Find out latest developments on tax regulation, keep updated on regulatory changes and their effects on your business in our tax bulletins. You can find the important financial news of last month briefly.
We are glad to share those summaries with our clients and network.
April 2022 was a busy month with corporate income tax returns and NGO’s annual declarations.
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, R&D and incentives below.
A.Main Economic Indicators
The balance of payments statistics for February 2022 is announced by the Central Bank.
The current account recorded a deficit of USD 5,154 million, increasing by USD 2,707 million compared to the same month of the previous year, hence bringing the 12-month rolling deficit to USD 21,845 million.
New Omnibus Tax Law published in the Official Gazette
New amendments in summary are an increase of corporate tax rate for financial firms, non-deductive advertising expenses, new tax penalty imprisonement rules, necessary holding period for VAT exemption in sale of houses and new VAT exemption in industry and tourism.
You can find details;
New Corporate Tax Rates in Turkey
The corporate tax rate for financial companies (banks, financial leasing companies, electronic payment and money institutions, asset management companies, capital market institutions, insurance companies, private pension companies and such) is increased to 25%.
Turkey’s corporate tax rate is normally 20%. This was temporarily increased to 25% in 2021 and 23% in 2022. The 25% tax rate for financial sector companies will apply from 2022.
Corporate Tax Rates in Turkey
Exporters / Industry Firms**
Amendments in Turkish Tax Procedural Law
The maximum period of imprisonment defined in Tax Procedural Code regulating penalties for tax fraud has been increased from 5 years to 8 years.
Amendments have been introduced making the reduction of penalties possible during the period of the investigation of acts falling within the scope of Article 359.
Exemption of capital replenishment funds from the corporate income tax base
According to a new provision, such funds are excluded in the determination of taxable corporate income. Article 6 of the Corporate Tax Code in Turkey, which defines the taxable base for corporate income tax, was amended with a new provision related to capital funds transferred by the shareholders to replenish insufficient equity balances as part of the capital adequacy rules imposed by the Turkish Commercial Code.
It might be seen as trivial amendment since it can be regarded not an income already in tax law. This might trigger controversial opinions if this application will cover the previous cases.
Tax exemption in relation to income generated by mutual fund investors with addition of the income coming from redemption of the funds and year-end valuation.
Non-deductible advertising expenses are defined if the gigantic internet firms having more than 1 million subscribers do not have agents in Turkey.
Reinforcement of the VAT incentive in manufacturing and tourism with a new provisional article in VAT Law.
Tourism industry is added to the tax incentive application and the deadline is extended.
VAT exemption applicable to the purchase of real estate by non-residents is amended. The buyer of the no-VAT houses should keep it for three years.
VAT exemption for engineering services provided for the manufacturing of electrical motor vehicles.
With a new article (Temporary Article 42) a new VAT exemption is foreseen for the taxpayers who avail of the project-based incentives and manufacturing electrical motor vehicles developed as a result of the R&D activities realized exclusively in Turkey in order to develop technologies for completely eliminating exhaust oscillation causing greenhouse gas.
The exemption applies only to the engineering services provided for the development of the mentioned vehicles and that are included in the investment incentive certificate. The exemption will be applied until 31 December 2023.
Corporate tax exemption to promote converted exchanges to TRY will cover 2022 as well.
Taxpayers will be exempt for the foreign exchange difference and interest income if they meet the criteria set in the Law.
Corporate tax exemption was introduced for corporate taxpayers who convert foreign currencies and gold balances in their deposit and participation accounts into Turkish lira in year-end in terms of foreign exchange difference and interest income.
With the legislation in the Parliament this exemption will be used as well in 2022 quarterly with the Decision of the President of Turkey.
VAT Communique number 41 has amendments on some VAT applications
Voluntary withholding VAT regime is introduced in addition to obligatory withholding taxation in some transactions.
New VAT rate on the sale of houses and food and services in restaurants are described in detail. 8% will be applicable for houses up to 150 m2 of the net area and land deliveries as well. VAT rates for food was decreased from 8% to 1% in this year.
The Ministry of Treasury and Finance has used its authority to make refunds up to a certain percentage of the export value by sectors, instead of the VAT incurred, in the returns arising from the export transactions made by the manufacturers.
“Retail delivery” and “net area” definitions are explained in terms of VAT rates.
Corporate Tax Communiqe regarding with discounted corporate tax rates for export and industrial activities
With the new tax regulation discounted tax rate started for exporters and manufacturers in Corporate Tax Law.
Corporate tax rate will be applied 1% less for exporter and manufacturer companies.
Out of 986,318 corporate taxpayers as of 31 December 2021, the number of manufacturer taxpayers holding the industrial registration certificate is 155,049 and the number of exporters is 86,269.
It should be noted that the application only covers corporate taxpayers and does not cover industrialist or exporter real person enterprises and sole proprietorships that keep books with the balance sheet method.
In the draft Communique, the order of the tax rate applications, the period for which the discount will be applied, those who cannot benefit this tax benefit, the existence of earnings arising from activities other than production / export activities, the application for taxpayers who carry out export and production activities together.
It is explained with comprehensive examples how the application will be made in case of income tax exemption for services, exempted income from free zone, reduced tax application foreseen for publicly listed companies and discounted corporate tax application within the scope of investment incentive certificate.
Tax rates increased in tobacco/wine and Tax Brackets are renewed for the cell phones in Special Consumption Tax
Special consumption tax amounts are renewed for wine and tobacco.
