Establishing International Banking Unit in TRNC

In recent years, with its international investment policy, investment incentives and strategical location, Turkish Republic of Northern Cyprus is one of the leading island counties preferred by international companies and there are already 5 International Banking Units (“IBU”) currently operating in TRNC.

Establishing an IBU in TRNC is subject to certain legal requirements, we as Gürkan & Gürkan Advocates and Legal Advisers offer the highest quality legal services with our experienced legal team to our clients.

The objectives and purpose of establishing an IBU are regulated under the provisions of the Law no: 41/2008 International Banking Units Law, Chap. 113 – Companies Law, Law No: 69/2002 Foreign Capital Law, Law No: 38/1997 Money and Foreign Exchange Law and Law No: 4/2008 – Prevention on Laundering of Proceeds of Crime Law.

Initially, any IBU intended to be established in TRNC should be established in accordance with the provisions of Chap. 113 – Companies Law. For more information related to establishing this company, you can access to detailed information under "Establishing a company in TRNC" link on our website. Thus, it is mandatory for the IBU which is intended to be established to be a limited company, the name of this company should be accompanied with “IBU LTD and/or international banking unit and/or International Banking Unit” wordings.

Conditions for Establishment:

The proposed IBU should make an application to be TRNC Central Bank. Specifically, if the founding shareholder who makes this application is a real person, he/she should not be TRNC citizen whereas if the founding shareholder is a legal entity, it should not be incorporated and registered in TRNC.

However, if the founding shareholders are real person/s and TRNC citizen/s, they can be the founding shareholders of the said IBU provided that they are not present in TRNC for more than ninety (90) days in a calendar year for a duration of five (5) years prior to the application date.

Irrespective of the founding shareholders of IBU’s are real or legal persons, they should not be bankrupt and/or declared for bankruptcy.

Obtaining permit for establishment:

Central Bank of TRNC has final authority for issuance of permit for establishment. For obtaining permit for establishment, 20,000.-EUR should be deposited to the revenue accounts at Central Bank and the invoice indicating such deposit should be attached to the file of application.

Following full submission of all information and documents and deposit of the aforesaid fund, the application regarding the permit for establishment will be finalized by the Board of Central Bank of TRNC within three (3) months at the latest and published in the official gazette.

Operation permit:

As explained, the company which has obtained the permit for establishment must complete its registration formalities within six (6) months at latest. Moreover, technical equipment, employee structure and workplace with full equipment should be ready for obtaining operation permit. In case the application regarding operation permit is not made within six (6) months, the permit for establishment shall deemed to be cancelled save for the existence of reasonable grounds. This period can be extended for a duration of three (3) months by the Board of Central Bank of TRNC.

Upon applying for the operation permit, it is mandatory for the company that opening balance sheet of the company should be approved by an independent audit corporation which has an authority to conduct independent audit for the banks located in TRNC and submission of the invoice indicating deposit of the licensee fee. The said application will be finalized within two (2) months and operation permit will be granted upon approval. Upon grant of operation permit, the company should commence its activities within three (3) months at the latest. Otherwise, the operation permit shall deemed to be void.

License fee is 20,000.-EUR (Twenty Thousand Euro) and payable on January for each calendar year. Thus, the operation permit shall deemed to be renewed. The minimum paid-up capital of the company is 1,000,000.-EUR (One Million Euro) and this amount can be increased up to 4 times by a communique which will be published in the official gazette.

Conditions for transfer of shares:

Change of share structure of the company in operation is subject to the approval of Central Bank. Share transfers which are made in absence of Central Bank’s approval will not be processed at Companies Registrar and declared to be void. Indirect relationship and contribution between real or legal entities will be taken into account for the proposed share transfers.

Operation principles:

It is mandatory for the IBU company which intends to operate in TRNC to manage its operations to abroad. However, it has been regulated under the said legislation that the company may provide a loan to public institutions or any real or legal entity which has obtained an investment incentive for funding of projects in TRNC provided a permission is granted by the Central Bank of TRNC.

The IBU company may open a deposit account/s at any bank which operates in TRNC and trade between these account/s for the operations to be performed in TRNC. Nevertheless, subject to the permission to be granted by the Central Bank of TRNC, the IBU company may invest in the share certificates and other active assets of the companies registered in TRNC.

Books and accounting records:

It is mandatory for the company to prepare its accounting records and financial reports in accordance with international accounting records standards and EURO or US Dollars shall be used as a currency. It has been stated under the said law that all kinds of information and documents which will be requested by the Central Bank of TRNC must be disclosed within the time set for disclosure. All information and documents regarding the activities of the company shall be kept and preserved for a duration of twelve (12) years.

Audit of financial reports will be made by independent audit corporations which have an authority to conduct independent audit for the banks located in TRNC. It is mandatory to submit financial reports by the end of April for each calendar year to the Ministry of Economy of TRNC, Central Bank and Companies Registrar.

Tax Liability:

The IBU company may conduct its banking and other financial activities free and independent from miscellaneous tax legislations in force.

The payable corporation tax is 2% whereas there will be no capital gains tax liability for the activities regarding trade of movables.

One motor vehicle and office equipment which will be imported from abroad and approved by the Central Bank of TRNC are exempt from any tax, stamp duty and fees.

In addition to the above, withholding tax to be deducted over the deposit account/s of the company located in TRNC is %2.5. Apart from this tax liability, up to 25% of withholding tax accrued over company’s interest income generated from abroad can be deducted from the corporation tax payable in case of a submission of certified banking document from TRNC Consulate or Turkish Embassy.