Turkey: Current Tax Issues in Turkey

In the past few months, Turkish has introduced some significant amendments to its tax legislation. The main purposes of those amendments were to cover the budget deficit of the Authority increased in previous years and to continue encourage the investments in Turkey. Some of the most significant changes are as follows:

Corporate Income Tax: 

Tax Rate: In Corporate income tax legislation, the tax rate was increased to 22% from 20% for 2018, to 2020. 

Investment Incentive: 

Entities making investments are enjoying incentives such as lower corporate income tax rate and exemption of VAT or relevant customs taxes or eligible assets acquired. For 2017 the applicable incentive ratios had been increased for a temporary period. With a recent amendment in the legislation, the applicable higher rated investment incentives, whose deadlines had been determined as 31.12.2017, were extended until the end of 2018. 

Additional 5% deduction opportunity: 

The taxpayers who have not failed to submit their tax returns on their due dates in the last three years and which does not have outstanding tax payable balances are provided opportunity to reduce their tax basis by 5% in their income tax calculations. However, in case of an inspection if a transaction of the company is challenged by the tax inspectors, the enjoyed deduction must be returned to the tax authority with additional delay fee charge. 

Limitations over Foreign Currency Based Loans: 

The Law namely “Protection of the Value of Turkish Lira”, was amended on February 2018 and accordingly, starting from May 2018, it will not be possible for Turkish residents to borrow foreign currency denominated loans, unless the required conditions stated in the legislation are met. However, it will still be possible for companies to borrow either from abroad or in Turkey on Turkish Lira basis. 

VAT: 

VAT on internet sales: Based on the recently revised VAT articles, the foreign companies that generate revenue from Turkey via their internet sales to individuals, must be registered in Turkish tax offices for VAT purposes and pay the corresponding Turkish VAT using a special VAT return namely “VAT Return numbered 3”. However, if the internet sales are made to the corporate customers, the foreign entities will not be liable to submit this special VAT return, but the corporate customers have to submit and pay the VAT on behalf of the foreign entities under Reverse Charge VAT mechanism. 

VAT refund: There is a draft law amendment proposal, which is expected to be accepted in the Parliament that will provide VAT refund opportunity to all companies, which could not use its carry forward VAT amounts for more than one year. 

VAT consolidation opportunity: Due to no consolidation of VAT positions, some of the group companies were paying VAT, whereas some of others were struggling with the lack of output VAT to cover their Carry forward VAT amounts. After the enforcement of the proposed VAT amendments, the group companies will be able to enjoy group consolidation opportunity for the group companies that they control for more than 50% shareholding. 

Other Legislation Amendments to Promote Investment Environment: 

- New rules were introduced to expedite the Company establishment process 

- Infrastructure permission processes and the titledeed registration processes were eased by reducing the previously required bureaucracies 

- Financial support incentives were introduced for Small and Medium Scaled Companies

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