2024-07 / Financial / Tax Bulletin (February 2024)
Find out the latest developments on tax regulations and be updated on regulatory changes along with their effects on your business through our tax bulletins.
New omnibus having many amendments in Tax Laws, and upcoming related bylaws, inflation accounting for firms without tax effects for FY23 and possible circulars or bylaws, new interest rates by the CBRT, and Bank’s new governor after the resignation of the relatively new one, Türkiye’s new tax treaty with Korea and new crypto law are the main headlines.
Main Economic Indicators
Foreign Trade Statistics for December 2023 is announced by TURKSTAT;
- According to the general trade system exports increased by 0.4%, imports decreased by 11.0% respectively in December 2023.
- The foreign trade deficit decreased by 37.8% in December 2023.
The balance of payments statistics for November 2023;
- In November, current account recorded net deficit of USD 2,722 million. Gold and energy excluded current account indicated net surplus of USD 2,153 million.
- Goods deficit recorded USD 4,412 million. Services recorded a net surplus of USD 3,002 million. Under services, travel item recorded a net inflow of USD 2,347 million.
Turkish Statistical Institute announced inflation figures for January 2024.
- Consumer price index (CPI) increased by 64.86% annually and 6.70% monthly.
- A change in general index was realized in CPI (2003=100) on the previous month by 6.70%, on December of the previous year by 6.70%, on same month of the previous year by 64.86% and on the twelve months moving averages basis by 54.72% in January 2024.
Major Tax Issues
Double Tax Treaty with Korea has been renewed.
- The first Treaty was signed between the countries in 1983. The new agreement is signed in Seoul in 2021. Law is published in Official Gazette in February 3rd, 2024.
The interest rate on the 2023 cash capital discount is set 53,11%. New capital injection will enjoy this “notional deduction” depending on the capital’s origin.
- The notional interest deduction was limited to 5 years with an amendment last year. There was no time limitation before this change.
- Foreign capital will be deducted at a rate of 75%. Domestic capital will be deducted at a rate of 50%.
The omnibus has been published in the Official Gazette and secondary amendments on the way.
- There are important amendments in different tax laws. We summarize here:
- Inflation adjustment will not be in favor of the banks and financial firms. Profits or losses arising from the inflation adjustment in those firms will not enjoy the inflation accounting for the 2024 and 2025 accounting periods. It will affect the Treasury for TRY70 billion. It will most probably be seen as against to the Constitution if it will be sued. Constitutional Court already cancelled the prohibition the adjustment for FY21.
- %50 tax deduction is increased to %80 for those who served specific services to the clients abroad if all the earnings are brought to Türkiye.
- VAT submission dates are differentiated for VAT 1 and VAT 2 declarations. VAT 2 is “adverse charge VAT tax declaration” and this will not be deducted unless it is paid. Related amendments are made in “e-file system” by the Tax Office.
- %05 “lump sum expenditure allowance” will not be used starting from 2024 for exporters.
- %5 export sourced corporate tax deduction can be used by intermediated firms as well.
- The President is empowered to differentiate the withholding tax rate on “construction earnings” and increase the tax rate to %40 for interest and similar income. Even this is just a signal, it creates lots of rumors about the “exchange rate earnings of the people”.
- Tax exemption on the currency-protected deposit system (KKM) will be extended till 2024 and renewed 3 times by the President. It will be used for 2024 and 2025.
- Participation exemption system for foreign sourced dividends is eased. The conditions for participation exemption now are heavy and some firms cannot meet those criteria. One of the criteria for dividends received must be subject to tax at the level of distributing foreign company at a rate of 15% at a minimum abroad to get %100 exemption.
- New amendment gives %50 exemption rather than full exemption with lighter conditions.First, minimum holding of 50% in the share capital of the foreign company (for full exemption holding criterion is %10 and minimum period is 1 year),
- Dividends should be remitted to Türkiye by the date corporate income tax is due.
