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2021-062 Monthly Financial/Tax Update in Turkey (May 2021)

2021-062

Date     : June 8th, 2021

Subject: Monthly Financial/Tax Update in Turkey (May 2021)

You can find the important tax-related and financial issues of May 2021. We are glad to share those summaries with clients and our network.

Let’s briefly start with the headings and then examine the details. We will share information about Turkish economy in general, and the latest figures in labor, inflation, growth, main tax developments, customs and foreign trade, social security obligations, trade legislations, banking and financial issues, postponed obligations, R&D and incentives below.

A. Economy and Public Budget

  • IMF and OECD announced GDP growth rates for countries including Turkey.
    • Turkey posts 7% growth in the first quarter of 2021.
    • Turkish Statistical Institute announced Turkey’s quarterly gross domestic product (GDP). GDP with chain linked volume index (2009=100) increased by 7.0% in the first quarter of 2021 compared with the same quarter of the previous year.
    • The International Monetary Fund (IMF) has revised its GDP forecasts for countries around the world in its latest World Economic Outlook April 2021 report and OECD for member countries.
  • Items for Economic Reform Plan in Turkey is ongoing.
    • Minister of Treasury and Finance Lütfi Elvan unveiled Turkey’s Economic Reform Action Plan, which contains several measures under 10 main titles including; public finance, price stability, financial sector, current deficit, employment, corporate governance, investment incentives, easing internal trade, competitiveness and market surveillance.
    • Accordingly, some deadlines in the Action Plan included the establishment of; Price Stability Committee, Financial Stability Committee and Economic Coordination Committee by June 2021, Health Industries Directorate and Software-Hardware Industries Directorate by December 2021.
    • First quarterly Public Finance Report is announced by the Minister. You can find the report by clicking.
  • Activity Reporting should be done in February for Public Administrations.
    • Strategic Plan, Performance Program and Activity Reporting for public administration have a new Bylaw instead of three.
    • Public administrations should prepare strategic plan and performance program while using tax money.
    • Activity Reports should be submitted in February every year. You can find Activity Report for the Turkish Revenue Administration on its website. It gives insights about the Administration’s approach and future projects in tax management.

B. Main Economic Indicators

  • Turkish Statistical Institute announced inflation figures for May 2021.
    • Consumer price index increased by 16.59% and domestic producer price index increased by 38.33% on an annual basis.
    • Consumer price index increased by 17,14% and domestic producer price index increased by 35,17% on an annual basis in April 2021.
  • Ministry of Finance and Treasury announced the domestic borrowing strategy and debt statistics.
    • Central Government Debt Statistics were published as well by currency, interest and instrument type.
    • More statistics can be found by clicking here.

C. Major Tax Issues

  • Common Reporting Standards (the CRS) News in Turkey.
    • A presidential decree was released in Official Gazette in June 1st. It determines the effective date of “the CRS Multilateral Competent Authority Agreement” as of February 3, 2020.
    • The new Decree again shows that Turkey will most likely exchange financial accounts for FY2019 and FY2020 and subsequent years with other jurisdictions by September 2021.
  • Country-by-Country Reporting (CbCR) News in Turkey.
    • A presidential decree was released in Official Gazette in June 1st. It determines the effective date of “the CbCR Multilateral Competent Authority Agreement” as of 18th December 2020.
    • The Decree defines exchanges of CbC reports with other jurisdictions will firstly start from FY2019 and will be followed in the subsequent years as well.
  • Tax amnesty proposal submitted to the Turkish parliament on 21 May 2021 calling for another tax amnesty package, along with some other measures has been accepted with minor amendments in the General Assembly of the Parliament. New Law nr. 7326 will be published pretty soon in the Official Gazette.
    • The provisions of the proposal, in general, are similar to the provisions of the tax amnesties implemented in the past.
    • Under the accepted Law taxpayers can restructure their unpaid tax and public debts and other payables to the Tax Office and settle tax litigations, protect themselves against potential tax audits by making voluntary tax base increase (years 2016 – 2020 with regressive rates) correct their current accounts / cash and inventory records to reflect the reality of the situations and update the tax base of fixed assets in return for a 2% tax on the surplus calculated from the revaluation.
    • This Law will be published soon and enter into force.
  • Corporate Tax Returns for 2020 were submitted by more than 930.000 taxpayers in April 2021 in Turkey.
    • Compliant taxpayer ratio is unfortunately 4-5% depending on the type of taxpayer which enjoy 5% tax reduction.
  • Corporate tax rate will be 25% for 2021 and 23% for 2022 with a new Tax Law nr. 7316.
    • New communique regarding with tax update of corporate tax is published as nr. 18 in the Official Gazette on May 26th.
    • Communique explains withholding taxing on the shares bought by the same firm in some conditions and tax reduction for public companies which go public for the first time in BİST (İstanbul Stock Exchange) for the first 5 years as well.
  • Finance expenses are limited by a Presidential Decree and explanatory Communique is announced after getting feedback and open for public consultation.
    • The Communique has been updated three times before official announcement.
    • Taxpayers whose utilized foreign liabilities exceed their equity, except for credit institutions, financial institutions, financial leasing, factoring and financing companies will be unable to deduct 10% of the total of the expense and cost items related to the utilized foreign liabilities made under the title of interest, commission, delay interest, dividend, F/X differences, etc. in corporate tax calculation. It means that 90% of the financing expenses will be deducted.
    • The limitation applies only for the amounts that exceed the equity.  Costs and expense items recorded within the investment expenses are not subject to the limitation.
    • This limitation entered into effect by the publishing date of the Decree (February 4th, 2021) for all income derived within the taxation period starting as of January 1st, 2021.
    • There are many gray areas such as the definition of equity, finance expenses and revenues and if those are allowed to be written off, previous credits taken before February 4th, 2021 etc. taxpayers having huge non-deductible finance expenses because of the application will sue the Tax Administration.
  • VAT will continue to be applied as 1% for accommodation (overnight) services and other reductions were extended till the end of July 2021.
    • VAT reductions for tradesmen services, restaurants and others were renewed as well in the beginning of June for 2 months.
  • The period of the withholding tax reduction from deposit account interests and participation accounts dividends has been extended until July 31st, 2021.
  • The Law Proposal Amending the Enforcement and Bankruptcy Law and Some Other Laws has been accepted in the Commission after the submission to the Turkish Grand National Assembly.
    • This new law brings new system for bankruptcy and concordat and registration of immovables by the Municipalities’ and Cadastre.

