1. Crypto Assets Regulated

Crypto assets have been regulated with the amendment introduced to the Capital Markets Law. Amending law defined wallet, crypto asset, crypto asset service provider, crypto asset custody service and crypto asset trading platform and regulated the basic principles regarding crypto assets.

Service providers are required to obtain authorisation from the Capital Markets Board (“CMB”) in order to be established and launch their operations. The CMB will determine the conditions that service providers shall fulfil and the principles subject to their activities. Service providers will not be subject to the provisions of the Capital Markets Law which do not specifically refer to them. Service providers are obliged to make the necessary arrangements, take the necessary measures and establish the necessary internal control units and systems in accordance with the criteria to be determined by TÜBİTAK in order to manage their systems securely.

The principles regarding the trading, initial sale or distribution, exchange, transfer and storage of crypto assets through the platforms will be determined by the CMB. Contracts between service providers and clients may be concluded in writing, by way of a distant contract, or by methods that allow verification of customer identity through a communication device that the CMB determines to be a substitute the written form. The CMB will regulate the principles regarding the content and execution of these contracts. Provisions limiting the contractual liability of service providers will be void. Platforms are required to provide mechanisms to effectively resolve client objections and complaints. Platforms are required to provide a written listing procedure for determination and termination of trading of crypto assets to be traded or for initial sale or distribution of crypto assets. The CMB, in consultation with TÜBİTAK or other relevant institutions, will regulate the principles in this regard. Platforms are responsible for the free formation of prices, the detection and prevention of market abuse, and taking necessary measures.

Crypto assets will be stored in the clients’ own wallets. Custody services for crypto assets that clients do not prefer to store in their own wallets will be provided by banks or other institutions authorised by the CMB to provide crypto asset custody services, and cash belonging to clients will be stored by banks. Clients’ crypto assets and cash will be stored and recorded separately from the assets of the service provider and cannot be seized due to the debts of the service provider under any circumstances.

In the event that a platform resident abroad opens a place of business in Türkiye, creates a website in Turkish, and engages in promotional and marketing activities, such platforms will be deemed to be operating for Turkish residents and these activities will be subject to the authorisation of the CMB.

Changes in the shareholding structure of service providers will also be subject to the authorisation of the CMB. The qualifications required to be fulfilled by the shareholders, managers and those who have control over service providers are also stipulated.

With the amendment, the responsibilities of service providers and their managers and the sanctions to be applied in case of breach of these responsibilities have also been regulated. These amendments have entered into force through its publication in the Official Gazette dated 02.07.2024. Service providers are obliged to apply to the CMB until 02.08.2024 for an operating licence if they will continue their operations, or to declare that they will take a liquidation decision within three months if they will not continue their activities. Service providers resident abroad are obliged to terminate their activities within one month as of the effective date.

2. The Withholding Tax Rate on Earnings from Shares of Venture Capital Investment Fund Changed

The withholding tax rate was reduced to 0% for the income and gains derived by real person investors from the participation shares of venture capital investment funds, regardless of how long the participation shares were held. With the amendment, the withholding tax rate is increased to 7.5% for the participation shares acquired between 01.05.2024 and 31.07.2024 which are held for less than two years, and the withholding tax rate is increased to 10% for the participation shares to be acquired after 31.07.2024 which will be held for less than two years. On the other hand, the withholding tax rate will continue to be 0% for the income and gains to be derived from participation shares held for more than two years.

3. Amendment Regarding Pension Mutual Funds’ Ability to Invest in Venture Capital

The Capital Markets Board amended the Guidelines on Pension Mutual Funds. With this amendment, those who are included in the private pension system will be able to prefer to accrue interest on their investments in venture capital funds. Accordingly, at least one per cent of their portfolios shall be directed to venture capital investment funds’ participation shares. The minimum venture capital investment rule shall be met until 30.06.2024.

4. The European Union Adopted First Artificial Intelligence Regulation

The European Parliament adopted the EU Artifical Intelligence Act (“AI Act”) on 13.03.2024. The AI Act introduced the first legal framework to regulate the artificial intelligence. The AI Act aims to improve the functioning of the internal market and promote the uptake of human-centric and trustworthy AI, while ensuring a high level of protection of health, safety, fundamental rights, including democracy, the rule of law and environmental protection, against the harmful effects of AI systems in the EU and supporting innovation.

The AI Act adopts a risk-based approach which defines four levels of risk for AI systems. AI systems are categorized based on their potential risks to fundamental rights, safety, and societal values. Accordingly, the AI Act classifies AI systems into four risk categories: unacceptable risk, high-risk, limited risk, and minimal risk, each subject to varying levels of regulatory requirements. AI systems posing unacceptable risk, such as those designed to manipulate human behaviour or exploit vulnerable groups, are prohibited. AI systems posing high risks (e.g., in healthcare, transportation, law enforcement) are subject to strict requirements, including mandatory risk assessments, high-quality datasets, transparency, and human oversight. AI systems with limited risk do not fall into the high-risk or unacceptable risk categories but still require specific regulatory measures, including ensuring that end-users are aware that they are interacting with AI. Minimal risk systems do not pose significant risks to individuals’ rights or safety; therefore, they require only a few measures.

On the other hand, AI systems using a general-purpose AI model (“GPAI”) are also regulated. GPAI systems display significant generality and are can competently perform a wide range of distinct tasks. GPAI system providers shall prepare technical documentation and information for downstream providers, establish a policy to comply with copyright rules, and publish a summary of the content used for training.

