One of the main issues discussed with the International Monetary Fund was the unification of the Social Security Institutions in Turkey. Currently, there are three different institutions serving different parts of the workforce, subject to a total of 710 articles of their own laws as well as numerous secondary legislations. Law No. 5510 on Social Security and General Health Insurance has been adopted as unchanged by the Parliament after a veto from the President in May 2006. The Presidents objection had focused on two issues: (i) the increase in the minimum retirement age for men and women, which were planned to be 60 and 58, respectively; and (ii) the decrease in the pension effective rates from 3% to 2%. Although the President has filed a cancellation lawsuit in the Constitutional Court concerning the relevant articles, the unification law is expected to entail its positive impacts for all parties of the regulated labor life in Turkey starting from the enforcement date of 1 July 2007.
Investment Allowance has been Abolished
An investment allowance was a fiscal instrument often used for tax planning in Turkey. The allowance enabled companies to deduct up to 40% of their investment expenditures from their tax basis. As a result of the drop in the tax rates to 20%, the Fiscal Administration abolished the allowance retroactively as of 1 January 2006. However, the allowance shall be continued for investments whose expenditures for which were incurred before 1 January 2006.
New Arrangement in Tax Loss Penalties
The tax loss penalties were cancelled by the Turkish Constitutional Court in October 2005, because the sanctions were not definitive for taxpayers. Interestingly, the court has rendered its decision effective from 20 April 2006. The new Law No. 5479, issued in March after disclosure of the cancellation decision, set the penalty at "the same amount of the lost tax", yet with effect from 1 January 2006. Although there had been several opinions about the retroactive applicability of the law, the legal and tax practice is awaiting for court precedent to shape the legal status of tax losses caused before 20 April 2006.
Income Tax Law Redrafted - Tax Rates Dropped
As a result of the ongoing changes in tax laws, the Income Tax Law is also being redrafted. The Turkish Tax Council (Vergi Konseyi) finalized its draft and disclosed it to the related institutions for comments before proposing it to the Parliament1. Yet, amendments to the current Income Tax Law are effective, such as the 5% decrease in the income tax rates across different brackets. Moreover, the number of brackets has been reduced and the dualist structure for wage earnings has been abolished. Currently, the taxation rate varies between 15% and 35%.
1. We will review the proposal in our future issues, as the enforcement date envisaged in the proposal is 2008.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Some comments from our readers The articles are extremely timely and highly applicable I often find critical information not available elsewhere As in-house counsel, Mondaqs service is of great value
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think youve read our Disclaimer).