2021-103 Updates and Summaries on Tax in Turkey (October 2021)

2021-103 / Monthly Financial / Tax Bulletin

2021-103 / Monthly Financial / Tax Bulletin

Date     : November 8th, 2021           

Subject: Monthly Financial/Tax Bulletin

Find out latest developments on tax regulation, keep updated on regulatory changes and their effects on your business in our tax bulletins. And also you can find the important financial news of last month briefly. 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.

The last developments on tax regulations, depreciation, tax incentives, tax audits, tax penalties, taxation on youtubers has passed in the Parliament in October. In addition, new R&D calls for projects, signed Double Tax Treaty with Nigeria, amended Law of Cooperatives, new law proposal about Export Association and incentives for export in Turkey, regulation on Crowdfunding, Public Budget for 2022 and European Commission’s Turkey Report are very important subjects in this month.

A. Economy and Public Budget

  • The Presidency Investment Program for 2022 has been published.
    • The Program give clues about important steps, precautions and policy changes in government programs and actions.
    • There are measures taken for the whole economy in general, based on tax, incentive and financial regulations in particular, and measures to be taken in line with the Development Plan for sectors in particular. In this annual program, competitive production and productivity, industrial policies are listed as prior development areas and sectoral policies. In this respect, it is a policy document that should be followed closely by private sector companies.
  • Public Budget for 2022 is submitted to the Parliament. It will take a month to hear and scrutinize all Administrations budgets and activity reports for previous year.
  • Turkey has ratified the Climate Change agreement.
    • Carbon Deal is going to affect the whole country and fiscal system. The Ministry of Trade had announced Strategy Paper last month.
    • Paris Convention will be affected the whole business life. We are working the carbon tax and the other effects of the Green Deal on taxpayers and firms.

B. Main Economic Indicators

  • The balance of payments statistics for August 2021 is announced by the Central Bank.
    • The current account recorded a surplus of USD 528 million, against a deficit of USD 4,068 million observed in the same month of 2020, bringing the 12-month rolling deficit to USD 23,033 million.
  • Turkish Statistical Institute announced inflation figures for October 2021.
    • Consumer price index increased by 19.89% and domestic producer price index increased by 46.31% on an annual basis.
  • 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.
    • Click to download Debt Statistics

C. Major Tax Issues

  • Law number 7338, amending various tax laws including the corporate income tax law, the income tax law, the tax procedural law and other tax laws, was approved in the Parliament on 14 October 2021.
    • Key tax changes introduced by law number 7338 are as follows.
    • According to the Law Proposal, a new tax proposal having 64 articles regulating many tax laws came to the Parliament in the beginning of October. This includes incentives, new tax exemptions for tradesmen and youtubers, amendments in some problematic areas in tax procedures. Mutual agreement procedure is going to be regulated in local tax legislation as a new instrument.
    • This new proposal was discussed in the Budget and Planning Committee first and have slightly changed with some reductions and it was accepted with some amendments and additions as well in the General Assembly.
    • As there are many issues to be clear, the Ministry of Finance and Treasury are authorized to publish secondary legislation. More than 10 articles in this Law specifically mention that the Revenue Administration will determine the practices and procedures.
    • Here is a summary as this is very huge and long Tax Law.
      • There is advance tax return filing system in Turkey in addition to annual tax filing. The last (fourth) advance tax return have been heavily discussed for decades among taxpayers as the deadline is so close to the annual tax return. So, the last tax return will not be submitted starting in 2022.
      • Further to a provision which became effective in 2018, a tax deduction of 5% is available for taxpayers that are considered compliant as per the rules set out under Repeated Article 121 of Tax Procedural Law. With law number 7338, the concerned article is now amended to ease the eligibility conditions for the 5% tax deduction.
      • Previously one of the conditions for benefitting from this tax deduction was that the taxpayer should not be subject to any additional tax assessment by Turkish tax authorities in the year the discount is applied or in the two preceding years. Law number 7338 changes this condition and states that there should not be a finalized tax assessment in the said period, and in the event that the finalized assessments within the said period are less than 1% of the discount amount limit, the taxpayer is still considered compliant for the purposes of claiming the 5% tax deduction.
      • Tax audit procedure is amended considering the court cases. Tax audit will be held in Tax Officer’s workplace with some exceptions and “tax audit minute” is replaced with a written notification to the taxpayer.
      • Tax compliance reports can be submitted within 60 days for some certain determined tax practices. 30.000 taxpayers are subject to Tax Compliance Auditing in Turkey by sworn-in public accountants. (YMM) This is very crucial change as some tax incentives and practices are not acceptable if the report is submitted late.
      • Expense slips (bank payments) can be considered as invoice if the related party is not a taxpayer.
      • New depreciation system is announced in line with the IFRS. Taxpayers have more freedom to determine the depreciation period and rate for some certain tangibles assets.
      • Notional interest deduction will be applicable as 75% for FDI. It is 50% for normal taxpayers.
      • Reconciliation system has slightly been amended and all tax penalties are included. Small amount of tax penalties (less than TRY5,000) will be subject to tax reduction of 75%. If it is more than that figure it will be applicable to go to the Reconciliation Committee.
      • Tax incentives will be applicable even no corporate profit is reached. 10% of the investment amount will be the ceiling and taxes will be off-set other than VAT and SCT.
      • The term “too small to be worth litigation and enforcement proceedings” in the relevant article has been replaced with “not exceeding 3,000 Turkish liras”. Accordingly, the threshold to write off a bad debt on the grounds that the amount is too small for litigation and enforcement proceedings has been set at 3,000 Turkish liras.
      • The article regulating the fixed asset replacement fund has been amended to clarify the starting point of the three-year period in which capital gains (from sale of fixed assets which will be replaced with similar assets) can be kept in a temporary account without being subject to taxation. According to the clarification, the three-year period starts in the year following the year of the sale, not in the year of the sale.
      • Youtubers and social media influencers will be %15% taxable in withholding basis with a threshold and there will no VAT. After 650k, they have to be regular taxpayers.
      • Tourism tax is postponed again until 2023. It has not been applied yet in Turkey as this is a new tax.
      • Evaluation of the balance sheet is a problematic area in Turkey as the inflation swipes the assets. Inflation accounting has not been yet used since 2004.
      • Taxpayers can freely disclose tax returns voluntarily even tax audit is initiated for that taxpayer.
      • Repeated tax loss practice has been amended for the good of taxpayers considering the tax disputes in this matter.
  • New Double Tax Treaty is signed and announced with Nigeria. Turkey has 97 tax treaties, 86 of them are applicable for the time being.
  • Social Security Administration in Turkey (SGK) published a new regulation about the European Social Security Convention.
    • The Circular on the implementation of the European Social Security Agreement, to which Turkey is also a party, has been published. European Social Security Agreement has been signed by 8 countries including Turkey, Austria, Belgium, Italy, Luxembourg, Netherlands, Portugal and Spain. It is very important for Spain and Portugal, where Turkey does not have a bilateral social security agreement.
  • Social Security Administration (SGK) published a new regulation about the Registration of the Workplaces.

