A draft law has been submitted to the Turkish Parliament for amendment in some laws and regulations with the primary purpose of enhancing the investment environment in Turkey.
The draft law proposes significant amendments in the current laws and regulations by introducing additional exemptions and incentives for taxpayers as well as regulating the use of certain financial instruments and company law provisions. The requested revisions can be taken as positive signs for Turkish Governments' intention to enhance the investment environment and increase the country's potential for attracting further investment.
The law proposes changes in various fiscal laws currently in force. We would like to draw attention to the some of the key changes proposed by the draft law, which could be of higher interest for multinational investors.
Voluntary Disclosure Regime provides an Amnesty to Turkish taxpayers having undisclosed assets out of Turkey
The draft law provides a one-time opportunity for the Turkish taxpayers (real or legal persons) who has unrecorded assets out of Turkey. The cash, gold, marketable securities or other capital market instruments as well as receivables and real estate properties may be subject to a voluntary disclosure scheme until 31/12/2016. Such assets has to be notified to a Turkish bank or financial institution and has to be transferred to Turkey in 1 month following the notification (with the exception that the value of real estate properties has to be brought to Turkey within 1 year). Turkish taxpayers may also make such declaration on behalf of other real or legal persons.
The assets subject to voluntary declaration will not be subject to any tax audit or investigation and there will be no taxes to be paid on the disclosed amounts. There are no other conditions to be fulfilled to benefit from these provisions (such as adding the disclosed amount to capital of a Turkish company, not distributing for a certain period, paying a minimum tax etc. that existed in previous Tax and Asset Amnesty laws). Therefore, this regime could be perceived as a one-time tax amnesty provided to such persons having unrecorded assets out of Turkey.
Enhanced "Regret Filing" clause provides a tool for Voluntary Disclosure before a tax audit tax places
The current "regret filing" provision enabled by the Turkish Tax Procedural Code (VUK) is proposed to be enhanced. Under current practice, it is not possible to apply regret filing in case of a subject that is already in the knowledge of the tax authority. In the new proposal, if tax authority has information on a transaction that may have potentially led to underpayment of taxes, tax authority may first issue a notification to the taxpayer before starting an official investigation. If the taxpayer acts upon such notification and make a voluntary correction of its tax declarations, the tax principal and late payment interest (1.4% per month) will be payable as usual, but the tax loss penalty (i.e. normally 100% of tax principal) will be only applied as 20%. By virtue of this revision, the voluntary compliance of taxpayers in tax regulations is promoted through reducing the applicable tax assessment.
It is also expected to reduce the workload of tax auditors and tax courts through.
Incentives for Regional Headquarters (Management Centers) in Turkey
Another significant revision proposed through the draft law is related to the incentives to be introduced for establishment of Regional Headquarters (Management Centers) in Turkey. Due to the geopolitical feasibility of the country and along with the purpose of becoming a center of the regional managements; a corporate income tax exemption is planned to be introduced for 'Regional Headquarters' or 'Management Centers' to be established in Turkey provided that all costs of these structures will be covered by foreign corporations and financially not associated with the accounts of a resident or non-resident entity in Turkey. In addition to the proposed corporate income tax exemption, the law also offers payroll tax exemptions for the employees to be registered in these Regional Headquarters or Management Centers.
It should be noted that the Law is currently in draft form, subject to possible discussions and change during the Parliamentary negotiations. We will continue to follow up on the legislative process and provide an update as soon as the final version of the Law is enacted.
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