1 Legal and enforcement framework

1.1 In broad terms, which legislative and regulatory provisions govern virtual currencies in your jurisdiction?

There are no dedicated statutes or regulations governing virtual currencies under Turkish law.

In this sense, Turkey may still be considered as an ‘unregulated' market for virtual currency-related services and activities.

The classification of virtual currencies as ‘electronic money', ‘capital market instruments' such as securities, derivative instruments or other capital market instruments, or ‘commodities' is still a controversial and open-ended issue in the legal community. Depending on the nature, function and type of virtual currency, different legal regulations may apply, such as the following:

  • E-money: The Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Companies (6493 (‘Payment Law').
  • Capital market instruments: The Capital Market Law (6263).
  • Crowdfunding: The Communiqué on Equity-Based Crowdfunding (III-35/A.1).
  • Commodities: No specific regulation directly addresses commodities, as there is no definition of a ‘commodity' under Turkish law. However, different regulations cover some aspects of commodities. The taxation of commodities is regulated under the Income Tax Law (193), the Value Added Tax Law (3065) and the Corporate Tax Law (5520). Transactions on commodities executed by banks are regulated under the Banking Law (5411). Documents representing commodities are regulated under the Civil Code (4721).
  • Other related laws: The Law on the Central Bank of the Republic of Turkey (CBRT) (1211).

1.2 In broad terms, which legislative and regulatory provisions govern entities that provide services relating to virtual currencies? Must they be registered or licensed by a regulatory authority?

There are no specific legislative and regulatory provisions dedicated to entities which provide services relating to virtual currencies. Currently, the regulatory authorities do not require such entities to be registered or licensed, as they have not yet published any significant decisions, guidelines or interpretations on the status and regulation of virtual currencies. However, various legal regulations may apply in different scenarios in the future, as regulatory authorities may begin issuing decisions on virtual currencies.

Where a virtual currency is considered ‘e-money', the electronic money issuer must be licensed by the regulatory authority, the Banking Regulation and Supervision Agency of Turkey (BRSA), as per the Payment Law. However, the BRSA stated in a press release dated 25 November 2013 that Bitcoin and similar cryptocurrencies are not e-money and do not fall under the scope of the Payment Law. Despite this statement by the BRSA, a case-by-case assessment might be necessary.

If a virtual currency is considered as capital markets instrument pursuant to the Capital Market Law, the entity that makes a public offering of the virtual currency must submit a prospectus to the Capital Market Board (CMB) for its approval. However, on 27 September 2018 the CMB announced that initial coin offerings (ICOs) are outside the control and supervision of the CMB.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

Given the gap in the existing legislation, no legal authority is officially charged with enforcing, or authorised to enforce, the applicable laws and regulations on virtual currencies. As the Undersecretariat of the Treasury stated in a press release dated 11 January 2018, cryptocurrencies currently have no legal basis in Turkey and cryptocurrency transactions are not guaranteed by any official authority.

Nevertheless, due to the overlapping nature of digital assets, the CMB and the BRSA will likely be the bodies responsible for enforcing the applicable laws and regulations on the relevant markets and players.

1.4 What is the regulators' general approach to virtual currencies?

In light of recent developments, and departing from previous announcements and comments made by the regulatory and government authorities, it seems that the Turkish regulatory authorities now have a positive attitude towards virtual currencies and specific regulations with favourable provisions may be expected in the near future.

The medium-term programme (2019–2021) recently published by the Ministry of Treasury and Finance emphasises that modern and next-generation financing methods such as crowdfunding and ICOs are high up the government's agenda. Thus far, the regulatory authorities have published the Communiqué on Equity-Based Crowdfunding.

Moreover, several action plans regarding blockchain are mentioned in the 11th Development Plan issued by the Presidency of Strategy and Budget of the Republic of Turkey covering the years 2019–2023, which was published on 9 July 2019. These include the following:

  • A digital central bank currency based on blockchain will be developed;
  • The necessary legal and physical infrastructure for transportation and customs services that should extend the scope of blockchain practice will be completed; and
  • In order to benefit from new technologies such as big data, blockchain, cloud computing and artificial intelligence for the improvement of public services, process and technological infrastructure will be enhanced.

The development of a digital central bank currency is also mentioned in the Presidential Annual Programme of 2020. This states that blockchain-based digital central bank money will be introduced by the CBRT and the Scientific and Technological Research Council of Turkey.

