Turkish Law Blog

Recent Tax Changes in Turkey

Ramazan Biçer, CEO Ramazan Biçer, CEO/ Tinvento
04 February, 2020
477

Turkey introduced Digital Services Tax (the DST), together with Accommodation Tax, Luxury Residence Tax and some other important tax amendments under the Law No. 7194 (the Law) which was published on the Official Gazette dated December 7, 2019. These changes will be applicable in FY2020. In this article, we provide details of upcoming tax changes for FY2020 in Turkey.

1. Digital Services Tax

The DST is applicable to companies providing digital services and the Law defines thresholds for the application of the DST. In order to be subject to the DST, a company must have revenues in Turkey of 20 million TRY (Approximately 3.125 million Euros) and with 750 million Euros or more in consolidated group revenue. Both conditions must simultaneously be satisfied for the applicability of the DST.

The rate of digital services tax is 7.5% of gross revenue from Turkey sales. Under the respected provision of the Law, the President is also authorized to reduce to 1% or double the rate specified separately or together based on the service types.

1.1. Scope of the DST

The DST has been introduced as part of the “Expenditure Taxes Law” under the Turkish tax legislation. Income from following services provided to parties in Turkey will be subject to the DTS:

  • Online advertising services offered in the digital environment (including advertising controlling, and performance measurement services; services relating to the transmission and management of user data; technical services relating to the presentation of the advertisement),
  • The sale of audio, video or any digital content through the digital environment; or any services performed in the digital environment that enable such content to be listened, watched, or played in the digital environment or recorded or used in the electronic devices,
  • The provision and conducting services through the digital environment, allowing the users to interact with each other (including the services performed to allow or facilitate the sales of goods or services among the users),
  • Intermediary services performed in the digital environment in relation to the aforementioned services.

In the Law, there are also certain exemptions applicable in terms of the DST which cover the services that GSM companies pays treasury fees out from it, (ii) the services that are subject to Special Communication Tax, (iii) services provided in the scope of Banking Law, (iv) sale of products produced by a research and development activity in R&D Centres, and (v) services subject to Payment Services and Electronic Money Institutions Law.

1.2. Application of the DST

According to the Law, the DTS will be applicable as of 1st of April 2020 and, the tax period of the digital services tax will be monthly basis. Taxpayers and those responsible for withholding digital services tax will declare and remit such taxes to the Turkish tax authorities on the last day of the following month. As a side note, the Ministry of Treasury and Finance is authorized to determine a quarterly taxation period instead of a one-month taxation period.

The DST will be declared to the tax office of the taxpayer that registered for VAT purposes whereas it will be declared to tax office to be determined by the Ministry of Treasury and Finance in the case no VAT registration was made in Turkey by the respected taxpayer.

The Law also authorizes the Ministry of Treasury and Finance to determine the procedures of the DST and I expect that Turkish tax authorities will clarify application procedures of the DST with a general communique before the Law becomes effective.

2. Luxury Residence Tax

Luxury residences will be subject to Luxury Residence Tax effective from 2020 if either value determined by the General Directorate of Land Registry and Cadastre or the value determined for the real estate tax exceeds 5,000,000 TRY.

The real estates with a value of more than 5 million TRY determined by the General Directorate of Land Registry and Cadastre or made as a result of the valuation will be announced on the website of the General Directorate of Land Registry and Cadastre and will be notified to the related person separately.

In case there is no value determined by the General Directorate of Land Registry and Cadastre, taxation procedures will be made based on the building tax value. An increasing tax rate is determined according to the value of the house. The luxury residences will be subject to below-stated tax tariff:

Value of Residence (TRY)

Luxury Residence Tax Rate

5,000,000 – 7,500,0000

0,3%

7,500,001 – 10,000,000

0,6%

10,000,001 and above

0,10%

The tax must be declared by the taxpayer by the end of the 20th day of February following the year in which the value of the house exceeds the value specified above and the accrued tax shall be paid in two equal instalments until the end of February and August of the related year. The Luxury Residence Tax will enter into force on 01.01.2020.

3. Accommodation Tax

With the provision added to Article 34 of the Expense Tax Law; accommodation services provided at hotels, motels, holiday villages, pensions, and other accommodation places and other services such as eating, drinking, entertainment and use of the pool, beach, thermal and similar services provided within such accommodation places will be subject to a 2% Accommodation Tax. However, this rate will be applied as 1% until 31.12.2020.

The taxation period for accommodation tax is one-month periods of the calendar year in which it operates. The tax will be shown separately in invoices and similar documents issued by the accommodation facilities and no deduction will be made from this tax under any name. In addition, this tax will not be included in the value added tax base. Accommodation Tax will come into effect as of 01.04.2020.

4. Other Important Tax Amendments

4.1. New Application for Determination of Mortar Base in Tittle Deeds

In case of a value determined as a result of the valuation made by the General Directorate of Land Registry and Cadastre in accordance with the authorization given by the new regulation as well as the value of the land tax, property tax value in the transfer and acquisitions of the real estate, will be calculated over the actual transfer and acquisition cost. The envisaged new application will come into force on 01.01.2020.

