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Turkey Corporate - Significant developments

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New Law on the Amendment of Tax Laws

The Law on the Amendment of Tax Laws, Laws, and Secondary Laws, which includes several changes on tax regulations, was accepted by the Parliament’s General Assembly and will be submitted for the approval of the president.

The Law proposes amendments on several tax laws. Very brief information of the amendments are as follows.

Changes to Corporate Income Tax (CIT) Law

The Omnibus Bill that was passed early on 5 December 2017 includes important amendments to the CIT Law.

On 23 December 2017, the tax authority updated its Corporate Income Tax Communiqué numbered 1, parallel with the amendments adopted.

CIT rate

The Omnibus Bill numbered 7061 increased the CIT rate from 20% to 22% for 2018, 2019, and 2020. The increase also applies to the advance tax filings to be made in respect of the concerned years.

For companies with a special accounting period, the increased rate will apply in the tax years starting in 2018, 2019, and 2020.

Please note that the Finance Minister has recently announced that the rate may be reduced soon within 2018 as one of the steps of fiscal tightening policy.

According to the Law, the regulation shall enter into force and be applied on earnings that should be stated in CIT returns to be submitted after 1 January 2018.

Exemption of earnings from immovable and participation share sales

The Omnibus Bill reduced the CIT exemption on sale of qualifying immovable property from 75% to 50% of the capital gains after 5 December 2017.

The two-year holding period requirement for qualification remained unchanged.

The recent Communiqué clarifies that qualifying sales transactions that took place before 5 December 2017 can benefit from the exemption rate of 75% provided under the old legislation.

2018 rates for investments with incentive certificates

For investments within the scope of the investment incentive certificates (IICs), the additional investment contribution rate and reduced CIT practice applied in 2017 is extended to 2018 by the Law.

Consideration of special reserves as deductible expense in finance companies

It is ensured that all special reserves allocated by leasing companies, factoring companies, and financing companies are considered as tax deductible expense in the fiscal year when reserves are allocated.

Regulations on reserves are based on the 'Regulation on Accounting Practices and Financial Statements of Finance Leasing, Factoring, and Financing Companies'.

The new regulation shall enter into force starting from 1 January 2019.

Changes to Income Tax Law

Lump-sum expense rate in the taxation of rental income

With the Law, the lump-sum expense rate taken into consideration in the event that the lump-sum method is selected in the taxation of rental income is reduced from 25% to 15%.

The regulation entered into force on the publication date and is effective since 1 January 2017.

Changes to Value-added Tax (VAT) Law

VAT responsibility

The Law proposes that the VAT registration requirement applies to non-residents who provide online services in electronic media to real persons in Turkey.

The regulation shall enter into force in the beginning of the month after the publication date.

Roaming services

With the Law, the roaming services from abroad within the framework of international roaming agreements and charge of such services to customers in Turkey will be exempt from VAT.

Regarding the mobile phone subscribers’ usage abroad, the fee for the roaming services provided by the operator abroad to the domestic operator, and the charge of usage fee to the consumer, are exempt from VAT with the amendment.

The regulation shall enter into force in the beginning of the month after the publication date.

Transfer of immovable properties to leasing and financing companies

With the Law, leasing and financing companies debtors’ and their guarantors’ transferring immovable properties and participation shares in return for such debts are exempt from VAT. The existing exemptions available for the transfers to the banks will be applicable for the leasing and financing companies with the Law.

The regulation shall enter into force on 1 January 2018.

VAT exemption for machinery and equipment purchases

New machine and equipment deliveries to those:

  • in the manufacturing industry exclusively for taxpayers who possess an Industrial Registry Certificate, and
  • located in technology development zones, specialised technology development zones, research and development (R&D) and design centres, and research laboratories with the activities in R&D, innovation, and design, to be used exclusively for these activities,

have been exempted from VAT until 31 December 2019.

This exemption is a full exemption. Taxes burdened due to deliveries within the scope of exemption will be refunded if it cannot be deducted.

In case the machinery and equipment acquired within the scope of the exemption is used for activities besides R&D, innovation, and design activities or is disposed of within three years from the beginning of the calendar year following the date of delivery of the machinery and equipment, VAT that wasn’t calculated during the delivery shall be collected with late tax loss penalty and late interest.

The regulation entered into force on 1 May 2018.

VAT exemption in health services provided to foreigners

Healthcare and rehabilitation services provided by those who are permitted by the Ministry of Health to real persons who are non-resident foreign nationals in only the health institutions and health care centres in Turkey are exempted from VAT.

The following services are covered by the exemption: preventive medicine, diagnosis, treatment, and rehabilitation services. Other deliveries and services provided with these services do not fall within the scope of exemption.

The exemption is a full exemption.

The amendment shall enter into force on the second month following the publication of the Act.

Tax amnesty

Law No. 7143 published in the Official Gazette dated 18 May 2018 and numbered 30425, which brings into effect a tax amnesty, has entered into force. Under the program taxpayers can:

  • restructure their unpaid tax debts and other payables to the state for all types of taxes and penalties that were accrued by 31 March 2018
  • settle their pending tax litigation
  • protect their past accounts against potential tax audits by making voluntary tax base increases (income tax, CIT, VAT, income withholding/corporate withholding tax [WHT] [limited to specific payments]) for the years between 2013 and 2017 (inclusive)
  • correct their business records to reflect the reality of their situations, and
  • declare previously undeclared foreign and domestic assets without being subjected to taxation.

Recent developments regarding foreign exchange borrowing restrictions

The Council of Ministers published a decree amending the Decree No. 32 on the Protection of the Value of the Turkish Currency (Decree No. 32) in the Official Gazette No. 30312 on 25 January 2018. The amendments providing restrictions on foreign exchange loans entered into force on 2 May 2018.

Prior to the amendments, real person Turkish residents were not entitled to utilise foreign-currency denominated loans from abroad. With the amendments, Turkish residents that do not have foreign exchange income will no longer be able to utilise foreign-currency denominated loans from abroad, save for certain exceptions.

Last Reviewed - 15 August 2018

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