The Ministry of Industry and Technology published the 2023 Industry and Technology Strategy on 18 September 2019. In this document, the following strategies are mentioned:

  • The development of national blockchain infrastructure will be encouraged, to create a network based on this new and emerging technology;
  • In order to improve applications of blockchain technology, the first public-based applications that can be carried out using blockchain infrastructure (eg, land registration, diplomas and customs applications) will be identified and such applications will be designed on open source platforms;
  • An environment will be created to pilot blockchain infrastructure developed, to test out new, secure business models and processes (eg, supply chain, banking, litigation applications); and
  • A ‘regulatory sandbox' will be created with the regulatory authorities, in order to carry out compliance tests of blockchain applications and support investments by facilitating certification of those enterprises that successfully complete the tests.

1.5 Has there been any notable enforcement action relating to virtual currencies?

No sanctions, court decisions or enforcement actions relating to virtual currencies have been taken thus far.

However, the CMB may take certain regulatory actions in the near future, as it published its first regulation on crowdfunding, the Crowdfunding Communiqué, on 3 October 2019. On 27 September 2018 the CMB also announced that it would crack down on ICOs and token generation and sale events which attempt to circumvent the regulations, and on unauthorised crowd funding attempts.

2 Definitions

2.1 How are ‘virtual currencies' defined in your jurisdiction? Have there been any judicial decisions which have helped to define virtual currencies or their interplay with the existing body of laws (eg, contracts law, property law)?

There is no legal definition of ‘virtual currencies' under Turkish law; nor are there any judicial decisions that help to define virtual currencies or specify how they interrelate with the existing body of law.

However, the Capital Markets Board's (CMB) Research Report on Cryptocurrencies and Bitcoin, issued in December 2016, includes the following definitions:

  • ‘Digital currencies' are currencies that can be stored and transferred electronically. Such digital currency in a bank account is a representation of fiat money.
  • ‘Virtual currencies' are digital currencies. However, virtual currencies are not representations of a physical asset. In this regard, digital currencies other than virtual currencies represent fiat money.
  • ‘Cryptocurrencies' are digital values that enable cryptographically secure transactions and initial coin offerings (ICOs). Cryptocurrencies are alternative currencies; they may be classified as both digital currencies and virtual currencies.

2.2 How are ‘initial coin offerings' and ‘security token offerings' defined in your jurisdiction?

Neither ICOs nor security token offerings are defined under Turkish law. However, in a bulletin dated 27 September 2018, the CMB defined ‘ICOs' as "applications related to collection money by using blockchain technology also known as ‘Virtual Currency Sales' or ‘Token Sales'".

Since its amendment on 28 November 2017, the Capital Markets Law has included a definition of ‘crowdfunding' as "fundraising through funding platforms to provide a project or entrepreneurs with the required funding within the principles set forth by the Board, without being subject to provisions related to investor compensating of the Law".

The law recognises two types of crowdfunding: equity-based crowdfunding and debt-based crowdfunding. On 3 October 2019, the CMB published its Communiqué on Equity-Based Crowdfunding. This communiqué allows for the distribution of "shares" to "investors".

However, we believe that this communiqué does not apply to ICOs; and if an ICO ultimately targets a shareholding in the underlying company or asset, then it will be classified as a security under the capital markets legislations.

Although the CMB is yet to issue its much-anticipated regulation on debt-based crowdfunding, depending on the type of debt created by the private contract, we believe that an ICO may potentially fall within the scope of debt-based crowdfunding in case of ‘liability' to offer services and use of the underlying asset, such as an application, utility or service.

2.3 Are stablecoins treated as virtual currencies in your jurisdiction or do they fall under an existing category (eg, electronic money)?

Stablecoins are digital assets designed as equivalent to the value of fiat currencies, such as the US dollar, the euro or the Turkish lira. As there is no legal definition of ‘virtual currency', it is unfortunately not possible to determine the categorisation of stablecoins.

The Payment Law defines ‘e-money' as a monetary value which is:

  • issued on the receipt of funds by an e-money issuer;
  • stored electronically;
  • used to carry out payment transactions as defined in the Payment Law; and
  • accepted as a payment instrument not only by the e-money issuer, but also by natural and legal persons.

