Tax Bulletin
Bulletin nr: 2019-27
To : The clients and company web site
From : Şaban Küçük, Partner/ IA, Turkey
Date : October, 24
th 2019
Subject: New Proposed Tax Legislations submitted to Turkish Grand National Assembly

A new legislation related mostly very crucial tax issues including digital taxation has been widely discussed in the news recently. As of October 24th, a huge tax package having 45 articles is submitted to the Grand National Assembly of Turkey (TBMM). It is not enacted yet; we will keep you posted accordingly.

Exact name of the proposed legislation is “The Digital Service Tax Code and Amendments on some Tax Laws Proposal” It has new taxes such as “digital tax”, “tourism tax” and “high-valued real estate tax” which has not been collected before. There are new amendments for income taxation, income tax rate increases for people, expense and leasing limitation for vehicles and changes in taxation for sportsmen.

In summary,

  • There is going to be a new tax in Turkey called “digital service tax”. Tax rate will be 7,5% regardless with the services providers’ residence or identity. It is one of the popular topics in international taxation area recently in the World. Turkish proposal is in line with the OECD countries, but the rate is high. The companies having revenues less than 20 million TRY in Turkey, and EURO750 million worldwide are exempted from this tax.
  • 40% income tax rate will be introduced in Turkey. There are 4 tax brackets in Turkey now including 15%, 29%, 27% and 35%. It is proposed to be 40% for high income levels. The bracket number will be 5 and 40%tax rate will be for the incomes higher than 500.000TRY (roughly EUR78.000). This new schedule will be used for 2019 as well but not for the wages and salaries. This application have been criticized so far as it will cover the whole year. The new tax tariff will be used for wage/salaries earners for FY2020.
  • Wage and salaries are not supposed to be declared to the tax authority by the people in Turkey unless some conditions are realized currently. With the new amendments, the salaries and wages income will be submitted with an annual tax return to the tax office if exceeding the 4th bracket of the tariff. It will start in 2020.

The corporate tax rate were going to be decreased in the first place according to the news
but the Draft does not have this amendment.

  • First Draft: As the income tax rates’ increasing the corporate tax rates were planned to be increased as well other than banks and financial institutions. The corporate tax rates are %22 for 2018 and 2019 and it was going to be 20% for FY2020 and 18% for upcoming years. For banks and other financial institutions 22% was going to be the applicable rate. Publicly held companies were planned to be promoted in this new legislation. The President of Turkey was going to be entitled to reduce the corporate tax rates 2% points for the publicly held
    companies for the first 5 years.
  • A new tax called “tax on high-valued real estates” are introduced in Turkey. Houses whose value is above than 5 million TRY, is subject to this new tax and the rate will be %1, 0,3% and 0,6% depending on the value.
  • Exhange transaction tax rate will be 0,2%. The current rate is now 0,1%.
  • Tax exemption for the intellectual property rights is changed with this new regulation. (starting from 2020, the incomes from the intellectual properties will not be exempted if it exceeds 4th brackets of the tariff. Below the 4th bracket, the incomes of IP, will be taxed just witholding taxes. If it exceeds that limit all of this income will be declared to the Tax Office.)
  • Witholding tax rates will be increased for Exchange nominated incomes with a Presidantial decree.
  • Referees’ income will not be exempted from income tax with the new law.
  • Daily transportation costs’ for employees will be tax exempted for 10TRY, exceeding amount will be subject to income tax.
  • Taxation system on sportsmens’ income will be changed. The special regime for them will be used until 2023. The tax rate will be 20% rather than 15%. The sportsmens will submit annual income tax returns if they earn more than the 4th bracket yearly basis.
  • Special refund mechanism for taxes witheld from sportsmens’ income is abolished.
  • Tourism tax is proposed in Turkey first time in history. It is a common tax abroad. The tax rate will be 2%. It will be provisionally calculated as 1% for 2020

One of the very important changes in the proposal is about the vehicles’ expenses, taxes and depreciation. The new rules will be applied for real persons and corporate taxpayers as well.

  • The rental cars’ monthly rental payments will be deductible up until 5.500TRY. Above will not be deductible expense in corporate or income tax returns.
  • If the cars are preferred to be bought rather than renting a car, the total VAT and special consumtion tax deductible will not exceed 115.000TRY for each car.
  • 70% of the expenses of the cars will be deductible as well. Regardless with the amount of car expenses 30% of those expenses cannot be deductible.
  • The cars will be depreciated for their values below 250.000TRY if the VAT and special consumption tax is included or if they are used ones. If the value is below 135.000 excluding the VAT and special consumption tax, the total value can be depreciated. The figures above cannot be used as depreciation expenses.

This new proposal is not enacted yet, we will keep you posted accordingly.