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12December2019

Digital Service Tax and Updates on Various Taxes Came Into Force

Digital Service Tax and Updates on Various Taxes Came Into Force

Law number 7194 for taxation of digital services and Law number 375 for the changes in tax legislation has been published in the official gazette on 7 Dec 2019.

Significant changes have been made in the context of taxes with this Law. Featured changes can be summarized as follows;

Digital Services Tax

As per the new regulation; the revenue resulting from various digital services like any advertisement service, selling activities in digital platform, any services allow digital activities as watching, listening, saving on digital platforms will be subject to taxation.

The advertisement services via digital platforms provided outside of Turkey is not in the scope and exempt from taxation.

The applicable rate will be 7.5%. And, an exemption in the scope will be applicable and the businesses with global revenue which is less than EUR 750 million and local revenue of TRY 20 million will be exempt.

If the tax resident is a member of a group of companies, the total revenue will be taken into account while calculating the revenue exemption limits.

Accommodation Tax

All services included within the accommodation services rendered by hotels, motels, etc will be subject to a new tax called accommodation tax.

The rate will be 2%.

Limitation of the exemption scope for the self-employment (professional services) earnings

The scope of the exemption for self-employment as per the Article 18 of the Income Tax Law will be limited with the new bracket of the new income tax tariff.

The income exceeds the threshold (500,000 TRY in 2019) can not benefit from the exemptions itemized on Article 18 in Income Tax Law. And, as of 2020, the income exceeds the threshold will have to be declared to the tax authorities with annual income tax return.

Transportation Expenses

Public transportation tickets, cards or any similar items used for transportation provided to employees would be exempt from taxation up to a limit amount of TRL 10.

That regulation will enter into force as of 1 Jan 2020.

The amount exceeds that threshold and the benefits provided to employees as cash will be fully subject to taxation.

The Salary Exemption for Refrees

The scope of the income tax exemption applicable for all competitions for the refrees has been narrowed down as applicable for only amateur competitions.

Income Tax Return Obligation for the Employees

As per the Turkish Tax Legislation; if the totals of the cumulative income tax bases of the employee arising from more than one employer which the employee worked for within the same calendar year exceed the second bracket of the income tax calculation rate, the employee needs to submit a declaration (annual income tax return) himself/herself to make a payment for the difference.

To be applicable as of Jan 2020; an additional tax bracket has been added to the income tax tariff which is 40% for the income generated over TRL 500,000. And, regardless of the second employer or employer change during the calendar year, if the cumulative income tax base of the employee exceeds TRL 500,000 during the calendar year, that individual would again personally be responsible for declaring any taxable employment income and paying the corresponding income tax by filing an annual income tax return in Turkey. This rule would be applicable even if the individual works for only one employer during the tax year.

The Changes on Income Tax Bracket

An additional bracket will be applicable as of 2020 as seen on the following chart;

Income Amount Threshold Tax Rate
0 18.000,00 15 %
18.000,01 40.000,00 20 %
40.000,01 148.000,00 27 %
148.000,01+ 500.000,00 35 %
500.000,01   40 %

As can be seen in the chart, an additional bracket will be added to the tarff in practice and 40% income tax will be calculated over the tax base exceeding TL 500.000,00.

Taxation of Salaries Paid to Players

Regarding the fees paid to the players, withholding rate has been increased from 15% to 20% for the players who play in the top league and an annual income tax return has been imposed if the fees exceed the fourth tranche of income tax tariff (TL 500,000).

For Which Year Revenues Will the Change be Applied?

With the provisional article added to the Income Tax Law; the salary income between 1/1/2019-31/12/2019 will be subject to the tariff before the amendment mentioned above.

Therefore, a tariff of 40% will be applied as of 2020 for salary income over TL 500,000.

Tax Withholding Regarding Attorney Fees

Regarding the application of withholding to the fees of attorneys, pursuant to the addition to the Article 94 of the Income Tax Law, the Law on Execution and Bankruptcy dated 9/6/1932 and numbered 2004, Attorneys' Law dated 19/3/1969 and numbered 1136, it is stipulated that income tax withholding will be made by those who pay the attorney fee (including those paid to the execution and bankruptcy directorates) charged to the other party.

Written by Burcu Özel, Erdoğdu Onur Erol, Posted in Taxation Law

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