BeOne Türkiye Tax Bulletin: Turkish Tax Updates
18 July 2023
The Turkish Government has started to apply new fiscal policies after the recent election. In this respect, the Turkish President has exercised his authority accorded by the Tax Laws and issued a new Decree No. 7346 where VAT rates and governmental fees have been increased. In addition, the Turkish Parliament has ratified a new law which increases corporate income tax rates and makes important amendments to Turkish tax laws.
This bulletin provides insights on the latest tax updates in Türkiye as well as the details of those legislative changes.
This bulletin provides insights on the latest tax updates in Türkiye as well as the details of those legislative changes.
1. Recent Tax Changes
1.1. Value Added Tax (VAT)
According to Article 28 of VAT Law No. 3065, the VAT rate for taxable transactions is 10%. However, the President has the authority to increase or decrease this rate within certain limits. Based on this authority, the Turkish President had earlier increased the VAT rates to be applied to the delivery of goods and services, and the following rates had been set:
In the Official Gazette dated 7 July 2023 containing Presidential Decree No. 7346, the overall rate has now been increased from 18% to 20%, and the reduced rate of 8% has been increased to 10%.
Furthermore, certain goods such as soap, shampoo, detergent, disinfectants, wet wipes, toilet paper, paper towels, tissue paper, and napkins, are now subject to a VAT rate of 20% (previously 8%).
This came into effect on Monday, 10 July 2023, and taxpayers have to adapt their systems to the new VAT rates accordingly. Under Turkish Tax Procedure Law No. 213, an invoice can be issued within 7 days after a taxable event occurs. This means that it is possible in practice to apply the former VAT rates until 16 July in the case a taxable event has already occurred but the invoice has not been issued.
1.2. Banking and Insurance Transactions Tax (BSMV)
According to Article 33 of Fee Tax Law No. 6802, the rate of banking and insurance transactions tax (BSMV) is 15%. In foreign exchange transactions, the rate is two thousandths of the base.
The President is authorized to change the tax rate specified in this article and exercised this authority under Presidential Decree No. 7345. In this context, the rate of BSMV to be paid on consumer loans was increased to 15%.
This increase entered into force on the publication date of the Decree (7 July 2023) and will be applicable to consumer loans to be extended as of the date of publication.
The purpose of this increase is to limit consumer loans and accordingly domestic demand as a measure to fight the high inflation which Türkiye has been experiencing in the last year. This change has also increased the cost of obtaining loans from commercial banks and will have an impact on demand for loans by Turkish residents.
1.3. Withholding Tax Increase on Share Buy-Back Transactions
According to Income Tax Law No. 193 Article 94 paragraph 4, if full liability capital companies acquire their own stocks and do not dispose of them within a certain period, a special tax is applied when these shares are disposed of at a loss or canceled with a capital reduction.
The President is authorized to reduce this rate to zero or to re-determine it by increasing it by up to 100%. The withholding tax rate for this tax was previously 0%. Under Presidential Decree No. 7343, the rate on the amounts considered as distributed dividends on the shares of full-fledged taxpayer companies has been increased to 15%. The decree entered into force on the date of its publication, to be implemented regarding shares acquired from the date of its publication, 7 July 2023.
Accordingly, a withholding rate of 0% for amounts considered as distributed dividends in respect of treasury shares acquired by full-fledged companies whose shares are traded on the Borsa Istanbul will continue; however, with respect to shares to be acquired by other companies, a withholding tax of 15% will be applied for amounts considered as distributed dividends from 7 July 2023.
1.4. Increase in Fixed Government Fees
Pursuant to Article 138 of Fees Law No. 492, fixed fees applied in the previous year are subject to revaluation and an increase at the beginning of each calendar year. The President has the authority to determine and amend the maximum amounts of these fees.
Under Presidential Decree No. 7344, the fixed fees specified in the Fees Law for the year 2023 have been increased by 50%. However, no increase has been made to fees in the "II-Driver's license fees" section of tariff number (9), while the registration fee for mobile phones that are brought from abroad has been increased to TL 20,000.
1.1. Value Added Tax (VAT)
According to Article 28 of VAT Law No. 3065, the VAT rate for taxable transactions is 10%. However, the President has the authority to increase or decrease this rate within certain limits. Based on this authority, the Turkish President had earlier increased the VAT rates to be applied to the delivery of goods and services, and the following rates had been set:
- Deliveries and services not included in the lists appended to the decree were subject to 18% (the general rate)
- Delivery and services included in list (II) appended to the decree were subject to 8% (a reduced rate)
- Delivery and services included in list (I) appended to the decree were subject to 1% (a reduced rate).