Stablecoins may fulfil the abovementioned conditions, especially if users can also use them as a medium of payment. Currently, the Banking Regulation and Supervision Agency (BRSA) excludes Bitcoin and similar cryptocurrencies from the scope of the Payment Law. However, the structure and functions of most stablecoins are not very similar to those of Bitcoin. Nevertheless, it may be speculated that the current approach of the BRSA excludes stablecoins from e-money. Further official statements or regulations are expected from the regulatory authorities on this issue.

3 Virtual currencies market

3.1 Which virtual currencies have become most embedded in your jurisdiction? Does this vary depending on the specific use?

According to the Crypto Currency Research Report published by the Information and Communication Technologies Authority (ICTA) in May 2020, more than 2.4 million people own cryptocurrencies in Turkey. The five most embedded cryptocurrencies are Bitcoin, Ripple, Digibyte, Bitcoin Cash and Stellar. In addition to such cryptocurrencies, Ether, Chainlink, IOTA and Liteceoin are also preferred by users in Turkey.

3.2 What different products and services are offered?

There are many trading platforms in Turkey through which users can easily buy and sell virtual currencies.

Turkey's first blockchain-based stablecoin, BiLira, was established in April 2019. BiLira is a stable cryptocurrency that is backed by the Turkish lira. This means that it is always possible to buy and redeem one BiLira for one Turkish lira.

There are also cryptocurrency ATMs across Istanbul.

Finally, two of Turkey's four major football clubs have successfully issued fan tokens using the Socios-Chiliz infrastructure and services, gaining significant revenues and marketing success in the process.

3.3 How are virtual currency service providers generally structured? How are they generally financed?

Most virtual currency providers and virtual currency exchange platforms are incorporated as joint stock companies. For example, digital asset trading platforms such as Paribu, BtcTurk, Bitexen and Digilira, and virtual currency issuers such as BiLira –Turkey's first stablecoin issuer – were established as joint stock companies.

Virtual currency exchange platforms are generally financed by the commission they earn from the virtual money transactions they mediate. BiLira, on the other hand, is financed from income obtained from the BiLiras purchased by users through applications such as interest.

3.4 Are virtual currency trading platforms subject to a specific regulatory regime in your jurisdiction? Must they be registered or licensed by a regulatory authority? Does this vary depending on whether the platform accepts legal currency or whether the platform is custodial? Are virtual currency trading platforms subject to any form of ‘market abuse' regulation?

There are more than 40 cryptocurrency trading platforms in Turkey.

These platforms need not be registered with or licensed by the regulatory authorities, because virtual currency trading platforms cannot be considered as:

  • ‘brokerage houses' or ‘issuers' according to the capital markets legislation;
  • ‘banks or financial institutions' according to the banking legislation; or
  • ‘e-money issuers' under the Payment Law.

The regulatory authorities as yet have issued no form of market abuse regulation for virtual currency trading platforms.

4 Crossover with banking

4.1 How are virtual currencies positioned within the broader banking landscape in your jurisdiction?

As yet, banks in Turkey cannot execute cryptocurrency exchange transactions, as the Banking Regulation and Supervision Agency has not authorised them to conduct such transactions. However, some Turkish banks are already collaborating with certain virtual currency exchange platforms in Turkey. For example, some banks do not collect bank wire fees for transfers made through certain virtual currency exchange platforms. Some also provide support to integrate applications within their accounts to facilitate fiat-to-crypto and/or crypto-to-crypto transactions.

4.2 What impact could mainstream adoption of virtual currencies have on the ability to control inflation in your jurisdiction?

Although Turkey has some of the highest numbers of cryptocurrency users in the world, considering the overall volume of virtual currency usage, it is not possible to say at this point whether this will have a significant impact on current monetary policy or inflation in Turkey. Inflation in Turkey and the fast-depreciating value of the Turkish lira vis-à-vis major currencies such as the US dollar and the euro are much deeper structural issues which must be addressed.

Currently in Turkey, as elsewhere in the world, virtual currencies are considered to be more volatile, less user friendly and more incomprehensible in terms of value movements. If virtual currencies become more reliable and widespread in Turkey, it may be expected that people will include them in their investment portfolios to make profit or simply to protect the value of their money. Moreover, stablecoins such as Tether may be acquired in a flight from the fast-depreciating Turkish lira, as virtual currency trading platforms facilitate the purchase and sale of virtual currencies.

4.3 What other implications could the mainstream adoption of virtual currencies have for the banking system in your jurisdiction (eg, with respect to payment services)?

