Corporate - Significant developments

Last reviewed - 16 October 2020

Covid-19 Measures and Updates

Advance payments for income tax and corporate income tax for 2020

With the Tax Procedure Law Circular No. 130 published on 12 May 2020, the deadline to submit advance tax returns for income tax and corporate income tax in relation to the first quarter (January-February-March) of the year 2020, which was due by the end of 18 May 2020, and to pay the taxes that have accrued on these returns were been postponed to the end of Thursday, 28 May 2020. 

CIT return

With the Circular on the Tax Procedure Law numbered 127, dated April 17th, 2020, the deadline for filing annual corporate tax returns for the 2019 calendar year, which were due by 30 April 2020, and the deadline for paying the due taxes on these returns were postponed to June 1st, 2020.

Tax certification reports

The submission deadline for Tax Certification reports due by June 30th, 2020 to the Ministry of Treasury and Finance/Tax Offices was extended for 2 months as per the Circular on March 26th, 2020 ( No.1 YMM/2020).

Medium of reporting and payments

In line with the announcement of Turkish Revenue Administration, all disclosures by taxpayers to the tax authority to be made electronically until April 10th, 2020 through Interactive tax office system or to be delivered by post; all tax filings related to income from moveable assets, immovable property, salary income and other types of income to be submitted electronically to the tax authority or through mobile applications or to be delivered to tax authority by post until April 10th, 2010; applications to obtain potential tax number by non-Turkish citizens to be made online through interactive tax office system.

The Turkish Revenue Administration also announced that all tax and penalty fee payments to be made online through listed banks and through credit cards via the interactive tax office system rather than by cash at tax offices until April 10th, 2020.

Force majeure event

General Communiqué No. 518 on the Tax Procedure Law (Law No. 213) ("Communiqué") was published in the Official Gazette on March 24, 2020. The Communiqué addresses taxpayers who were directly affected by COVID-19 and who will benefit from the force majeure provisions of Tax Procedure Law 213. In addition the Communiqué provides details on the postponement of tax duties as per the types of taxpayers to benefit from the force majeure provisions.

Foreign Exchange Transactions

With the Decision of the Presidency, published in the Official Gazette dated September 30, 2020 and numbered 3031, 1 % BITT calculated by banks and exchange offices for the foreign exchange transactions made by the same institutions reduced to 2 per thousand. 0% taxation continues in the following transactions, foreign exchange sales:

- of banks and exchange offices to each other or with each other,

- to the Ministry of Treasury and Finance,

- by banks to the borrowers for the repayment of their foreign currency loan obligations that are granted or intermediated by the bank,

- to enterprises with industrial registration certificates,

- to exporters who are members of exporters' associations,

- to non-resident institutions which are engaged in at least one of the financial activities defined in the Banking Law.

With the decision of the Presidency, published in the same Official Gazette dated September 30, 2020 and numbered 3032, the withholding tax rates applied to deposit interests and dividends paid by participation banks have been reduced for a period of three months. Reduced rates are effective for newly opened accounts between September 30, 2020 and December 31, 2020 (including this date) or for available accounts with maturities renewed between these dates.

     a) checking and notice accounts, as well as time deposits with maturity periods up to (and including) 6 months: 5 % (Previously 15%)

     b) time deposits with maturity periods of up to (and including) 1 year: 3 % (Previously 12%)

     c) time deposits with maturity periods of more than 1 year: 0 % (Previously 10%)

Other Developments

Profit distribution

With the issuance of a Communique by the Ministry of Commerce, regulations and basis for the application of Temporary Article 13 of the Turkish Commercial Code have been outlined, stating; the net profit earned within the 2019 operating year that can be distributed cannot be above 25%, valid until the end of the 2020 and the distribution of previous years’ net profits and the distribution of retained earnings is prohibited. 

Changes to Value-added Tax (VAT) Law

Certain deliveries subject to partial VAT exemption

As a rule, businesses making deliveries that are partially exempt from VAT are not permitted to deduct the input VAT on their purchases or the costs relating to the exempt sales.