The AI Act applies to providers and deployers offering services in the EU, irrespective of whether those providers are established within the EU. Additionally, it also applies to providers and deployers of AI systems that are located in a third country, if the output produced by the AI system is used within the EU. Therefore, in case the persons or market of the EU are involved, the relevant AI system (including those are provided or exported by Turkish undertakings) will be subject to the AI Act.

The AI Act will enter into force 20 days after its publication in the Official Journal of the EU. Unacceptable AI systems will be prohibited after 6 months from the effective date. Obligations and governance rules for GPAI systems will be applicable after 12 months from the effective date. Obligations for high-risk AI systems, as outlined in specific cases listed in the AI Act, will come into effect 24 months after the effective date.

5. The Artificial Intelligence Law Proposal Submitted to the Grand National Assembly

The Artificial Intelligence Law Proposal (“Proposal“), which aims to regulate artificial intelligence for the first time in Türkiye, was submitted to the Grand National Assembly of Türkiye on 24.06.2024. The Proposal aims to ensure the safe, ethical and fair use of artificial intelligence technologies; to ensure that personal data protection and privacy rights are not violated; and to establish a regulatory framework for the development and use of artificial intelligence systems.

Although the Proposal is substantially in line with the AI Act, it may face criticism for not clearly defining its basic principles, rules, compliance measures, and the institutions responsible for enforcing sanctions in cases of non-compliance. Nevertheless, the Proposal is still of importance as it marks the first legislative efforts in this field.

6. Significant Amendments to the Turkish Commercial Code

Significant amendments have been introduced to the Turkish Commercial Code regarding the period for the election of the chairman of the board of directors, the scope of the duties and powers of the board of directors, the procedure for calling the board of directors to a meeting and the period of compliance with the new minimum capital requirements. Further details regarding the aforementioned amendments can be found here.

7. Amendments to the Personal Data Protection Law

With the Amending Law, the system stipulating the rules and exceptions that special categories of personal data cannot be processed without explicit consent has been completely changed. Instead, the scope of exceptions to the processing of special categories of personal data has been expanded in line with the general data processing grounds and the GDPR. Accordingly, the scope of the situations in which special categories of personal data may be processed has been expanded.

Prior to the Amending Law, it was regulated that personal data could be transferred abroad with explicit consent. However, personal data could be transferred abroad without explicit consent of data subject upon the existence of one of the conditions of the general data processing or one of the conditions for the processing of special categories of personal data other than health and sexual life. Adequate protection is required in the country where the personal data are to be transferred. If adequate protection is not provided, the existence of commitment for adequate protection in writing by the data controllers in Türkiye and in the relevant foreign country and authorisation of the Board were required.

With the Amending Law, the system stipulating the rules and exceptions that personal data cannot be transferred abroad without explicit consent has been completely changed. Instead, transferring personal data abroad is permitted without explicit consent, provided that one of the conditions for processing general data or special categories of personal data is met, and one of the additional conditions stipulated in the Law is fulfilled.

As stated in the general preamble and the preamble of the relevant article, the needs encountered in practice regarding the processing of special categories of personal data have also been taken into consideration. Accordingly, for instance, the fact that the employer can continue to store the health data of its former employee in order to exercise the right of defence in lawsuits that may be filed after the termination of the employment agreement, or that special categories of personal data such as blood type and previous illnesses can be processed for the purpose of protecting the life or physical integrity of a person who is unable to explain his/her consent due to loss of consciousness for any reason, can be considered as positive developments. Further details regarding the amendments, which shall be complied with by June and September, can be found here.

8. Minimum Equity Amount of Payment Services has been Increased

Communiqué on Redetermination of Minimum Equity Amounts of Payment Institutions and Electronic Money Institutions has been published. According to the Communiqué, the minimum equity amounts shall be increased to (i) TRY 10,000,000 for payment institutions intermediating invoice payments, (ii) TRY 55,000,000 for electronic money institutions, and (iii) TRY 20,000,000 for other payment institutions, except for payment institutions providing the service of providing consolidated information on online platforms regarding the payment accounts. These amendments shall be entered into force on 30.06.2024.

9. Developments in the Tax Regulations

Dividends received from participation shares of the venture capital funds and investment funds, income generated from the refund of these funds’ participation shares and value increase gains of the participation shares of these funds’ have been exempted from the corporate tax. With the Law No. 7456, abovementioned income and gains related to investment fund participation shares except for those related to venture capital funds are excluded from this exemption.

Both legal and real persons participating in foreign joint stock and limited liability companies whose legal and business center is not located in Türkiye are exempted from income or corporate tax at a rate of 50%, provided that they held at least 50% of the paid-up capital of the foreign subsidiary and that the dividends are transferred to Türkiye until the date of submission of the tax return for the accounting period in which the income is received.

It was regulated that 50% of the income obtained by legal and real persons from the services provided abroad in the fields of architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, data analysis, education and health services can be deducted from income or corporate tax at a rate of 50%, provided that all of the income obtained are transferred to Türkiye until the date when the tax return should be submitted. This deduction rate has been increased to 80%.

It was regulated that the depreciation period to be applied to the machinery and equipment acquired by companies located in Technopolis and R&D and Design Centers to be used exclusively in R&D, innovation and design activities can be calculated over half of the current useful life period. This application has been extended until 31.12.2024.

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