Change in corporate income tax rate
With the Law number 7456 published in 15 July 2023:
- The corporate income tax rate has been increased to 25% from 20% for companies other than those in the financial sector.
- For companies in the financial sector (such as banks, financial leasing companies, electronic payment and money institutions, asset management companies, capital market institutions, insurance companies, private pension companies) the corporate income tax rate has been increased to 30% from 25%.
- The new corporate income tax rates will apply from 2023 (starting from the advance tax returns to be filed after 1 October 2023).
On the other hand, companies engaged in export activities will benefit from a reduction of 5 percent points in their corporate tax rate, instead of the previous 1 percent.
Withholding tax on share buybacks increased to 15% for unlisted companies
With the Presidential Decree no.6791 published in the official gazette on 14 February 2023, the withholding tax rate on deemed dividends in connection with share buybacks by Turkish resident companies was reduced to 0% from 15%.
Presidential Decree no.7343 published on 7 July 2023 has narrowed the scope of application of 0% withholding tax on deemed distributions on share buybacks, so that it no longer applies to share buybacks by unlisted companies. Accordingly, the withholding tax rate has been reset at 15% for unlisted companies. The amendment is applicable to deemed distributions in relation to shares acquired after 7 July 2023.
Increase in VAT rates
The Presidential Decree no.7346 published in the official gazette on 7 July 2023 has increased the VAT rates as follows:
- Standard VAT rate rises to 20% from 18%.
- Reduced VAT rate rises to 10% from 8%.
The new rates will apply as from 10 July 2023.
The Presidential Decree does not bring any change to the reduced VAT rate of 1%.
The new supplementary tax for corporate taxpayers
Law No. 7440, published in the official gazette on 12 March 2023 introduced a supplementary tax of 10% (5% in certain situations) for corporate taxpayers. The supplementary tax is payable on the portion of 2022 corporate income which is taxed at a reduced rate, or is exempt. The additional tax should be assessed regardless of whether the taxpayer has a corporate income tax liability in 2022 or not.
The deadline for payment of the first instalment of the new tax is the same as the deadline for payment of the corporate tax for 2022 (30 April 2023). The second instalment is payable in the fourth month following this period (31 August 2023).
The new tax amnesty
On 12 March 2023 a new tax amnesty program entered into force, allowing taxpayers to
- restructure their unpaid tax debts and other payables to the State,
- settle their pending tax disputes,
- voluntarily increase their tax base in return for a guarantee against audits of past tax returns,
- correct their business records without tax penalty or late interest.
The tax amnesty will run through 31 May 2023.
Withholding tax rate on share buybacks
With the Presidential Decree no.6791 published in the official gazette on 14 February 2023, the withholding tax rate on deemed dividends in connection with share buybacks by Turkish resident companies has been reduced to 0% from 15%.
Limitation to the notional interest deduction rule
The right to claim notional interest deductions, which was available for an indefinite period under the old legislation, has been limited to the fiscal year in which the capital increase is registered and the following four fiscal years. For newly established companies and for companies that increased their capital before the amending law was published on 5 July 2022, the 5-year limitation will start in 2022.
Inflation accounting postponed to 2023
Law number 7352, published in the Official Gazette on 29 January 2022, postpones the implementation of inflation accounting until the end of 2023. The gains and losses arising from inflation accounting in 2023 will not be taxable or tax-deductible (i.e. it will have no effect on the tax calculations).
CIT reduction for exporters and manufacturers
Law number 7351, passed on 19 January 2022, allows for a CIT rate reduction of 1% on income generated from manufacturing and exportation. The regulation is effective for years 2022 and onward. This means that while the tax rate for other companies is 23% in 2022, for qualifying manufacturers and exporters it is 22% for the portion of their income resulting from exporting and manufacturing activities.
Manufacturers who also engage in exportation shall benefit from the reduction only for manufacturing; they may not claim a second reduction for exportation.
Withholding tax on profit distribution lowered to 10%
With the Presidential Decision No. 4936, published in the Official Gazette on 22 December 2021, the withholding tax applicable on dividend payments has been reduced to 10%. Previously, the tax rate was 15%. Accordingly, dividends paid by a Turkish resident corporation to a resident or non-resident individual or a non-resident company will be subject to withholding tax at the rate of 10% effective from 22 December 2021.
In Turkey, repatriation of after-tax profits of branches to the overseas headquarters is also subject to withholding (same as profit distribution by companies). The recent decision reducing the withholding tax rate to 10% applies to the repatriation of such branch profits as well.
No withholding tax is imposed on dividends paid to a resident company, so the recent decision does not have impact on profit distributions from a Turkish resident company to another Turkish resident company.
Declaration of ultimate beneficial ownership (UBO) now required in Turkey
A new compliance requirement is now imposed on companies doing business in Turkey, calling for annual declaration of the UBO information to the tax office.
In addition, designated institutions and professions covered by the anti-money laundering law (e.g. banks, payment agencies, finance companies, lawyers, accountants, notaries) are also required to report the beneficial ownership information of their clients, when and if requested by the Revenue Administration.