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New Tax Excemptions on Daycare Payment Benefits & Severance Payments

New Tax Excemptions on Daycare Payment Benefits & Severance Payments

New amendments have been implemented to the Law numbered 7130 (Law on Amendments to Certain Laws and Taxation Laws) and to the 3rd, 9th, 25th, 32nd and 61st Articles of the Income Tax Law numbered 193. The details on the new amendments and the relevant applications of the regulations are detailed below.

1. Income Tax Exemptions on Daycare Payment Benefits to the Working Mothers

Within the scope of the Law 193, Article 23 (sub-article 16) the income tax exemption is to be applied to the above-mentioned benefit in kind is decided to be as 50% of the minimum wage (1.014,75 TRY for 2018)

Within the scope of the new amendment, if the workplace does not have a day care center (a nursery) and the employer is providing a benefit in kind to the working mother by paying for the daycare in net amount, and in return receiving an invoice for the payment, this payment will be grossed up in the working mother’s monthly salary and the value of the benefit payment will be liable to an income tax exemption. The exemption will be implied for the 50% of the minimum wage (1.014,75 TRY). All in kind and financial benefits which are being provided to the personnel by the employers shall be acknowledged as wage payments and the taxes for the benefit payments are liable to relevant calculations without exemptions, unless stated in the Law. This specific exemption is only applicable for the working mothers and will not be applicable to be benefited by male personnel (the working fathers).

Providing the stated service in places where belongs to the employer or rented by the employer will not pose any obstacle in terms of implementing the exemption. The benefit that will be applicable to exemption by not exceeding the 15% of gross minimum wage. In case the provided benefit exceeds the 15% of the minimum wage (gross), the exceeding part will be considered as wage payment and will be liable to income tax.

In terms of income or corporate tax-payers, including the amount which is paid by the employer, the invoice in remuneration for day care center services should be issued on behalf of the working mother and the employers must keep the proofs of payments (i.e. invoices) as it is stated in the Law numbered 213 within the legal retention period. The day care payments shall be directly paid to where the service is directly being provided from.

2. Taxation and the Tax Exemptions of the Severence & Compensation Payments to the Personnel

Within the scope of the Labor Law numbered 1475, Maritime Labor Law numbered 854 all the accrued severance rights to be paid by the employers and the Law numbered 5953 on the Progress of Relations Between Employees and Employees in the Press Job are not to be considered as severance payments for the total sum of payments that do not exceed the earnings of 24 months, in total.

With the provision that has been added to the Article 61 of the Income Tax Law numbered 193, once the employment contract is terminated with a mutual consent of the relevant parties or with a mutual rescission, it has been clarified more thoroughly that all the payments made under the scope of mutual consent payment, job loss indemnity payment, severance payment, job security payment etc. are all considered to be as taxable payments.

a. Severance Payment Exemptions

Within the scope of the Laws numbered 1475 and 854, all the accrued severance payments that are calculated from the last gross salary of the personnel and that does not exceed the total of 24 month’s earnings are exempted from income tax. This is applicable to the cases stated above within the scope of the Law numbered 5953. All the additional payments that are calculated which exceeds the total calculated sum of the 24 months’ salary pay shall be considered separately and is liable to income tax.

The Law clearly states that, the severance payment that is to be paid for one full year of service, cannot exceed the maximum retirement bonus. This uper limit is announced periodically by the Turkish government and currently as of January 2018, the upper limit is 5.001,76 TRY.

b. Excemptions to the Payments And Benefits Made After the End of Service Contract

Employers can provide certain payments to the personnel who end their service contract under the means of; seniority, retirement, not to face law suits due to termination of employments or mutual consensus.

When the income tax is being calculated from these relevant payments, the regulation the personnel is liable to shall be considered in accordance with the Article 25 of the Law numbered 193.

To simplify, within relation to the relevant application of the Laws, once the income tax exemption pays are being calculated, the total payments shall be considered and the amount that is not liable to any exemption is required to tax payments.

3. Additional Amendments on Minimum Survival Allowance (MSA) Payments

Net payments, due to written tariff in Law numbered 193, Article 103, for those personnel who work on minimum wage and whose minimum subsistence allowance (MSA) is calculated for only themselves, whose payment is under the net payment of January regarding the current year, the difference amount between this amount and the months which the payment is under this amount and calculated monthly as a net payment will be added to worker’s subsistence allowance, as an additional payment.

However, for the employees whose net wage payments for January, including the MSA, is below the net earnings of the other personnel who are employed with minimum wage salary level due to termination, unpaid leave or similar reasons, the earning will not be liable to an additional MSA payment to reach the net salary level of minimum wage earnings.

Official Gazette Link:

Author Selma Kıy, Category Taxation Law

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About The Author

Selma Kıy

Certified Public Accountant - SMMM

Other Legislation

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