Tax brackets are increased for the sale of cell phones in Special Consumption Tax as well.
Tax Treaty with Iraq and new protocol amending the Tax Treaty with Kuwait
The number of Turkish Tax Treaties is 99. 88 of them are effective. The effective date of tax treaty with Iraq is November 10, 2021.
Withholding tax rates on dividend, interest and royalties payments are seen as important issues in the agreement with Iraq. Article 14 of the agreement, which regulates self-employment activities, deals with this income in the context of natural persons. In order to avoid double taxation, the offset method is envisaged.
C.Banking & Finance
40% of the foreign exchange revenues from exports should be sold to the CBRT. This rate was 25% before.
The Monetary Policy Committee (MPC) of Central Bank of Turkey has decided to keep the policy rate (one-week repo auction rate) constant at 14 percent.
Payment with Turkish Lira is necessary event the contract is in foreign exchange.
With a revision in the Communique number 32-34 Turkish Lira should be used in payments. Ministry of Finance shed lights on some questions below.
Payment obligations regarding negotiable instruments indexed to a foreign currency (e.g. checks) issued within the scope of contracts concluded before April 19, 2022 might be fulfilled in a foreign currency.
Payment obligations regarding invoices issued before April 19, 2022 may be fulfilled in a foreign currency.
Purchase and sale transactions regarding precious metals and precious stones carried out in a foreign currency and payment obligations within the scope of settlement of such transactions in the Precious Metals and Precious Stones Market of Borsa İstanbul A.Ş., may be fulfilled in a foreign currency.
A new Omnibus Law including amendments in Banking Law is in the Parliament.
This law is accepted in the Plan & Budget Commission in the Parliament and it will be heard in General Assembly soon.
Reserve requirements are widened by the Central Bank of Turkey.
Central Bank introduced reserve requirements on appropriate on- and off-balance sheet items of banks and other financial institutions.
With this new regulation, reserve requirements, which used to be applied to the liability side of balance sheets, will also be applied to the asset side of balance sheets in order to strengthen the macroprudential policy toolkit.
In this context, banks’ and financing companies’ TL-denominated commercial cash loans shall be subject to reserve requirements, excluding the following loans:
Loans extended to businesses that are under the scope of SMEs
Export and investment loans
Loans extended to institutions and organizations, state economic enterprises and their establishments, subsidiaries and affiliates included in tables (I), (II), (III) and (IV) in the annex of the Law No.5018 on Public Finance Management and Control Law
Commercial credit cards
Loans extended to financial institutions
D.R&D and Incentives
Turquality Programme for services is amended after two years implementation
This programme supports brands and investments of Turkish firms.
Thresholds are defined in Turkish Lira instead of USD.
Excluded sectors such as financial firms are added to the Programme.
Acquired foreign brands are excluded from this support. In addition, if majority shares of supported firm’s are sold to a foreign company the Ministry of Industry should be informed.
Draft Communiqué on “Remote Working” practices in R&D and Design Centers and Technology Development Zones has been updated but not published yet.
With the new Law regulations were made for the application of income tax withholding incentives for periods worked outside of the R&D centers and firms in technoparks.
The details of the application were announced to the public as a draft Communique.
The Presidential decision on granting project-based state aid to investments has been updated.
With the Decision Number 5478 published in the Official Gazette dated April 21, 2022, the Decision on Granting Project-Based State Aid to Investments has been amended.
The minimum fixed investment amount required for investment projects to be evaluated within the scope of the decision regarding the granting of state aid to investments called project-based super incentives was increased from 500 million TL to 1 billion TL. Minimum mount used to be USD100 million in the beginning.
Türkiye’s E-commerce Volume Posts Substantial Yearly Growth in 2021
In 2021, e-commerce volume in Türkiye increased by 69 percent year-on-year, reaching TRY 381.5 billion. The number of orders increased by 46 percent to hit 3 billion 347 million units, up from 2 billion 297 million units, during the same period.
The percentage of e‑commerce out of total retail sales was 17.7 percent in 2021. It was in November that the percentage spiked to 20.4 percent, which is known as the e-commerce campaign month.
With the Presidential Decisions published in the Official Gazette dated April 24, 2022, the Agreements on the Mutual Promotion and Protection of Investments with Ivory Coast and Rwanda entered into force.
Important Decisions on Price Difference Application have been published
Because of the high inflation, the Public Administrations will pay adjusted fees for tenders.
Public Procurement Board published some Decisions to clear the questions and problems regarding with the applications of the Law and Presidential Decree.
The Regulation on Professional Associations in Copyrights entered into force.
The Regulation, which entered into force with the President's Decision dated April 6 and numbered 5405 contains detailed regulations on the establishment, supervision, general assembly and organs, membership, relations, rights and powers, audit and transparency reports of the owner of the work, related rights holders and book publisher professional associations and federations.
In the regulation, there are issues such as financial books to be kept, approval of the books, income and expense documents, registration procedure, financial provisions, income of the union, distribution directive, accounting period, publication of the transparency report and websites.
A new Law on Sports was accepted in the Parliament.
This Law includes amendments regarding with mergers of the clubs, budgets and debts of the sportive clubs, audit rules and reporting system of the sports clubs and sportive activities in Turkey.
The Law on Sportive Clubs and Federations number 7405 is published in The Official Gazette in April 26th, 2022.
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 summary, we did not give too many details, we can answer your questions.
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