06December2017

OMNIBUS BILL NUMBERED 7061 ON NEW TAX AMENDMENTS

OMNIBUS BILL NUMBERED 7061 ON NEW TAX AMENDMENTS

The Omnibus Bill numbered 7061 entitled “Law on Amending the Current Tax Laws, and Laws, and Decree Laws” has been published on the Official Gazette dated 05.12.2017. Below, we will review the Bill in terms of tax implementations, firstly in the form of headings and then in detail.

OMNIBUS BILL SCOPE AND CONTENT

  1. Regulations Regarding the Corporate Tax Law
  2. Regulations Regarding Income Tax Law
  3. Regulations Regarding Value Added Tax (VAT) Law
  4. Regulations Regarding Special Consumption Tax (ÖTV) Law
  5. Regulations Regarding Tax Procedural Law
  6. Regulations Regarding Expenditure Tax Law
  7. Regulations Regarding Law on Inheritance and Succession Tax
  8. Regulations Regarding Motor Vehicle Tax Law
  9. Regulations Regarding Real Estate Tax Law

OMNIBUS BILL SCOPE IN DETAILS

  1. Regulations Regarding the Corporate Tax Law

    1. The rate of the corporate tax is increased to 22%.
    2. Exception for the earnings from immovable property and affiliates is reduced from 75% to 50%.
    3. The discount rate for investments made under an Incentive Certificate will continue to be valid also in 2018.
    4. Patronage Dividend Exception for cooperatives has been abolished, and the exemption implementation has been detailed.
  2. Regulations Regarding Income Tax Law

    1. The rate of lump-sum expense applicable to rental income has been reduced from 25% to 15%.
    2. Withholding tax has been introduced to be applicable to the retained corporate earnings.
  3. Regulations Regarding Value Added Tax (VAT) Law

    1. 3.1. VAT duty has been introduced for services provided by foreigners to non-VAT payers in Turkey.
    2. Exception has been stipulated to apply for Roaming Services.
    3. VAT Exception has been introduced for deliveries made to Financial Leasing and Finance Companies.
    4. The application of Return of Value Added Tax Incurred Due to Construction Works for Manufacturing Industry Investments, will also continue in 2018.
    5. VAT Exception has been stipulated for the Movement of Enhancing Opportunities and Improving Technology in Education (The FATIH Project).
  4. Regulations Regarding Special Consumption Tax (ÖTV) Law

    1. Introduction of limitations has been provided for to vehicle purchases of disabled persons within the scope of exception.
    2. Macaroons and soda pops have been included within the scope of Special Consumption Tax (ÖTV).
  5. Regulations Regarding Tax Procedural Law

    1. The address registered in Mernis (Central Civil Registration System) will be considered within the scope of “Known Addresses”.
  6. Regulations Regarding Expenditure Tax Law

    1. BSMV (Banking and Insurance Transaction Tax) exception has been introduced for the monies received in favor, in terms of futures and option contracts.
    2. The rate of Special Communication Tax has been reduced to 7,5%.
  7. Regulations Regarding Law on Inheritance and Succession Tax

    1. The rate of inheritance and succession tax applicable to prizes won at the games of chance and the competitions and lotteries organized by real persons and legal entities, has been increased to 20%.
  8. Regulations Regarding Motor Vehicle Tax Law

    1. 8.1. The taxation criteria have been amended and revised.
  9. Regulations Regarding Real Estate Tax Law

    1. It has been prevented that the increase in the sqm unit prices of Lands and Fields in 2018, exceed by more than 50% of the values in 2017.
  1. REGULATIONS REGARDING CORPORATE TAX LAW

    1. The Rate of Corporate Tax Is Increased to 22%

      The Corporate Tax which is applied as 20% will be applied as 22% of the earnings for the years 2018, 2019 and 2020.

      Article : 91
      —Date of Entry into Force : 05.12.2017

    2. Exception for the earnings from immovable property and affiliates is reduced from 75% to 50%.

      The exception applicable to the earnings arising from the sales of the immovable property appearing in the assets of the corporations for two full years, has been reduced from 75% of the earnings to 50% of the earnings.

      Article : 89
      —Date of Entry into Force : 05.12.2017

      The corporate tax exception bestowed upon the earnings arising from the transfer to banks, of the real estates and affiliate shares by their debtors and sureties thereof against their debts, and the earnings gained by the banks from disposing of such assets, has been extended to include the financial leasing and financing companies, and the current 75% exception has been amended as 50% for the real estates and 75% for the affiliate shares.

      Article : 89
      —Date of Entry into Force : 01.01.2018

    3. The Discount Rate For Investments Made Under An Incentive Certificate Will Continue To Be Valid Also in 2018

      The regulation which allowed the greater use of investment incentives for manufacturing industry investments in 2017, will also be applicable in 2018.