Although it is now easier to do so than ever before, opening a bank account still requires the fulfilment of certain procedures. On the other hand, a virtual currency wallet can be created online using any device, and can be used anytime, anywhere.

Payment and securities settlement systems, payment services and e-money companies are regulated by the Payment Law. However, virtual currencies are subject to the Payment Law only if they are evaluated as e-money. The widespread use of virtual currencies will undoubtedly reduce society's dependence on cash.

4.4 Regarding decentralised finance, do the banking regulations in your jurisdiction apply to loans of virtual currencies or interest-bearing deposits of virtual currencies? Does this vary depending on whether stablecoins are loaned or deposited?

Banks have a statutory monopoly over financial services such as extending loans and accepting deposits that attract accrued interest. No entities other than those which hold a banking licence may engage in such activities. The banking regulations do not yet apply to loans of virtual currencies or interest-bearing deposits of virtual currencies. This also applies to stablecoins.

4.4 Regarding decentralised finance, do the banking regulations in your jurisdiction apply to loans of virtual currencies or interest-bearing deposits of virtual currencies? Does this vary depending on whether stablecoins are loaned or deposited?

Banks have a statutory monopoly over financial services such as extending loans and accepting deposits that attract accrued interest. No entities other than those which hold a banking licence may engage in such activities. The banking regulations do not yet apply to loans of virtual currencies or interest-bearing deposits of virtual currencies. This also applies to stablecoins.

5 Technology

5.1 Is blockchain technology in itself regulated in your jurisdiction and what specific legal issues are associated with its use?

In Turkey, there are no laws, legal regulations or official/administrative authority decisions on blockchain technology. However, the authorities have adopted a positive attitude towards the use of this technology. For example, the 11th Development Plan issued by the Presidency of Strategy and Budget of the Republic of Turkey for 2019–2023, published on 9 July 2019, mentions several strategies focused on the use of blockchain technology. Also, on 18 September 2019 the Ministry of Industry and Technology announced its 2023 Industry and Technology Strategy. In this document, the following strategies are mentioned:

  • The development of national blockchain infrastructure will be encouraged, to create a network based on this new and emerging technology;
  • In order to improve applications of blockchain technology, the first public-based applications that can be carried out using blockchain infrastructure (eg, land registration, diplomas and customs applications) will be identified and such applications will be designed on open source platforms;
  • An environment will be created to pilot blockchain infrastructure developed, to test out new, secure business models and processes (eg, supply chain, banking and litigation applications); and
  • A ‘regulatory sandbox' will be created with the regulatory authorities, in order to carry out compliance tests of blockchain applications and support investment by facilitating the certification of enterprises that successfully complete the tests.

A blockchain research laboratory, BCLabs, has also been established under the Department of Mathematical and Computational Sciences of the Scientific and Technological Research Council of Turkey Informatics and Information Security Research Centre, to conduct R&D on the infrastructure, installation and security of blockchain technology, privacy analysis, business models, crowdfunding approaches (eg, ICOs) and various technical details.

5.2 What other implications could the mainstream adoption of virtual currencies have from a technological perspective?

The advantages of virtual currencies, which facilitate high-speed transactions at low cost, make this technology suitable for use in many different areas. An article entitled "Virtual Currencies" published by the Central Bank of the Republic of Turkey in September 2017 listed several alternative uses of virtual currencies, which are primarily used in financial market infrastructure, non-financial sectors such as health services, title deeds and patent transactions. However, this article also specifies some concerns regarding the use of blockchain-based virtual currency, as it may create problems in terms of delay, efficiency, scalability, data privacy and security.

6 Data security and cybersecurity

6.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for virtual currencies?

As the most valuable virtual currencies run on decentralised and immutable blockchain technology, they have an inherent conflict with the requirements of data protection regulations.

The Law on the Protection of Personal Data (6698) was published in the Official Gazette on 7 April 2016 and entered into force.

The Turkish Data Protection Authority (DPA) has been established as an independent regulatory authority with organisational and financial autonomy in order to fulfil regulatory and supervisory duties under the Law on the Protection of Personal Data.

The Law on the Protection of Personal Data was prepared based on the EU Data Protection Directive (95/46/EC) and defines ‘personal data' as any information relating to an identified or identifiable natural person.

