In accordance with Law No. 7338, which was promulgated in the Official Gazette of 26 October 2021, several significant amendments have been implemented to the Tax Procedural Law and certain other laws in Turkey. Below we summarise the most important changes.
Abolishment of advance tax return for Q4
Law No. 7338 abolishes the advance corporate income tax return for the fourth and last quarter, which should be submitted to the Turkish tax authorities by 17 February. Thus, the advance corporate income tax return periods will be as follows:
- Q1: 1 January to 31 March
- Q2: 1 April to 30 June
- Q3: 1 July to 30 September
The Q4 advance corporate income tax return is still applicable for the fiscal year 2021, the new periods will be effective for the fiscal year 2022.
New conditions to reduce tax for compliant taxpayers
According to the current provisions of relevant legislation in Turkey, subject to the satisfaction of certain conditions, eligible taxpayers who consistently file their tax returns on time and have no outstanding tax liability are entitled to a 5% discount (up to TRY 1.5 million – roughly EUR 108,000 – for 2021).
Under the current provisions, the taxpayer should not be subject to any tax assessment by the Turkish tax authorities in the year the discount is applied and in the two preceding years.
Pursuant to Law No. 7338, the scope of this condition is eased by narrowing it down to tax assessments that have been finalised. Taxpayers might still benefit from the deduction if the assessments are not finalised. Furthermore, if the finalised tax assessment amount is less than 1% of the reduced amount limit (which is TRY 15,000 – roughly EUR 1,080 – for 2021) the corresponding condition is deemed fulfilled.
These new conditions will be effective as of 1 January 2022.
National interest deduction on cash capital contributions from abroad
The current national interest deduction rate is 50% for cash capital contributions from abroad. In accordance with the amendment under Law No. 7338, this deduction rate is increased to 75%.
This amendment entered into force on 26 October 2021, the publication date of Law No. 7338.
Revaluation of assets subject to depreciation
Article 31 of Law No. 7338 amends the title of the repeated Article 298 of the Tax Procedural Law and adds a new paragraph to the article.
In accordance with this amendment, income and corporate taxpayers (except those who apply inflation adjustments and keep their ledgers in foreign currency) who choose to revalue their depreciable economic assets and the depreciation amounts in their balance sheets might realise revaluation under certain conditions if they choose to.
Depreciation, valuation and replacement fund
Taxpayers in Turkey might be able to extend the depreciation periods of their depreciable assets if the extended useful life is not more than double the useful life and it is not longer than 50 years. However, the depreciation calculation method with respect to these depreciable assets cannot be changed.
New depreciable economic assets (except passenger cars which are subject to pro-rata depreciation) do have the option of being depreciated on a daily basis (for assets acquired after the publishing of Law No. 7338 on 26 October 2021).
The useful life of certain newly acquired depreciable economic assets such as new machinery and equipment acquired by taxpayers who have industrial registration certificates that can be used exclusively in R&D, innovation, the manufacturing industry and design activities might be half the length of the useful life determined and announced by the Turkish Ministry of Finance.
The cost value measure has been clarified by defining mandatory and non-obligatory elements explicitly and in detail.
In accordance with Article 328 of the Tax Procedural Law, capital gains stemming from the sale of fixed assets which will be replaced with similar assets can be kept on a temporary account for three years without triggering any tax liability. However, the beginning of this three-year period was controversial (whether it would start in the year that the fixed asset was sold, or in the following year) and there were uncertainties in this respect. Law No. 7338 clearly states that the three-year period will start from the beginning of the year that the fixed asset was sold in.
Law No. 7338 also amends Article 261 of the Tax Procedural Law in Turkey and adds a definition for “Purchase Value” to the corresponding article.
Mutual Agreement Procedure (MAP)
In accordance with Law No. 7338, new provisions regarding the MAP have been introduced and the MAP has been added to the Tax Procedural Law.
Bad debts & doubtful receivables
TRY 3,000 (roughly EUR 214) has been determined as the maximum amount for receivables considered too low to be worth litigating and subjecting to administrative action. In this respect, the threshold for a bad debt has also been set at TRY 3,000 (roughly EUR 214).
Remote tax inspection option
Pursuant to Law No. 7338, remote tax inspections will be an option in addition to tax inspections carried out at the taxpayer’s workplace. Thus, tax inspection officers will carry out tax inspections remotely if requested by the taxpayer.
Tax inspections are currently initiated via an initiation document signed by both the taxpayer and the tax inspector. In the future, communication regarding the initiation of the tax inspection will take place by letter (a written notice).
Social media revenues exemption
According to Law No. 7338, income derived from activities carried out on social media by social media content producers will be exempt from income tax, and no income tax returns have to be submitted if the total amount of this income does not exceed TRY 650,000 – roughly EUR 46,260 (fourth and highest tax bracket in Article 103 of the Income Tax Law).
The conditions to be satisfied to benefit from this exemption are:
- opening a bank account at a bank established in Turkey, and
- all the revenue should be collected with this bank account.
Corresponding banks will be required to apply a 15% withholding tax on the amounts transferred to this bank account.
Irregularity and special irregularity fines
In accordance with this amendment, the scope of reconciliation and pre-assessment reconciliation will also cover irregularity and special irregularity penalties which exceed TRY 5,000 (roughly EUR 355). The reduction to be applied will be 25% for penalties amounting to more than TRY 5,000 (roughly EUR 355) under certain conditions.
RUSF & BITT for asset management companies
According to the new law, Resource Utilization Support Fund (RUSF) exemption will be permanently applicable for asset management companies. At the same time, Banking and Insurance Transaction Tax (BITT) exemption will no longer be applicable.
Other important amendments within the scope of Law No. 7338
10% of the investment contribution amount that is currently regulated under Article 32/A of the Corporate Income Tax Law could be used to offset against other accrued tax liabilities, except VAT and Special Consumption Tax (SCT) under certain stated conditions. This amendment will enter into force as of 1 January 2022.
In line with Article 31/B of the Capital Markets Law, stamp duty exemption is introduced for certain documents such as receipts and papers issued regarding the collateral subject to the issuance of capital market instruments, including the collateral manager.
The effective date for application of the accommodation tax is postponed from 1 January 2022 to 1 January 2023.
The income of small business tradesmen whose income is determined on a small business taxation basis will be exempt from income tax. This amendment will be applicable for incomes generated from 1 January 2021.
A 60-day additional deadline will be applicable for taxpayers who have situations that require a sworn CPA certification report.
During an ongoing tax inspection, tax returns regarding taxes that are not subject to the inspection can be corrected voluntarily.
Agricultural support payments made by the Turkish Government to support farmers and the agricultural industry will be exempt from income tax, and these payments will not trigger any withholding tax liability.
Taxpayers can establish their tax offices electronically if they choose to do so.
The situations where issuing an expense note is obligatory have been clarified.