4.2. Restriction on the Company Car Expenses

The Law introduces some restrictions on expenses incurred for the acquisition of company cars, amortization, maintenance and leasing expenses pursuant to the amendment to the Income Tax Law which will become effective as of January 1, 2020. Thus, following restrictions will be applicable on the company car expenses:

  • Leasing payments up to 5,500 TRY for company car can be deducted from income or corporate tax base.
  • Sums up to 115,000 TRY of special consumption tax and value-added taxes paid for the acquisition of company cars can be deducted from income or corporate tax base.
  • 70% of the repair, maintenance and other expenses related to company cars can be deducted from the income or corporate tax base.
  • Amortization expense of the purchase price of each company car (excluding special consumption tax and VAT) up to up to 135,000 TRY can be deducted from the tax base. In case the company cars are acquired as second hand (special consumption tax and VAT is included into the acquisition price); the acquisition value up to 250,000 TRY will be subject to tax-deductible amortization expense.

Amounts exceeding these limits shall be considered as “non-deductible expenses” in determining the corporate income tax base. The above restrictions shall also apply to the expenses of self-employed passenger cars. The provisions stipulating restrictions on company cars shall enter into force on the date of publication in order to be applied to the income and earnings of the taxation period starting from 01.01.2020.

4.3. Changes in Income Tax Rates and Taxation of Wages

4.3.1. Changes in Income Tax Tariff

Effective from January 1, 2019, a new tax rate of 40% is introduced for the annual income exceeding 500,000 TRY and income tax brackets increased from four to five. With regard to wage incomes, the new tariff will be effective from January 1, 2020. The new regulation determines the income tax tariff to be applied to the incomes other than wage income earned in 2019 as follows:

Income Tax Brackets (TRY)

Income Tax Rates

Up to 18,000

15%

18,001 – 40,000

20%

40,001 – 98,000

27%

98,001 – 500,000

35%

More than 500,000

40%

4.3.1. Changes in Taxation of Wage Incomes

As of January 1, 2020, wage incomes exceeding the fourth tax bracket will be subject to a 40% income tax. The below-stated income tax tariff will be updated in 2020 and be applicable to the salary income:

Income Tax Brackets (TRY)

Income Tax Rates

Up to 18,000

15%

18,001 – 40,000

20%

40,001 – 98,000

27%

98,001 – 500,000

35%

More than 500,000

40%

4.4.     Changes in the Scope of Electronic Transformation (E-Invoice, E-Ledger etc)

Turkey has initiated electronic transformation process for statutory documents in accounting and reporting in 2010. Although the obligation initiated for certain group of taxpayers at the first phase, the scope of the obligation has been expanded in terms of the taxpayer size and the types of the electronic documents. In this context, the scope of the electronic transformation obligation is being expanded for 2020 with General Communiqués published recently.

Types of taxpayers who are obliged to adopt E-Invoice, E-Archive Invoice and E-book application in 2020 and deadlines for the application is summarized in below table.

Taxpayers Under Obligation of E-Invoice

Deadlines for Transition

Taxpayers with gross sales of 10 Million TRY or more for 2018.

From 1/1/2020, e-Invoice must be applied.

Taxpayers with gross sales of 5 Million TRY or more for the years 2018 or 2019

From 1/7/2020 e-Invoice must be applied.

Taxpayers with gross sales of 5 Million TRY or more for the year 2020 or subsequent accounting periods.

E-Invoice must be applied from the beginning of the seventh month of the year following the corresponding accounting period,

Taxpayers who are licensed by the Energy Market Regulatory Authority (EMRA) for the manufacture, importation, delivery, etc. activities of the goods in the List I attached to the Special Consumption Tax Law No. 4760 (including dealership license)

From 1/7/2020 e-Invoice must be applied. For the activities performed in 2020 or subsequent years, E-Invoice must be applied from the beginning of the fourth month following the month in which it was performed.

Those who manufacture, build and/or import goods in the list (III) attached to the Special Consumption Tax Act

 Intermediary service providers mediating the economic and commercial activities of others in the digital environment.

Intermediary services performed in the digital environment by advertising the posts of real or legal persons who are willing to sell their belongings.

Intermediary services performed in the digital environment for online advertisements 

From 1/7/2020 e-Invoice must be applied. For the activities performed in 2020 or subsequent years, E-Invoice must be applied from the beginning of the third month following the month in which it was performed.

The Obligation to Switch to e-Invoice Application in export transactions;

-          Export of goods under Article 11 of the Value Added Tax Law no. 3065 from taxpayers registered with e-Invoice application

-          For the sales “special invoice is prepared” to the non-residents in Turkey under special trade regime called “suitcase trade”

From 1/7/2017 e-Invoice must be applied for ordinary exports

From 1/7/2020 e-Invoice must be applied for the special invoices under “suitcase trade”

Those who have to use E-Invoice application due to the obligation to use E-Archive Invoice (see E-Archive Invoice Obligation Section below)

 

At the date on which the obligation to use E-Archive Invoice begins.

 

 

 

 

 

 

 

 

 

 

 

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