D. R&D and Incentives

Turkey proposes lots of different incentives for the majority businesses such as SME, R&D firms and exporters. There are some legislative changes summarized below on those issues.

  • Secondary legislation after R&D and Technopark Law Amendment nr. 7263 has not been published yet.
  • You can find more information regarding with the amendments of new R&D Law in February Bulletin.
  • The Law Proposal, which foresees changes in the Tourism Incentive Law, has been submitted to the Parliament. It will be discussed in the General Aseembly.
    • The law proposal was accepted by the Tourism Commission, except for one article.
  • The duration of the loss of turnover support has been extended until May 31, 2021 and new support mechanism is published for SME’s and tradesmen.
    • The period to benefit from the support in question will be 4 months.
  • The number of Mutual Investment Promotion Agreements that Turkey has signed with other countries is increasing.
    • Currently, there are Agreements with 108 countries. Agreements with Cambodia, Palestine, Ivory Coast, Belarus and Moldova are waiting to be discussed in the General Assembly of the Grand National Assembly of Turkey.
    • We will share a Guide on Turkish Bilateral Agreements.

E. Banking & Finance

  • At the CBRT Monetary Policy Committee meeting on May 6, 2021, it was decided to keep the policy interest rate (one-week repo auction rate) constant at 19%.
  • Main Indicators Report (2021 March) is released by the BRSA.
    • Financial information submitted regularly to the BRSA by the institutions under the scope of the Banking Law and other regulations within the framework of supervision function, those having fundamental information feature are presented on monthly basis in the direction of the targets of transparency and informing the public.
    • Banking Sector Monthly Bulletin (2021 April) is released as well.
  • 32nd Financial Stability Report is published by the CBRT.
  • New regulation has been issued on not using crypto assets in payments in Turkey. The Revenue Administration has been discussing to introduce withholding tax on the gains from the crypto assets for the first time.
    • A new regulation on recently amended Measures Regulation (“Amendment Regulation”) was entered into force as well. According to the Regulation, starting from 1 May 2021, the below companies will be considered obliged persons under Article 4 of the Measures Regulation. Lawyers, CPA’s and notaries are obliged persons as well according to this legislation.
      • Crypto asset service providers, and
      • Financing companies.
    • MASAK (the Financial Crimes Investigation Board) released two guidelines for crypto asset service providers and financing companies, thoroughly explaining the obligations and the foreseen sanctions for violations.

F. Commercial Arrangements

  • Transfer of shares for Joint Stock Companies should be declared to the Central Registration Unit by the year end.
    • There is no registration and announcement obligation for joint stock companies in the share transfer (except for the conversion of a single-partnered joint stock company, the change of the partner of a single-partnered joint stock company, or the case of a joint stock company with a single partner), but in the event of transfer of bearer shares with this communiqué, notification obligation has been introduced.
  • A Guideline on Influencer Advertising is announced.
    • The Ministry of Trade published the Guideline on Commercial Advertising and Unlawful Commercial Practices Social Media Influencers pursuant to the Consumer Protection Law.
    • It aims to inform all advertising business stakeholders, including advertisers, agencies and platforms, on how the advertising activities of social media influencers are regulated.

We have summarized our notes on the changes and developments regarding the summary financial / tax legislation in the last one month, in English, in short headings. We will continue to announce to you all the developments made in other months in Turkish and in English.

Please tell us if you have any comments or questions on any of the subjects above. As this is a summary, we did not give too much details, we can answer your questions when you have.

Please click to view the bulletin PDF.

 

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Best regards,

Partners, Taxia

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