The Turkish Parliament has approved a new law providing significant tax advantages for leaseback transactions. The main aim of this regulation is to encourage companies to liquidate immovable property to meet their financial needs.
Accordingly, starting from August 2013, sales of immovables to leasing companies within a leaseback scheme will be exempt from corporate tax and VAT, provided that ownership of the property is transferred back to the seller when the lease contract expires.
The conditions of the exemption are as follows:
- Only sales of immovable property can benefit from exemptions;
- The property must be sold to a leasing company described in the Law Numbered 6361;
- After the sale, the leasing company (lessor) should lease the property to the seller (lessee);
- Ownership of the property should be transferred back to the lessee when the leasing contract has expired;
- To enjoy corporate tax exemption, the lessee should not be a real estate trade company;
- Profit from the sale should be deposited into an equity account (the balance of the account cannot be transferred to another account before the end of the fifth calendar year following the year in which sale is made).
The tax advantages of sale and leaseback are as follows:
- Total profit from the sale is exempt from corporate tax at the seller level regardless of how long the property is held;
- Sale of the property to a leasing company is exempt from VAT;
- Lease of the property back to the seller is exempt from VAT;
- Transferring ownership of the property back to lessee is exempt from VAT;
- Profit from the sale is exempt from corporate tax at the lessor level when ownership is transferred back to the lessee;
- A lower title deed fee (0.0455% instead of 4%) is applied to all transactions within the scope of the leaseback scheme;
- The leaseback agreement is exempt from stamp tax.
In addition to tax advantages, leaseback transactions enable Turkish companies to prepare more accurate local financial tables. Since the Turkish accounting standards used by SMEs are tax driven, most of such companies' financial tables do not reflect the actual value of assets. When applied, sale and leaseback may update and increase the accuracy of financial tables.
Moreover, since long-term assets will be converted into short-term assets, financial ratios will be improved after leaseback transactions.
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.