In the Official Gazette dated 7 July 2023 containing Presidential Decree No. 7346, the overall rate has now been increased from 18% to 20%, and the reduced rate of 8% has been increased to 10%.
Furthermore, certain goods such as soap, shampoo, detergent, disinfectants, wet wipes, toilet paper, paper towels, tissue paper, and napkins, are now subject to a VAT rate of 20% (previously 8%).
This came into effect on Monday, 10 July 2023, and taxpayers have to adapt their systems to the new VAT rates accordingly. Under Turkish Tax Procedure Law No. 213, an invoice can be issued within 7 days after a taxable event occurs. This means that it is possible in practice to apply the former VAT rates until 16 July in the case a taxable event has already occurred but the invoice has not been issued.
1.2. Banking and Insurance Transactions Tax (BSMV)
According to Article 33 of Fee Tax Law No. 6802, the rate of banking and insurance transactions tax (BSMV) is 15%. In foreign exchange transactions, the rate is two thousandths of the base.
The President is authorized to change the tax rate specified in this article and exercised this authority under Presidential Decree No. 7345. In this context, the rate of BSMV to be paid on consumer loans was increased to 15%.
This increase entered into force on the publication date of the Decree (7 July 2023) and will be applicable to consumer loans to be extended as of the date of publication.
The purpose of this increase is to limit consumer loans and accordingly domestic demand as a measure to fight the high inflation which Türkiye has been experiencing in the last year. This change has also increased the cost of obtaining loans from commercial banks and will have an impact on demand for loans by Turkish residents.
1.3. Withholding Tax Increase on Share Buy-Back Transactions
According to Income Tax Law No. 193 Article 94 paragraph 4, if full liability capital companies acquire their own stocks and do not dispose of them within a certain period, a special tax is applied when these shares are disposed of at a loss or canceled with a capital reduction.
The President is authorized to reduce this rate to zero or to re-determine it by increasing it by up to 100%. The withholding tax rate for this tax was previously 0%. Under Presidential Decree No. 7343, the rate on the amounts considered as distributed dividends on the shares of full-fledged taxpayer companies has been increased to 15%. The decree entered into force on the date of its publication, to be implemented regarding shares acquired from the date of its publication, 7 July 2023.
Accordingly, a withholding rate of 0% for amounts considered as distributed dividends in respect of treasury shares acquired by full-fledged companies whose shares are traded on the Borsa Istanbul will continue; however, with respect to shares to be acquired by other companies, a withholding tax of 15% will be applied for amounts considered as distributed dividends from 7 July 2023.
1.4. Increase in Fixed Government Fees
Pursuant to Article 138 of Fees Law No. 492, fixed fees applied in the previous year are subject to revaluation and an increase at the beginning of each calendar year. The President has the authority to determine and amend the maximum amounts of these fees.
Under Presidential Decree No. 7344, the fixed fees specified in the Fees Law for the year 2023 have been increased by 50%. However, no increase has been made to fees in the "II-Driver's license fees" section of tariff number (9), while the registration fee for mobile phones that are brought from abroad has been increased to TL 20,000.
2. Tax Arrangements Introduced by the New Law
The newly ratified Law on the Establishment of Additional Motor Vehicle Tax for the Compensation of Economic Losses Caused by the Earthquakes that Occurred on 6/2/2023 and Amendments to Decree No. 375 was submitted to the Presidency of the Grand National Assembly of Türkiye on 5 July 2023. After the ratification process, Law No. 7456 was approved by the President and finally published in the Official Gazette dated 15 July 2023.
These regulations, which are included in the tax laws under the aforementioned bill, are explained in this section of our tax bulletin.
2.1. Corporate Income Tax Rates
Based on Corporate Tax Law No. 5520 Article 32 paragraph 1 (to be applied to corporate earnings for the year 2023 and subsequent taxation periods), corporate income tax (CIT) is collected at a rate of 20%. This rate was 25% for banks, companies within the scope of Law No. 6361, electronic payment and money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies, and pension companies. Previous corporate income tax rates are displayed in the table below.
The newly ratified Law on the Establishment of Additional Motor Vehicle Tax for the Compensation of Economic Losses Caused by the Earthquakes that Occurred on 6/2/2023 and Amendments to Decree No. 375 was submitted to the Presidency of the Grand National Assembly of Türkiye on 5 July 2023. After the ratification process, Law No. 7456 was approved by the President and finally published in the Official Gazette dated 15 July 2023.
These regulations, which are included in the tax laws under the aforementioned bill, are explained in this section of our tax bulletin.