- Firms previously could not benefit from the full tax exemption because the foreign subsidiary is not subject to 15% taxation will use this partial (50%) exemption on dividends from foreign companies.
- The same application goes for real people as well. It might be considered as “hidden tax amnesty” which Türkiye is very familiar with. In this case, taxpayers in Türkiye might want to declare more foreign sourced dividend income. According to the analysis just 1,500 people declared this income in 2022.
The draft of the VAT communique has been updated and published.
- Some definitions have been revised in accordance with received feedback.
- Exclusions for the exemptions made for airports and seaports, such as private vessels, have been omitted. It was heavily discussed among the firms and applicants.
- The requests of payment system providers have been mostly overruled.
The draft on inflation adjustment communique has been updated and published.
- Institutions that operate within the scope of Banking Regulation and Supervision Authority and Insurance and Private Pension Regulation and Supervision Authority are exempt from inflation adjustments.
- The Draft has been criticized heavily but no major amendment made. Communique number 555 of Tax Procedural Law started to be applied for FY23 and FY24.
- There is no threshold so far in terms of the size of the balance sheet or number of employees. More importantly, it seems to be applied for provisional tax periods as well. The Ministry of Finance are to be expected to issue a Circular regarding with those questions marks.
Social Security
Minimum wage support law is passed in the Parliament. Law number 7495 is published.
- The minimum salary support for 2024 is updated to TRY 700. The minimum wage is set as TRY 17,002.12 net, TRY 20,002.50 gross last month.
- The daily wage is set as TRY 666.75 gross.
Banking & Finance
CBRT has announced the new capital requirements for e-money firms.
- With the new announcement, minimum equity amount would be TRY10 million for payment firms working on invoice collection, TRY 20 million for other payment service companies and TRY 55 million for the ones who can issue e-money. Those new thresholds will start in the second half of 2024.
- The members are the institutions that are authorized to operate as payment institutions or electronic money institutions. Those firms are member of TÖDEB. You can find more information on the system, current members and activities of the NGO.
- There are 52 electronic money institutions that are members of TÖDEB. There are 26-member payment institutions as well.
The Central Bank raised the interest rates 2,5%.
- The Monetary Policy Committee (the Committee) has decided to raise the policy rate (the one-week repo auction rate) from 42,5 percent to 45 percent.
A Memorandum of Understanding was signed between the Central Bank of the Republic of Türkiye and the Bank of Spain
- A Memorandum of Understanding was signed between the Central Bank of the Republic of Türkiye and the Bank of Spain on 1 February 2024, laying the groundwork for continued cooperation in the field of central banking.
- The Memorandum of Understanding was signed by Governor Hafize Gaye Erkan and the Bank of Spain’s Governor Pablo Hernández de Cos in Madrid, Spain.
- In the framework of the MoU, the two central banks aspire to foster cooperation and carry out corporate technical activities in the field of central banking.
R&D and Incentives
The 2% fund allocation requirement for R&D incentives is still ongoing.
- It will be calculated on the tax exemption of R&D and Technopark firms.
- This requirement will be 3% next year.
Commercial Regulations
Airbnb Law and Bylaw started to apply. There are rumors that the Parliament will extend the deadline.
Miscellaneous
The law on crypto assets is on its way to the General Assembly.
- According to the Minister of Finance and Treasury, Türkiye should bring the law soon to exit from the gray list.
Constitutional Court’s decision on “Inflation Accounting for FY21”
- According to the provisional Article 33/1 of the Tax Procedure Law the financial statements will not be subject to inflation adjustment in the 2021 and 2022 accounting periods, including the provisional tax periods regardless of whether the conditions for inflation adjustment are met. This rule is effective as of 20 January 2022. Court states that the condition of legality was not fulfilled in the restriction of the right to property, and additionally, it is not in accordance with the principle of the legality of taxes.
- This decision will only affect the ones who went to the court with this case.
Best regards,
Partners, Taxia
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