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.

  • 2 New Project based incentive schemes are given for 2 firms.
    • Turkey offers very generous tax incentives for the firms who are productive and create value in some specific sectors. The President has decided to give incentives selective firms and projects in last 5 years.
  • Workers in Design, R&D centers and techno parks can work remotely (50%) till the end of 2022.
    • The Presidential Decree allows the firms to enjoy tax benefits for those workers. This application started in Covid-19 period and has been extended couple of times.
  • Secondary legislation after R&D and Technopark Law Amendment nr. 7263 has not been published yet. As this will be applied in 2022 it is very important subject, it should be better to be announced soon for taxpayers and firms.
    • You can find more information regarding with the amendments of new R&D Law in February Bulletin.

E. Banking & Finance

  • At the CBRT Monetary Policy Committee meeting in October 21st 2021, it was decided to reduce the policy interest rate (one-week repo auction rate) to 16%.
  • Capital Markets Board (CMB – SPK) announced 2 Communiques which were announced its website for public consultation in February 2021.
    • Communiqués amending the Communiqué on Asset or Mortgage-Backed Securities and the Takeover Offer Communiqué by the CMB were published in the Official Gazette in October 16th, 2021.
  • Capital Markets Board (CMB – SPK) released the Communique on Crowdfunding in Official Gazette after public consultation.
    • This regulation includes share-based and debt-based type crowdfunding in addition to the establishment of the platforms, permissions, prohibited activities, necessary documentation, investment limits etc.
  • Tax amnesty for assets abroad is applicable till the year end.
    • The Ministry of Finance has sent an informative brochure to the Banking Supervisory Authority (BRSA). The banks are intermediate to collect the Peace Asset Tax Files.

F. Commercial Arrangements

  • Amendment to the Cooperatives Law was enacted as Law No. 7339.
    • The Law is published in the Official Gazette dated October 26, 2021.
    • In summary, regulations such as holding meetings in electronic environment, external auditing, requiring managers and auditors to participate in the training program, establishing a cooperative information system and making positive discrimination against women and disabled people were included in this new Law.
  • Transfer of shares for Joint Stock Companies should be declared to the Central Registration Unit (MKK) 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.

We have summarized recent changes in English, in short headings. We will continue to announce to you all the developments in Turkish and in English.

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

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Best regards,

Partners, Taxia

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