Turkish Law No. 7338, regarding amendments to the tax procedure law and certain other laws, has entered into force following its publication in the Official Gazette on 26 October 2021. The new law includes numerous amendments to the income tax law, corporate tax law, tax procedure law, value-added tax (VAT) law, stamp tax law, and special consumption tax law.
The new law aims to make changes to improve tax compliance, increase tax security, strengthen social justice and the competitive environment, encourage investment, settle disputes, and ensure predictability in tax applications. In this context, certain changes could have a positive impact on tax problems in business life.
Income Tax Law Amendments
Pursuant to the new law, the income of taxpayers subject to simple entry is exempted from income tax. As a result, a considerable number of small business owners are now excluded from income tax through this provision. The provision will apply in terms of earnings from 1 January 2021.
Additionally, earnings from social content production and software development for mobile devices are exempted from income tax. To benefit from this exemption, taxpayers must open a dedicated account in a bank established in Turkey and all revenue related to these activities should be collected exclusively through this account. Banks will withhold income tax of 15% of returns transferred to the subject accounts. However, taxpayers whose total earnings within the scope of the regulation exceed the amount in the fourth bracket of the income tax table, and those who do not collect all their income related to the activity through the dedicated account will not benefit from the exemption. Furthermore, deliveries and services subject to earnings from these activities are also included in the VAT exemption. These provisions also will apply in terms of earnings from 1 January 2021.
To develop and support the agricultural sector, agricultural support payments made to farmers by public institutions and organizations are exempt from income tax and tax will no longer be withheld on these incomes.
Before the new law entered into force, advance tax returns were filed by corporate taxpayers and income taxpayers, commercial profit holders (except those taxed in the simple entry), and self-employed persons quarterly, four times a year. However, with the new law, the fourth advance tax return has been abolished.
Previously, one of the requirements for tax-compliant taxpayers seeking to benefit from a 5% tax reduction was the absence of supplementary, ex officio, or administration assessment in terms of tax types subject to declaration within the year of the declaration for which the reduction had been calculated, and in the previous two years before that year. However, with the new law, the breach of the requirement is bound to the finalization of the assessment. In other words, taxpayers will still be able to benefit from the reduction if the assessment has not been finalized. These changes will be applied to annual income and corporate tax returns that must be filed as of 1 January 2022.
Corporate Tax Law Amendments
As per the new law, the fourth advance tax return for corporate taxpayers has also been abolished and the tax reduction changes applied to tax-compliant taxpayers also apply to corporate taxpayers.
In accordance with the new law, there is an additional advantage in the interest reduction to a cash capital increase for the portion that is covered by cash brought from abroad. The reduction rate will be applied as 75% instead of 50% for the portion of the capital increase covered by cash brought from abroad. This provision will apply to declarations submitted as of 2022.
Previously, reduced corporate tax could be applied to earnings from investments within the scope of the investment incentive certificate, starting from the accounting period in which the investment began, partially or completely, until the investment contribution rate was reached, considering the investment contribution and tax reduction rates in the relevant incentive certificate.
Under the new law, taxpayers may request a reduction of 10% of the amount determined by applying the investment contribution rate to investment expenditure based on the investment incentive certificate from other tax debts excluding special consumption tax (SCT) and value-added tax (VAT). To benefit from this application, it must be requested at the end of the second month following the submission of the corporate tax return. This provision will apply to investment expenditures to be made as of 1 January 2022.
Tax Procedure Law Amendments
Serious steps have been taken toward technological developments in tax applications in recent years, as per the new law. In this context, the Ministry of Treasury and Finance has been authorized to establish a tax office in the digital environment. Acquiring a certificate from the Ministry of Treasury and Finance for an electronic ledger will be considered as approval. On the other hand, if electronic documents do not contain the required information, these documents will be deemed not to have been submitted. In this case, the special irregularity penalty specified will be applied.
Before the new law entered into force, tax inspections were mainly carried out at taxpayers' workplaces and began with the issuance of a notification of the initiation of the inspection. Though with the new law, inspections will mainly be conducted at the tax office, and the legal period for an inspection will begin with a notification to the taxpayer stating the subject and the starting point of the inspection.
The new law also sets forth that should a certification report issued by a certified public accountant not be submitted on time, an additional 60-day period will be given to the taxpayer for its submission. If the certification report is not submitted within this period, a special irregularity penalty of 5% of the amount subject to the submission of the certification report will be applied.
An expense slip can be issued in advance for the price of goods and services purchased from tax-exempt tradesmen. Pursuant to the new law, expense slips can also be issued on behalf of those who do not have to issue documents within the scope of tax procedure law. In addition, if a payment is rendered through a bank, payment institution, or PTT (Post and Telegraph Corporation), documents such as receipts, etc., issued by these institutions will replace an expense slip. Expense slips must be issued within seven days of the date of a delivery or service.
Furthermore, with the new law, small receivables not exceeding a specified threshold - for 2021, TRY 3,000 (approximately USD 310) - that have not been paid by a debtor despite more than one protest, or written request, may be considered "doubtful receivables" without litigation and enforcement.
Under the new law, provisions regarding repeat offenders have been modified. The repetition regulation has been amended to recommend that the increase in repetition will be 50% of the applied penalty, not more than the finalized penalty. This provision entered into force on its publication date.
Additionally, penalties for irregularities and special irregularities exceeding TRY 5,000 (USD 516) will be included in the scope of reconciliation and pre-assessment reconciliation. For irregularities that do not exceed this amount, it is recommended that the discount rate be increased by 50%. This provision also entered into force on its publication date.
As per the new law, provisions related to the mutual agreement procedure (MAP) will be included in the tax procedure law. If taxpayers are taxed in breach of the provisions of an applicable double taxation agreement, or there are strong indications that they will be taxed in this way, they may apply to the Turkish Revenue Administration or the competent authorities of other countries under the MAP provisions of the agreement. This provision will apply to applications made as of 1 January 2022.
Lastly, the depreciation period of new machinery and equipment used in the manufacturing industry especially by taxpayers holding research and development (R&D), innovation, and design activities, and industrial registration certificates can be considered as half of the useful life determined by the Ministry of Treasury and Finance. Thus, it will be possible to quickly depreciate the relevant assets. This provision will be valid from the date of the new law's entry into force until 31 December 2023.
Other Tax Law Amendments
Under the new law, receipts and papers issued for collateral subject to the issuance of capital market instruments, including the collateral manager, within the scope of Article 31/B of the capital markets law are exempted from stamp tax.
In addition, papers issued between the relevant administration and donors regarding donations made to general and special budget administrations, special provincial administrations, investment monitoring and coordination departments, municipalities, and villages are also exempted from stamp tax.
Vehicles named ATV (All-Terrain Vehicle) and UTV (Utility Task Vehicle) are taxed at the same rate (25%). This amendment is aimed to prevent the subject vehicles from being excluded from the scope of the special consumption tax law.
Previously, the stamp tax exemption was applied to papers issued by asset management companies during the calendar year in which they were established and the following five years. Under the new law, these exemptions are made indefinite.
The expected effective date of the accommodation tax, which is 1 January 2022, has been postponed to 1 January 2023.
This article was first published on MNE Tax in November 2021. Please see the article on MNE by clicking here.
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.