Tax Bulletin

Bulletin nr: 2019-48

To       : The clients and company web site

From   : Independent Advisors / Tax, Turkey

Date     : December, 9th 2019

Subject:  New Tax Legislations in Turkey (Digital Tax)

A new legislation related mostly very crucial tax issues including digital taxation has been widely discussed in the news recently in Turkey.

As of October 24th, a huge tax package having 45 articles is submitted to the Parliament (TBMM). After long discussions and minor amendments it is enacted by the Parliament and published on December 7th in Official Gazette as Act nr.7194.

We will give you summarized information below:

  • 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,

  • Turkey will be one of the countries, taxing the digital economy. The new one is 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 750 million Euro worldwide are exempted from this tax.
  • 40% income tax rate is introduced in Turkey for real persons.
    • There used to be 4 tax brackets in Turkey 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. There is a favour for wage and salaries for 2019.
    • This application have been criticized so far as it will cover the whole year without any prior notice. The new tax tariff will be used for the earners of wage/salaries for FY2020.
  • Wages and salaries are taxed by witholding method in general in Turkey. Those income is not supposed to be declared to the tax authority 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.
  • 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.
  • A new tax called “tax on high-valued real estates” is introduced in Turkey. Residential 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.
    • Commercial buildings are not subject to this tax.
    • New houses which are not sold yet by the companies are not subject to this tax.
  • Exhange transaction tax rate will be 0,2%. The current rate is now 0,1%.
  • Income from the intellectual property is tax exempt in general and only taxed by witholding method in Turkey.
    • 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 figure 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 tax exemption is revised 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. The Parliament gives permission to the current contracts for sportsmen to be taxed with previous tax legislation.
  • Special refund mechanism for taxes witheld from sportsmens’ income is revised.
  • 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 (Value Added Tax) and SCT (Special Consumption 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 Tax Code is enacted, and published. We will keep you posted accordingly.