2.1. Corporate Income Tax Rates
Based on Corporate Tax Law No. 5520 Article 32 paragraph 1 (to be applied to corporate earnings for the year 2023 and subsequent taxation periods), corporate income tax (CIT) is collected at a rate of 20%. This rate was 25% for banks, companies within the scope of Law No. 6361, electronic payment and money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies, and pension companies. Previous corporate income tax rates are displayed in the table below.
Article 10 of the Draft Law determines the corporate tax rate as 25% for non-financial corporates. It is foreseen that banks, companies within the scope of the Financial Leasing, Factoring, Financing, and Savings Companies Law No. 6361 dated 21/11/2012, electronic payment and money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies, and pension companies will be subject to 30% CIT for their corporate earnings.
On the other hand, with another change now made to the article, the corporate tax rate applied to the earnings of companies exclusively derived from exports, which is currently applied with a discount of 1 percentage point, will be applied with a discount of 5 percentage points and, accordingly, will be 20%.
Starting from declarations that must be submitted as of 1/10/2023, new CIT rates will be applied to the earnings of corporations in 2023 and the following advance tax periods. It is specified in the Law that they will enter into force on the date of publication, to be applied to earnings obtained in the special accounting period starting in the 2023 calendar year and the following taxation periods.
2.2. Additional Motor Vehicle Tax
Additional tax will be paid once only, for vehicles registered in the relevant registry on the date of publication of the Law (15 July 2023), and for vehicles that will be registered for the first time in the relevant registry from the date of publication of this Law until 31 December 2023. The additional motor vehicle tax will be equal to the accrued motor vehicle tax for 2023 for the vehicles covered.
2.3. Abolition of Exemptions Applied to the Sale of Immovables included in the Assets of Corporations for a Period of at least Two Full Years
Pursuant to Article 5/1-(e) of Corporate Income Tax Law No. 5520, 50% of the profits arising from the sale of immovables that were included in the assets of corporations for at least two full years are exempt from corporate tax.
In addition, pursuant to Article 17/4-(r) of the Value Added Tax Law No. 3065, transfers and deliveries carried out through the sale of immovables that have been in the assets of institutions for at least two full years were exempt from VAT.
With amendments to the CIT Law and VAT Law, a 25 year-old tax exemption has been abolished for corporate income taxpayers and there will be no such exemption for future periods.
2.3.1. CIT Amendments
Under Article 8 of Law No. 7456, the application of an exemption for the transfer and delivery of immovable assets kept within a corporate’s assets for at least two full years is abolished.
Again, under Article 11 of the said Law, it is foreseen that, instead of an exemption, a rate of 25% will be applied for immovables that were included in the assets of corporates before the date of entry into force of this Law, in respect of their sale from the effective date of this article.
2.3.2. VAT Application
Under Article 3 of the same Law, the VAT exemption is also abolished for transfers and deliveries carried out through the sale of immovables included in the assets of corporates and held for at least two full years.
2.4. Abolition of the Exemption for Partial Division
Under the Scope of Partial Division pursuant to the Corporate Income Tax Law Article 19 paragraph 3 subparagraph (b), immovables and participation shares of production and service enterprises may be subject to partial division under certain conditions. Under the newly introduced Law, immovables will be excluded from the scope of partial division. Based on the published Law, the regulation will enter into force on 01/01/2024.
2.5. Minimum Wage Incentive
Under Turkish Tax Law, minimum wage support has been provided every year from 2016 to the end of June 2023 in order to support employers to protect and increase employment by reducing labor costs.
Under Article 9 of the Draft Law, Temporary Article 96 will be added to the Social Insurance and General Health Insurance Law No. 5510, and in order to reduce the labor costs and support employment between July and December 2023, the employers specified in the article will be provided with minimum wage support of 66 Turkish Liras daily and 500 Turkish Liras per month.
3. Take Away
The VAT rate increase has already started to be implemented and most companies had adopted the new rates for goods and service deliveries as of 10 July 2023. Also, the new government fees are applicable for the respective public services and documents.
As part of the Turkish Government’s new fiscal policies, the ratification process of Law No. 7456 was completed before the Turkish Parliament’s summer break, and tax changes are applicable as of 15 July 2023, when the Law was published in the Official Gazette. In particular, the CIT rate increase marks a considerable change for corporate income taxpayers, as their tax burden will be higher in the last quarter of 2023.
Also, we observe that the Turkish Government has been displaying a tendency to increase indirect taxes due to the high budget deficit. In this respect, the Turkish President recently exercised his authority under the Law and increased the special consumption tax rate and limits on certain goods, such as fuel oil and natural gas.