Based on the term ‘identifiable', any data which singles out one individual from others and can be associated with that individual will be considered as personal data. In such case, information such as private keys, public keys and wallet numbers will be considered personal, as such information can be used to identify an individual.

Like the General Data Protection Regulation (GDPR), the Law on the Protection of Personal Data contains definitions of ‘data subject', ‘data controller' and ‘data processor'. The law does not define ‘joint controller' or ‘sub-processor'; however, it is anticipated that the DPA will adopt the definitions from the GDPR in future decisions, as it has issued some of its previous decisions in parallel with the GDPR.

The DPA has published no specific guidelines on the processing of personal data on blockchain platforms or in virtual currency transactions. However, based on the current provisions of the Law on the Protection of Personal Data, it may be said that virtual currency providers and virtual currency trading platforms are likely to be regarded as data controllers in terms of the processing of users' personal data, as they collect users' personal data for their own purposes, such as making virtual currency transactions, providing wallet services and approving the identities of users. Thus, they will be liable to comply with the obligations of data controllers under the Law on the Protection of Personal Data, such as:

  • informing users of processing activities conducted by data controllers;
  • responding to requests of data subjects;
  • implementing the necessary technical and organisational measures for the protection of personal data; and
  • preparing a data processing inventory.

One obligation of data controllers which differs from their obligations under the GDPR is the requirement to register with the Data Controllers' Registry (VERBIS). Data controllers were required to register with VERBIS by 30 September 2020 if they met one of the following criteria:

  • The data controller employs more than 50 employees in a year; or
  • The annual balance sheet of the data controller is more than TRY 25 million.

If a data controller does not meet either of the above criteria, it need not register with VERBIS. The deadline for VERBIS registration can be postponed by the DPA, which indeed has already twice postponed the previous deadlines for VERBIS registration.

If a data controller commences operations and starts processing the personal data of data subjects in Turkey or meets one of the above criteria after the 30 September deadline, it must register with VERBIS within 30 days of such occurrence.

The DPA has published no guidelines on virtual currency trading platforms, blockchain platforms or similar. Given the complex structure and various types of blockchain platforms, a case-by-case assessment will be needed for the allocation of responsibilities of different actors.

6.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for virtual currencies?

Turkey has no specific legislation covering cybersecurity; instead, cybersecurity issues are dealt with in several provisions scattered throughout different laws and pieces of secondary legislation.

However, a dedicated cybersecurity law is expected, as the National Cyber Security Strategy and 2013-2014 Action Plan committed to the enactment of specific legislation in this regard.

Turkey is a party to the European Convention on Cybercrime. This has been ratified by the Turkish Parliament, which has introduced it into local law.

Moreover, Turkey is a part of supranational efforts coordinated by institutions such as the United Nations (UN), Interpol and Europol to cooperate on and combat cyber threats, including the UN Translational Organized Crime Convention and the UN Global Programme on Cybercrime.

Some of the most important provisions governing cybercrime in Turkey include the following:

  • Articles 243, 244 and 245 of the Criminal Code, which criminalise activities such as:
    • accessing IT systems without authorisation;
    • obstructing or damaging IT systems;
    • using illegal devices and software; and
    • undermining the data processed on such IT systems;
  • various provisions of the Law on Combating Crimes Committed on the Internet (5651);
  • the Law on Electronic Communication (5809);
  • the Law on Organization of Law Enforcement Forces (3201);
  • the Law on Intelligence Activities (2937);
  • the Law on Protection of Personal Data (6698);
  • the General Letter on Cyber Security Activities (2018/478);
  • the Communiqué on Establishment and Duties of Cyber Security Response Teams; and
  • certain other regulations with the force of law, presidential decisions and so on.

In the meantime, Cabinet Decision 2012/3842 issued on 20 November 2012 regulates the execution, management and coordination of national cybersecurity actions. Through this decision, the Ministry of Transportation, Maritime Affairs and Communications became the competent authority to regulate policies, strategies and actions regarding cybersecurity. The ministry supervises and conducts cybersecurity activities with the National Cyber Security Board and National Cyber Incident Response Centre under the administration of the Information Technologies and Communication Authority.

Cybersecurity violations may lead to violations of the data protection laws, including the Law on the Protection of Personal Data, as this law requires data controllers to implement all necessary technical and organisational measures to provide a sufficient level of security to prevent the unlawful processing or accessing of data, and to ensure its retention.

