Turkey: Law to Increase Tax Revenues Adopted

(Dec. 28, 2017) On December 5, 2017, Turkey’s Law No. 7061 on the Amendment of Some Tax Laws and Some Other Laws, which was adopted on November 28, 2017, was published in the Official Gazette (Resmi Gazete). Aspects of the Law become effective on various dates. (Bazi Vergi Kanunlari ile Diger Bazi Kanunlarda Degisiklik Yapilmasina dair Kanun, Law No. 7061, Resmi Gazete website (Dec. 5, 2017) (click on title under “Kanun” heading to view text).) The 124-article Law provides for amendments to some 14 tax-related laws, including, among others:

  • Law No. 6183 on Procedures for the Collection of Public Receivables;
  • Law No. 6802 Excise Tax;
  • Law No. 7338 on Inheritance and Transfer Tax;
  • Law No.193 on Income Tax;
  • Law No. 213, the Tax Code;
  • Law No. 197 on Motor Vehicles Tax;
  • Law No. 210 on Valuable Papers (e.g., notarized documents in electronic form with an electronic signature);
  • Law No. 488 on Stamp Tax;
  • Law No. 492 on Fees;
  • Law No. 1319 on Real Estate Tax;
  • Law No. 3065 on Value-Added Tax;
  • Law No. 4760 on Special Consumption Tax;
  • Law No. 5345 on the Organization and Duties of the Revenue Administration; and
  • Law No. 5520 on Corporate Tax. (7061 sayili Bazi Vergi Kanunlari ile Diger Bazi Kanunlarda Degisiklik Yapilmasina dair Kanun Resmi Gazete’de [Law No. 7061 on the Amendment of Some Tax Laws and Some Other Laws Published in the Official Gazette], Gelir Idaresi Baskanligi [Revenue Administration] website (Dec. 5, 2017).)

Some highlights of the changes in the tax laws are as follows.

Corporate Tax

The Law increases the corporate tax rate under the Corporate Tax Law (Kurumlar Vergisi Kanunu), No. 5520, from the current 20% rate to 22% for tax years 2018, 2019, and 2020; the change took effect on the Law’s date of publication. (Turkey Enacts New Law to Increase Tax Revenues, EY GLOBAL TAX ALERT LIBRARY (Dec. 5, 2017); Law No. 7061, art. 91.) However, the Council of Ministers has the authority to decrease the 22% rate to as low as 20%. (2017/4 Law on Amendment of Certain Taxes and Laws and Other Acts Takes Effect, KPMG TAX BULLETIN; Law No. 7061, art. 91.)

Under article 5-1 of the Corporate Tax Law, corporate taxpayers had enjoyed a 75% exemption rate applicable to capital gains from the sale of shares and immovable property held for at least two years; now the rate from the sale of immovable property acquired and held for at least two years is reduced to a 50% exemption on the gains. (Turkey Enacts New Law to Increase Tax Revenues, supra; Law No. 7061, art. 89.) The exemption rate for the sale of assets such as “participation shares, founder’s shares, dividend shares and preemption rights,” however, remains at 75%. This amendment entered into force on 5 December 2017. (Erdal Ekinci & Gunes Helvaci (Baker McKenzie), Significant Amendments to Turkish Tax Legislation, LEXOLOGY (Dec. 12, 2017).)

Under a similar change in the Corporate Income Tax Law that enters into force on January 1, 2018, the amending Law also allows for a corporate income tax exemption on income generated by corporate taxpayers from the sale of real estate and the other types of assets quoted above to financial leasing and financing companies to pay their debts to these companies; however, the corporate tax exemption rate of 75% for income derived by banks and the financial leasing and financing companies from the transfer of these assets decreases to a 50% exemption rate only for the income derived from real estate sales. (Id.; Law No. 7061, art. 89.)

