On October 15, 2009 the Constitutional Court issued a verdict
with far-reaching influence over income tax payers. The verdict
includes a provision of Income Tax Law (Official Gazette
January 6, 1961 No. 10700) regulating the top tax tranche of
Considering that the Court granted a six-month grace period
prior to enforcement as of the publication of the verdict in the
Official Gazette as of January 8, 2010 - leaving room for
Parliament to enact a new regulation on the issue by July 8, 2010 -
annual income of TL50,000 minimum will still be subject to 35%
taxation starting from the TL11,250 threshold until the end of the
On the other hand, the good news for both individuals and their
employers is that within 30 days of filing their monthly payroll
taxes (from October 15, 2009 onwards), they can reclaim the 8%
difference between the annulled 35% bracket and the next bracket of
27% which in return leaves the door open for the chance of a refund
by the IRS. Although Parliament may still scupper expectations with
an immediate regulation moving the income tax brackets, we suggest
that taxpayers consider filing their payroll tax returns (for
periods after October 15, 2009) by annotating their right to
reclaim the said difference (by way of a separate petition as
e-filing annotations is not possible) and file a tax lawsuit within
30 days from filing.
The Constitutional Court has reviewed the investment allowance
tax incentive scheme. Under Law No. 5479 (Official Gazette
April 8, 2006 No. 26133), which removed the investment
allowance tax incentive granted by Article 19 of the Income Tax
Law, as a temporary exception only investment amounts carried
forward from previous periods or which had a technical and
economical integrity with investments started before January 1,
2006 could be deducted from the income tax bases of 2006, 2007 and
2008 (Temporary Article No. 69 of Income Tax Law). In addition,
investment allowances that remained unused as of December 31, 2008
could not be carried forward.
The Constitutional Court has, however, ruled that the above
mentioned provision contradicts the rule of law principle and has
removed the time limit from the legislation by annulling the
wording "2006, 2007 and 2008" (Official Gazette
January 5, 2010 No. 27453).
Accordingly, taxpayers can also carry forward investment
allowance amounts within the scope of the exception from their
income tax bases in the years following 2008.
The IRS however, does not currently agree that taxpayers should
continue to benefit from investment allowance carry forwards for
2009 (arguing that the Resolution was only published in 2010 and
thus does not cover 2009) and can only begin deductions from the
next (advance) corporate tax filing of February 15, 2010. We
suggest that taxpayers consider filing their returns by annotating
their objection (by way of a separate petition as e-filing
annotations is not possible) and launch a tax lawsuit within 30
days from such filing.
Investment incentives – changes and advantages
Incentives injected into the Turkish business environment within
the framework of Law No. 5084 regarding the Promotion of
Investments and Employment (Official Gazette February 6, 2004
No. 25365) have been restructured by Law No. 5951
(Official Gazette February 5, 2010 No. 27484).
Income tax and energy support for companies employing at least
10 people are no longer applicable for most enterprises in the 49
Turkish cities previously boosted by Law No. 5084. However,
investments completed as of the calendar year-end 2007, 2008 and
2009 will continue to enjoy the incentives for five, four and three
Furthermore, Parliament has opted to keep the social security
premium incentive alive with a slight extension until December 31,
2012. Although the Treasury plans to compensate investors for
80-100% of social security premiums pursuant to Law No. 5084,
another piece of legislation Law No. 5763 (Official Gazette May
26, 2008 No. 26887) continues to enhance options for investors
with a social security premium incentive of 5%. Comparing the laws,
the maximum premium savings provided by Law No. 5084 may reach
TL1,743 per employee annually whereas Law No. 5763 would be more
advantageous only if the net monthly salary of any one employee
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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