7 Financial crime

7.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for virtual currencies?

The main regulations on anti-money laundering and counter-terrorist financing are as follows;

  • the Law on Prevention of Laundering Proceeds of Crime (5549) (‘AML Law');
  • the Regulation on the Measures Regarding the Prevention of Laundering Proceeds of Crime and the Financing of Terrorism (‘AML/CTF Regulation'); and
  • the Regulation on the Programme of Compliance with Obligations of Anti-money Laundering and Combating the Financing of Terrorism (‘Anti-money Laundering Compliance Programme Regulation').

Certain organisations listed in the AML Law and the AML/CTF Regulation are charged with helping to prevent money laundering and the financing of terrorism. They include banks, payment institutions, e-money institutions, financing and factoring companies, asset management companies, financial leasing companies, brokerage firms, precious metals brokerage firms, and purchasers and sellers of precious metals, jewellery and stones. Virtual currency trading platforms are not explicitly listed in either the AML Law or the AML/CTF Regulation.

However, the AML Law states that if there is any information, suspicion or reasonable grounds to suspect that assets which are the subject of transactions carried out or attempted to be carried out within or through such organisations have been acquired illegally or used for illegal purposes, these transactions must be reported to the Financial Crimes Investigation Board (FCIB) by such organisations.

In this context, the FCIB has published the Guideline on Suspicious Transaction Reporting to determine which transactions are suspicious and must be reported to the FCIB.

In Version 1.03 of the guideline, which was in effect until 11 September 2019, "money transfers for buying Bitcoin from customer accounts to brokerage houses that sell Bitcoin" were described as suspicious transactions.

Version 1.03 was replaced with Version 1.04 as of 11 September 2019. Version 1.04 prefers the term ‘cryptocurrency' to ‘Bitcoin', and no longer classifies cryptocurrency money transfers as suspicious transactions. Version 1.04 classifies the following transactions as suspicious:

  • money transfers from customer accounts to domestic or international cryptocurrency exchanges or accounts of real or legal persons for the purpose of purchasing cryptocurrency at a frequency and in an amount that do not fit the customer's financial profile; or
  • transfers to customer accounts as a result of the sale of cryptocurrency whose source is unknown or that do not fit the customer's financial profile.

Other than these specific regulations, general regulations regarding the prevention of money laundering and terrorist financing will apply to virtual currency trading platforms, such as the following offences set out in the Turkish Criminal Code:

  • Laundering of assets acquired through an offence: Anyone who, without participating in the commission of an offence, purchases, accepts, keeps or uses laundered assets while aware of their value and nature shall be subject to imprisonment for between two and five years. Where a legal entity is involved in the commission of this offence, it shall be subject to security measures specific to legal entities (Articles 282/2 and 282/5).
  • Failure to report an offence: If a natural person does not report a crime to the relevant authorities, he or she may be sentenced to up to one year's imprisonment (Article 278).
  • Purchasing or accepting property acquired through an offence: Anyone who purchases or accepts property which was acquired through the commission of an offence shall be sentenced to imprisonment for between six months and three years and a judicial fine of up to 1,000 days (Article 165).
  • Failure to provide information: Anyone who, having obtained property through a legal transaction, fails to notify without delay the relevant authorities responsible for upholding law and order upon becoming aware that such property has been acquired through the commission of an offence or as a result of an offence shall be sentenced to imprisonment for up to six months or a judicial fine (Article 166).

8 Consumer protection

8.1 What consumer protection provisions apply to virtual currencies in your jurisdiction?

In Turkey, consumer protection is ensured through the Law on Consumer Protection (6502). The law contains no specific provisions on virtual currencies.

The Law on Consumer Protection defines a ‘consumer' as a real person or legal entity acting for non-commercial or non-professional purposes. A ‘consumer transaction' is defined as any kind of contract or legal procedure – including contracts for work, transport, brokerage, insurance, mandate, banking and similar goods or services – entered into between consumers and real persons or legal entities, including public legal entities, acting for commercial or professional purposes or on behalf or on account of such in the goods and services markets.

In light of the foregoing, virtual currency holders who obtain services from virtual currency trading platforms will likely be considered as consumers with respect to such services. Generally, the Law on Consumer Protection provides consumers with possible remedies in relation to the provision of services and the supply of goods, and restricts the enforcement of certain contractual clauses against consumers. These provisions might be relevant in the context of virtual currency sales and services.

