Corporate - Significant developments

Last reviewed - 22 January 2020

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 and extended to 2019 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 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 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 clarifies that there is no additional VAT implication when a fully depreciated asset is written off or sold at a zero VAT rate. 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 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 will enter into force on 1 January 2019. The current 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 rate lists update is extended to 31 March 2019     

  • Newspapers and magazines in electronic format, as well as e-books, shall be subject to 18% VAT rate in Turkey.
  • Delivery of furniture (house and office) shall be subject to 8% VAT rate instead of 18%.
  • Delivery of certain commercial automobiles shall be subject to 1% VAT rate instead of 18%.

Tax amnesty

A 'wealth amnesty programme' came into force in May 2018 with the Law No. 7143. Individuals and companies were permitted to regularise their undisclosed assets on or before 30 November 2018 without being subject to any tax audit or investigation.

The decision of the Presidency of the Republic of Turkey, published on 30 November 2018, extends this wealth amnesty period to 31 May 2019.

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.