrencies into fiat (Turkish lira), we advised CryptoTradeX to avoid converting large amounts of crypto into fiat currency within Turkey. This approach allowed them to keep their activities predominantly in crypto-to-crypto transactions, which were legally tax-free under current Turkish regulations.
4. Ensuring Compliance: While navigating the tax gray zones, it was critical to ensure that CryptoTradeX remained compliant with Turkish banking and anti-money laundering (AML) laws. We provided guidance on maintaining accurate records, ensuring transparent operations, and adhering to the necessary reporting obligations to Turkish financial authorities without exposing the company to additional scrutiny.
Outcome
Thanks to our meticulous legal strategy and expertise in navigating the regulatory gray zones, CryptoTradeX was able to establish a fully operational crypto trading company in Turkey without incurring tax liabilities on its crypto trades.
The company benefited from the tax ambiguity around cryptocurrencies, effectively paying zero tax on their trading profits.
In addition to the tax advantages, CryptoTradeX also gained access to Turkey’s growing crypto market and an emerging tech-savvy workforce, further strengthening their position in the global crypto trading space.
The company’s founders were impressed by the flexibility and business-friendly environment that Turkey provided, and they have since expanded their operations, acquiring a significant market share in the region.
Conclusion
This case highlights our ability to help clients navigate complex and evolving regulatory environments, especially in sectors like cryptocurrency, where the legal landscape is still developing.
By leveraging Turkey’s tax gray zones, we were able to provide CryptoTradeX with a competitive advantage, ensuring that their operations remained tax-efficient while fully compliant with the law.
At Bayraktar Attorneys, we pride ourselves on helping clients achieve their business goals through innovative legal solutions, especially in cutting-edge industries like cryptocurrency.