In addition, new tax changes during the budget period are expected, and new direct taxes (for instance, a net wealth tax) could be introduced by the Turkish Government to be applicable as of 2024. For that reason, we highly recommend monitoring tax updates in Türkiye.
Please contact us for our bulletin and with any queries about Turkish tax changes and their impact on your business.
On the other hand, with another change now made to the article, the corporate tax rate applied to the earnings of companies exclusively derived from exports, which is currently applied with a discount of 1 percentage point, will be applied with a discount of 5 percentage points and, accordingly, will be 20%.
Starting from declarations that must be submitted as of 1/10/2023, new CIT rates will be applied to the earnings of corporations in 2023 and the following advance tax periods. It is specified in the Law that they will enter into force on the date of publication, to be applied to earnings obtained in the special accounting period starting in the 2023 calendar year and the following taxation periods.
2.2. Additional Motor Vehicle Tax
Additional tax will be paid once only, for vehicles registered in the relevant registry on the date of publication of the Law (15 July 2023), and for vehicles that will be registered for the first time in the relevant registry from the date of publication of this Law until 31 December 2023. The additional motor vehicle tax will be equal to the accrued motor vehicle tax for 2023 for the vehicles covered.
2.3. Abolition of Exemptions Applied to the Sale of Immovables included in the Assets of Corporations for a Period of at least Two Full Years
Pursuant to Article 5/1-(e) of Corporate Income Tax Law No. 5520, 50% of the profits arising from the sale of immovables that were included in the assets of corporations for at least two full years are exempt from corporate tax.
In addition, pursuant to Article 17/4-(r) of the Value Added Tax Law No. 3065, transfers and deliveries carried out through the sale of immovables that have been in the assets of institutions for at least two full years were exempt from VAT.
With amendments to the CIT Law and VAT Law, a 25 year-old tax exemption has been abolished for corporate income taxpayers and there will be no such exemption for future periods.
2.3.1. CIT Amendments
Under Article 8 of Law No. 7456, the application of an exemption for the transfer and delivery of immovable assets kept within a corporate’s assets for at least two full years is abolished.
Again, under Article 11 of the said Law, it is foreseen that, instead of an exemption, a rate of 25% will be applied for immovables that were included in the assets of corporates before the date of entry into force of this Law, in respect of their sale from the effective date of this article.
2.3.2. VAT Application
Under Article 3 of the same Law, the VAT exemption is also abolished for transfers and deliveries carried out through the sale of immovables included in the assets of corporates and held for at least two full years.
2.4. Abolition of the Exemption for Partial Division
Under the Scope of Partial Division pursuant to the Corporate Income Tax Law Article 19 paragraph 3 subparagraph (b), immovables and participation shares of production and service enterprises may be subject to partial division under certain conditions. Under the newly introduced Law, immovables will be excluded from the scope of partial division. Based on the published Law, the regulation will enter into force on 01/01/2024.
2.5. Minimum Wage Incentive
Under Turkish Tax Law, minimum wage support has been provided every year from 2016 to the end of June 2023 in order to support employers to protect and increase employment by reducing labor costs.
Under Article 9 of the Draft Law, Temporary Article 96 will be added to the Social Insurance and General Health Insurance Law No. 5510, and in order to reduce the labor costs and support employment between July and December 2023, the employers specified in the article will be provided with minimum wage support of 66 Turkish Liras daily and 500 Turkish Liras per month.
3. Take Away
The VAT rate increase has already started to be implemented and most companies had adopted the new rates for goods and service deliveries as of 10 July 2023. Also, the new government fees are applicable for the respective public services and documents.
As part of the Turkish Government’s new fiscal policies, the ratification process of Law No. 7456 was completed before the Turkish Parliament’s summer break, and tax changes are applicable as of 15 July 2023, when the Law was published in the Official Gazette. In particular, the CIT rate increase marks a considerable change for corporate income taxpayers, as their tax burden will be higher in the last quarter of 2023.
Also, we observe that the Turkish Government has been displaying a tendency to increase indirect taxes due to the high budget deficit. In this respect, the Turkish President recently exercised his authority under the Law and increased the special consumption tax rate and limits on certain goods, such as fuel oil and natural gas.
In addition, new tax changes during the budget period are expected, and new direct taxes (for instance, a net wealth tax) could be introduced by the Turkish Government to be applicable as of 2024. For that reason, we highly recommend monitoring tax updates in Türkiye.
Please contact us for our bulletin and with any queries about Turkish tax changes and their impact on your business.
Authors
- Ramazan Bicer, Partner, Türkiye Tax, Law and Business Support Leader
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