The new Law No. 7104 provides for input VAT deduction rights in relation to the following partially exempt deliveries:

  • Education provided free of charge by private schools, universities, and colleges.
  • Accommodations provided free of charge by student dormitories.
  • Goods and services that must legally be delivered free of charge.
  • Food, clothing, fuel, and cleaning materials delivered free of charge to associations and foundations that are engaged in food factoring activities.
  • Services rendered in free trade zones and transportation services connected with exportation to or from free trade zones.
  • Goods and services deliveries made free of charge to institutions and organisations stated in the 17th Article of the VAT Law.

VAT exemption for deliveries to duty-free shops

VAT exemption is granted for deliveries to duty-free shops, in order to cure the imbalance suffered by domestic suppliers. These deliveries will be exempt from special consumption tax as well.

VAT treatment of fixed assets written off

The new Law No. 7104 clarifies that there is no additional VAT implication when a fully depreciated asset is written off or sold at a zero VAT rate (exempt). That is, the taxpayer does not need to make any correction for the input VAT paid and deducted at the time of the purchase.

If the write-off (or the zero VAT rate sale) is made before the asset is fully depreciated, the law allows for proportional VAT deduction.

Consequently, only the VAT corresponding to the undepreciated portion must be paid back to the tax office.

Time limit to deduct the VAT 

Without a doubt, the most palpable change under the new Law No. 7104 is the change to the time limit for deducting input VAT businesses incur on their purchases. The new law provides that the input VAT can be deducted in the calendar year in which the deductible VAT arises and in the following calendar year. This provision has entered into force on 1 January 2019. The previous rules provide for the VAT to be deducted only in the calendar year in which the VAT arises. Allowing businesses to deduct VAT in the second calendar year as well will help to ease the problems faced in the current VAT recovery mechanism, particularly in relation to invoices arriving late, discounts, bonuses made after sale, and turnover premiums.

Time limit for application for VAT refund

In cases where taxpayers are entitled to a VAT refund as a result of their VAT-exempt transactions, the refund claim must be made by the end of the second calendar year following the taxation period when the transaction is made.

Customer bad debt relief

The new law provides for VAT relief for uncollectible receivables that become worthless in accordance with Article No. 322 of the Tax Procedural Code.

Consequently, a supplier who has accounted for and paid VAT on a supply, but who has not been paid the price for that supply, will be able to claim the VAT it has paid.

The buyer, on the other hand, will be required to adjust the input VAT that was deducted on the concerned purchase.

VAT exemption for facilities for renewable and other energy

The VAT exemption available under Article 13 regarding water, sewage treatment, gas, electricity, and communication facilities of organised industrial zones and small industrial areas has been extended to apply to renewable and other energy facilities as well

Extension of the temporary tax exemption in relation to urban transformation projects

The VAT exemption regulated under Temporary Article 35 of the VAT Law, regarding immovables expropriated within the scope of urban transformation projects, is extended through 2020. In addition, such transfers do not trigger capital gains taxation.

VAT treatment of exchange rate differences

Article 24 of the VAT Law, defining the taxable base for VAT, has been modified to clarify that exchange rate differences are subject to VAT.

New applicable VAT rates

As per the Presidential Decree published in the Official Gazette on 31.07.2020, VAT rates applicable for below listed goods and services are reduced from 18% to 8% and from 8% to %1. The reduced rates are applicable for the period starting from 31.07.2020 to 31.12.2020.

  • Maintenance and repair of consumer electronics products (TV, radio, CD / DVD players, home video cameras, etc.) (excluding material deliveries) (from 18% to 8%)
  • Maintenance and repair of computers, communication devices and watches (excluding material deliveries) (from 18% to 8%)
  • Rental services of workplaces (from 18% to 8%)
  • Passenger transport services (from 18% to 8%)
  • Congress, conference, seminar, concert, amusement park entrance fees (from 18% to 8%)
  • Food and beverage (from 8% to 1%)
  • Accommodation fees (from 8% to 1%)

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.