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.
Law number 7417, published in the Official Gazette on 5 July 2022 brought into effect a new wealth amnesty programme, which will run until the end of March 2023. The wealth amnesty is available to both individuals and companies. It allows them to regularise their undisclosed assets in and outside Turkey. The tax authority will not demand any past taxes or penalties because of prior non-compliance. The main conditions for benefiting from the amnesty are: 1. Assets that are abroad must be physically repatriated to Turkey or must be transferred to a Turkish bank or intermediary institution account within three months after declaration 2. Taxes applied to the declared assets under the amnesty must be paid on time. (tax rates vary from 1% to 3%)
Tax hike for financial sector companies
The corporate income tax rate will be applied at 25%, instead of the standard rate of 20%, on the income of corporations in the financial sector (i.e. banks, financial leasing companies, electronic payment institutions, insurance companies). The 25% tax rate for financial sector companies applies to the income earned in 2022 and onwards.
Change in corporation income tax rate
In Turkey, companies (other than those in the financial sector) are subject to a standard corporate income tax rate of 20%. However the rate is temporarily increased to 25% for the income generated in 2021 and to 23% for the income generated in 2022. The applicable rate as of 2023 will return to 20%, unless the legislation is amended.
As a separate note, please note that companies (other than banks, financial institutions, insurance companies, and pension funds) offering at least 20% of their shares via their first initial public offering (IPO) on the Istanbul stock exchange are subject to a CIT rate reduced by 2% points for five years starting from the year when the IPO is made. In addition, the law allows for a CIT rate reduction of 1% on income from manufacturing and exportation activity.
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).
Extension of the tax incentive for companies that convert their foreign currencies to Turkish Lira
Law number 7407, extending the tax incentive for companies that convert their foreign currencies to Turkish lira was published in the Official Gazette on 28 May 2022. Incentives apply if companies convert the FX available on the balance sheet of 31 March 2022 to liras by year-end and deposit the liras in banks for at least 3 months. Originally the tax exemption applied to FX available on the balance sheet of 31 December 2021 only.
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.