However, in its 27 September 2018 bulletin the Capital Markets Board warned consumers, in relation to initial coin offerings (ICOs), that:

  • most ICOs are not regulated or supervised by any regulatory bodies due to their structure;
  • token values may be subject to excessive fluctuations, as is the case with cryptocurrencies;
  • the collected funds may not be used for the stated/communicated purposes by the ICO holders;
  • sales documentation for the ICO may contain incomplete or misleading information; and
  • the investment project may fail or the investment funds may be lost completely, as funded projects are usually at a premature stage.

8.2 What other implications could the mainstream adoption of virtual currencies have from a consumer perspective?

Turkey is one of the countries with the highest penetration of credit cards, mobile devices, electronic banking, e-wallets and cryptocurrencies.

This mindset and the existing technological infrastructure are very promising for the further development of this market in Turkey.

We expect that this will allow financial institutions to calibrate their services to compete with crypto-functioned money transfer and investment services, and that they will eventually integrate these into their own services and products.

This will enhance investment portfolios, reduce service fees and promote decentralised, more secure and more private transactions.

With the advancement of cryptocurrencies, we believe that various use cases of blockchain – such as in relation to escrow services, reconciliation transactions, smart contracts and immutable data server services – will also gradually increase and find their way into legislation and legal commentary by way of academic literature and precedents.

9 Competition

9.1 Do virtual currencies present any specific challenges or concerns from a competition perspective?

As yet, the Competition Authority has issued only one decision in relation to virtual currencies. The decision concerned an e-wallet application that allowed cardholders to shop with virtual money loaded on a university smart card at spending points such as cafeterias on campus. A Turkish private bank sponsored the production of student and personnel ID cards. In return, it requested a commitment not to sell services through other debit cards or cash at the university's spending points. In the complaint, it was claimed that this commitment in the contract between the bank and the university restricted interbank competition. In its decision, the Competition Authority stated that the commitment was reasonable as a measure to ensure the bank a return on its investment and did not restrict competition between banks.

10 Taxation

10.1 How are transactions in virtual currencies treated from a tax perspective in your jurisdiction?

The Income Tax Law states that, all types of income (even donations), regardless of their nature, are subject to income tax. Such income types include:

  • business profits;
  • agricultural profits;
  • salaries and wages;
  • income from independent personal services;
  • income from immovable property and rights (rental income);
  • income from capital investment;
  • income from stock value appreciation;
  • dividends;
  • income from stock transfers; and
  • other income and earnings.

Hence, all economic value generated in any way may be considered as income. This means that economic value generated from digital assets (including cryptocurrency transactions) may also be subject to income tax.

However, thus far, no legislative action has been taken, and the tax authorities have not demanded the filing of tax statements, with regard to digital asset holding or funds and revenues generated therefrom.

Although there are no specific provisions in Turkish law governing the taxation of digital assets in different circumstances, the tax authorities may still take administrative action or issue secondary legislation such as communiqués in relation to digital asset taxation based on the existing general provisions.

11 Trends and predictions

11.1 How would you describe the current landscape and prevailing trends in your jurisdiction as regards virtual currencies? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

In light of the opinions and statements of the legal authorities, it is clear that the Turkish regulatory authorities now have a positive attitude towards cryptocurrencies and blockchain, and specific regulations on cryptocurrencies may be expected in the near future.

12 Tips and traps

12.1 What are your top tips for virtual currency providers seeking to enter your jurisdiction and what potential sticking points would you highlight?

  • Comply with the laws: Although as yet there are no specific regulations on virtual currencies, some of the current regulations will apply, such as the Turkish Criminal Code, the Banking Law, the Payment Law and the Law on the Protection of Personal Data.
  • Stay up to date: The legal status of virtual currencies is still unclear. It is thus vital to stay up to date on developments and carefully follow all guidance, press bulletins, board bulletins and similar announcements or publications published by the regulatory authorities.
  • Work with a competent law firm: As the legal status of virtual currencies is uncertain, each virtual currency should be evaluated on a case-by-case basis. For this reason, it is important to work with a competent law firm that can legally interpret concepts that may be similar, but also very different, such as cryptocurrencies, digital currencies, virtual currencies and e-money; and that knows the sector and understands technologies such as blockchain.

Acknowledgement: Yaren Kiliç co-authored this Guide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.