Law No. 7061 amends the Act on Fees (Harclar Kanunu) to provide that Advance Pricing Agreements, which are regulated under the Corporate Income Tax Law (article 13), are no longer subject to application and renewal fees. (Significant Amendments to Turkish Tax Legislation, supra; Law No. 7061, art. 32.) The amending Law also adds a new paragraph to article 123 of the Law on Fees prescribing the exemption from fees – except for judicial fees – for transactions for special-purpose entities established to provide funds for securities issued abroad for the financing of projects of public- private business associations, transactions related to the use of these funds by the project contractor firm, and their repayment. (Law No. 7061, art. 31.) These amendments entered into force on December 5, 2017.

Electronic Commerce

The new Law accords the Ministry of Finance enhanced authority to “enforce certain reporting requirements for individuals and legal persons who are service providers and carry on e-commerce activities” in order to impose taxes on e-commerce, including the power to “determine principles and procedures regarding the reporting process.” This amendment also entered into force on December 5. (Turkey Enacts New Law to Increase Tax Revenues, supra; Law No. 7061, art. 1.)

Single Tax Rate for Special Communication Services

Law No. 7061 amends the various tax rates on special forms of communication under article 39 of the Law on Excise Tax to introduce a single special communication tax of 7.5% on all types of services, effective January 1, 2018. (2017/4 Law on Amendment of Certain Taxes and Laws and Other Acts Takes Effect, supra; Law No. 7061, art. 10.) Before the amendment the special communication tax rates were:

  •  25% for transactions within the scope of mobile electronic communication
  •  15% for services regarding transmitting radio and TV broadcast via cable or satellite platform
  •  5% for wired, wireless, or mobile internet service providers
  •  15% for other electronic communication services. (2017/4 Law on Amendment of Certain Taxes and Laws and Other Acts Takes Effect, supra.)

VAT

The Law provides for the introduction of Value-Added Tax (VAT) liability, effective January 1, 2018, with respect to nonresident persons, real or legal, who engage in e-commerce activities, requiring them to declare and pay VAT in Turkey for services they provide electronically to individuals who are not liable for VAT. The Ministry of Finance will determine the scope of such e-commerce services subject to VAT and the relevant procedures and principles. (Turkey Enacts New Law to Increase Tax Revenues, supra; Law No. 7061, arts. 41 & 123.)

The VAT exemption provided to transfer and deliver real estate properties and participation shares to banks in return for borrowers’ and guarantors’ debts will be extended to financial leasing and financing companies effective January 1, 2018, and, in addition, sales by leasing and financing companies of the abovementioned assets resulting from the transfer and delivery will also be exempt from VAT. (2017/4 Law on Amendment of Certain Taxes and Laws and Other Acts Takes Effect, supra; Law No. 7061, arts. 42 & 123.)

Monitoring of Forex Positions

The amendment Law gives the Turkish Central Bank the power “to request any form of information and documentation from individuals and legal persons, whom the Central Bank will identify, for the purpose of monitoring the transactions” that affect such entities’ foreign exchange positions and to determine the relevant principles and procedures. The Law also introduces a penalty for non-compliance with this provision.  The new foreign exchange provisions entered into force on December 5. (Turkey Enacts New Law to Increase Tax Revenues, supra; Law No. 7061, arts. 33 & 34.)

New Stamp Tax Exemption

The Law introduced, effective December 5, an exemption for stamp tax on agreements signed by special purpose entities incorporated for public-private sector cooperation projects. (Turkey Enacts New Law to Increase Tax Revenues, supra; Law No. 7061, art. 30.)

Inheritance and Transfer Tax

Under an amendment to article 16 of the Law on Inheritance and Transfer Tax, Law No. 7338, the inheritance and transfer tax applied to games of chance, contests, and lotteries held by individuals and enterprises will be increased to 20% from 10%, effective as of the beginning of the month following the publication date of the Law (i.e., beginning of January 2018). (2017/4 Law on Amendment of Certain Taxes and Laws and Other Acts Takes Effect, supra; Law No. 7061, arts. 13 & 123.)

Source: New feed10

Related Posts

Leave A Reply