Turkey

The law implementing Pillar Two rules enters into effect

The law number 7524 introducing implementation of the Pillar Two rules appeared in the Official Gazette of 2 August 2024. Similar to the Organisation for Economic Co-operation and Development (OECD) Model Rules and the Pillar Two Directive, the Turkish Pillar Two legislation will apply to constituent entities that are members of a multinational enterprise (MNE) group that has annual revenue of Turkish equivalent of 750 million euros (EUR) or more in the consolidated financial statements of the ultimate parent company in at least two of the four fiscal years immediately preceding the tested fiscal year.

In general, the Turkish Pillar Two provisions do not differ significantly from the European Union (EU) Minimum Tax Directive. Very briefly, the Turkish Pillar Two regulations introduce the global minimum top-up taxation rules by providing for the main interlocking measures, i.e. the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR) as well as a Qualifying Domestic Top-Up Tax (QDMTT) under the safe-harbour OECD standards. The new rules are effective for fiscal years starting from 1 January 2024, except for the UTPR provisions, which apply to fiscal years starting from 1 January 2025.

Implementation of a domestic minimum corporate tax regime

Law number 7524, published in the Official Gazette on 2 August 2024, introduces a domestic minimum tax regime that aims to ensure the corporate tax is not less than 10% of corporate income before certain exemptions and deductions. Under the new rule, the corporate taxpayers will compute their tax liability under both the standard regime (i.e. 25% tax on taxable income after deductions and exemptions) and under a parallel regime (i.e. 10% tax on taxable income before certain deductions and exemptions). The larger amount is then payable. The domestic minimum tax regime will apply to fiscal years starting from 1 January 2025.

Amendment to the participation exemption regime for foreign-sourced dividends

Law number 7491, published in the Official Gazette on 28 December 2023, introduced a new provision allowing tax exemption on 50% of the dividends from non-resident companies, while the full exemption still stands for those who can qualify. The only requirements to benefit from the 50% exemption are:

• a minimum holding of 10% in the share capital of the foreign company, and
• dividends must be remitted to Turkey by the date corporate income tax (CIT) is due.   

Turkish companies that previously could not benefit from the full exemption (i.e. because they could not meet the required conditions) may now have the possibility to claim a partial (50%) exemption on their dividend income from foreign companies.

Change in CIT rate

With the Law number 7456 published on 15 July 2023:

• The CIT rate has been increased to 25% from 20% for companies other than those in the financial sector.
• For companies in the financial sector (e.g. banks, financial leasing companies, electronic payment and money institutions, asset management companies, capital market institutions, insurance companies, private pension companies), the CIT rate has been increased to 30% from 25%.
• Companies engaged in export activities will benefit from a reduction of 5 percentage points in their CIT rate, instead of the previous 1 percentage point.
• The new CIT rates will apply from 2023 (starting from the advance tax returns to be filed after 1 October 2023).

Withholding tax (WHT) 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 WHT 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 the 0% WHT on deemed distributions on share buybacks, so that it no longer applies to share buybacks by unlisted companies. Accordingly, the WHT 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 value-added tax (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 of 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 number 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 that is taxed at a reduced rate or is exempt. The additional tax should be assessed regardless of whether the taxpayer has a CIT 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 CIT for 2022 (30 April 2023). The second instalment is payable in the fourth month following this period (31 August 2023).

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 five-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.

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.