A Draft Law on Amendments to Tax Laws and Certain Laws Is Submitted to Parliament

The Proposal on Amendments to Tax Laws and Certain Laws (“Draft Law”), which includes amendments to tax laws, was submitted to the Presidency of the Turkish Grand National Assembly on July 16, 2024. The highlights from the Draft Law, which is expected to be enacted by the end of July, are summarized below.

Granting Shares to Employees (Article 2): It is proposed that, shares given free of charge or at a discount to employees by employers qualifying as techno-enterprise companies will be exempt from income tax, provided the market value of these shares at the time they are given does not exceed the annual gross wage of the employee for that year.

Revenue Determination for Income Taxpayers (Article 3): Taxpayers will be requested to provide an explanation if the revenue determined through periodic inspections and the declarations made by taxpayers differ by more than 20%. The Draft Law allows taxation based on the revenue that has been determined through periodic inspections if the explanation is deemed insufficient.

Withholding Tax on Certain Payments (Articles 4-33-34): Withholdings are allowed for certain payments made to income and corporate income taxpayers earning commercial income.

Providing Collateral for those Issuing Fake Documents (Article 5): Those found to have established tax liability solely for the purpose of issuing fake documents, and those associated with them, will be required to provide collateral if they become legal representatives or hold more than 10% shares in another company. In the event that those persons are not disassociated from the company or do not provide collateral; a special irregularity fine will be imposed.

Increase in Irregularity Penalties (Articles 9-13): The Draft Law increases the amounts of irregularity and special irregularity penalties.

Removal of the Tax Amount from the Scope of Reconciliation (Articles 14-16): By amending the provisions of the Tax Procedure Law regulating the reconciliation, it is envisaged that the tax amounts will be excluded from the scope of reconciliation. There is also a transitional provision stating that this amendment will be valid for the reconciliation applications made after the enactment of the Draft Law.

VAT Inspection in Merger, Transfer and Spin-Off Transactions (Article 19): The Draft Law stipulates that in mergers, transfers, and spin-offs, the transfer of deferred VAT and refund rights to the new company will be allowed through a tax inspection, without being subject to the 5 years of statute of limitation.

Deduction of the charged VAT (Articles 20-23): The Draft Law includes a provision that limits the deduction of incurred VAT to 5 calendar years, and after this period, any non-deducted VAT will be considered as an expense through a tax inspection.

Limitation of Exemption in Free Zones (Article 25): The Draft Law includes a provision that limits the profit exemption provided to businesses operating in free zones to export revenues.

Exemption on Investment Funds and Partnerships (Article 32): With the addition made to Article 5/1-a of the Corporate Income Tax Law, benefiting from the exemption provided under this article is conditioned upon distributing at least 50% of the income earned from immovables owned by funds and partnerships (excluding pension investment funds) as dividends by the end of the second month following the month in which the corporate income tax return for the period in which the income was earned is due.

Domestic Minimum Corporate income tax (Article 36): The Draft Law envisages to introduce a Minimum Domestic Corporate Income Tax for corporate income taxpayers. It is also provided that the minimum corporate income tax shall not be less than 10% of the corporate income remaining after deducting the deductions and exemptions stipulated in the Proposal from the corporate income tax base.

Global Minimum Corporate Income Tax Implementation (Articles 37-50): The Proposal includes common regulations on Global Minimum Corporate Income Tax and Domestic Minimum Corporate Income Tax to be collected by multinational business groups when they exceed certain thresholds.

Departure Fee for Foreign Travel (Article 51): The departure fee for overseas travel is set at TL 500, and it is anticipated that this amount will increase annually based on the revaluation rate.

Discussions on the Proposal are expected to start this week and the Proposal is expected to become effective by the end of July.