      Article : 90
      —Date of Entry into Force : 05.12.2017

    4. Patronage Dividend Exception for Cooperatives Has Been Abolished, and the Exemption Implementation Has Been Detailed

      Since, within the framework of the new regulations regarding the exemption of cooperatives, calculation and payment of corporate tax will not be required as a result of inter-shareholder dealings of cooperatives, in the patronage dividend exception stipulated under Article 5, paragraph one, Sub-article (i) of Law No 5520, the regulation concerning the production and credit cooperatives becomes groundless. Therefore, the provisions related to the patronage dividend exception concerning the aforementioned cooperatives have been removed from the current regulation.

      Article : 106
      —Date of Entry into Force : 01.01.2018.

      According to the current practice, cooperatives lose their exemption once they conduct dealings with non-shareholders and become subject to taxation as corporate tax-payer. This fact not only causes the cooperatives to lose their exemption and become tax payers due to their exceptional dealings with non-shareholders, but also causes them to face penalized assessments as a result of the determinations by the tax administration.

      The regulation provides a description of the cooperatives’ dealings with non-shareholders in the wording of the article, and sets forth that disposal by the cooperatives of their tangible fixed assets, such as fixtures, machinery, equipment, vehicle, etc., which were acquired by the cooperatives to perform their activities, after the expiry of the economic life of such tangible fixed assets, will not be considered as dealings with non-shareholders.

      Furthermore, a regulation is set forth to ensure that the cooperatives will not lose their exemption due to their dealings with non-shareholders, and, to allow the taxation of such earnings arising from these activities through a separate economic enterprise affiliated to the legal entity of the cooperative, within the framework of procedures and principal to be determined by the Ministry of Finance.

      Article : 88
      —Date of Entry into Force : 01.01.2018

  2. REGULATIONS REGARDING INCOME TAX LAW

    1. The Rate of Lump-sum Expense Applicable to Rental Income Has Been Reduced From 25% , to 15%.

      The amendment to be made to the third paragraph of Article 74 entitled “Expenditures” in the Income Tax Law No 193 stipulates that the lump-sum expenditure rate which is currently 25% of the revenues, against the actual expenditures of the tax-payers with respect to the immovable property income, will now be reduced to 15% thereof.

      Article : 14
      —Date of Entry into Force : Will be applicable to the income generated as of January 1, 2017 as announced on the Gazette dated 05.12.2017

    2. Amendments Have Been Made to the Tax Collected on Minimum Wage.

      The Interim Article with the Law’s 15th Article, given below has been added to Income Tax Law No 193.

      “INTERIM ARTICLE 87- For those, the net wage of which relating to September, October, November and December 2017, is lower than the net wage paid in relation to January 2017, to the minimum wage earners for whom the minimum living allowance (AGI) is calculated only for themselves pursuant to the principles in Article 32 based on the tariff given in Article 103 of this Law , the difference between this amount and their monthly net wage calculated for September, October, November and December 2017 shall be further added to such wage earner’s minimum living allowance. The net wage referred to in this paragraph means the wage calculated by adding the minimum living allowance to the wage amount after the legal deductions.

      The details have now been with the communiqué published by the Ministry of Finance in the Official Gazette issued on 6 December 2017.

      To summarize;

      1. The Communiqué will be implemented as of November 2017. Therefore, November 2017 payroll and accounting reports shall be revised accordingly.

        4.4) According to the provisions stipulated in the second paragraph of the relevant Communiqué, the differences that were calculated for September and October 2017 and for which no additional minimum survival allowance (MSA) that was used, shall be offset by way of their addition to the employee's MSA specified in Minimum Survival Allowance November Payroll. In case of an outstanding sum that cannot be offset in this regard, the sum shall be offset against withholding tax returns to be filed in subsequent months in accordance with the terms and conditions above, and therefore no correction shall be made for withholding tax returns for the said periods.

      2. Employees who work for a full 30-day term and whose wage falls below 1,404.46 TL in September, October, November and December will be eligible for this scheme.

        3.4) Those whose net wage remains above 1,404.06 TL despite a decrease in their wage due to income tax tariff deduction, shall not be eligible for this scheme.

        3.5) Where an employee is hired or dismissed during the period he/she is being paid, or the earned net wage falls below 1,404.06 TL due to unpaid leave or similar reasons, the additional minimum survival allowance scheme will not be applicable.

      3. If the sum of minimum survival allowance is above the income tax for the then applicable period, the difference shall be calculated and added onto the next payroll period

        4.4) According to the provisions stipulated in the second paragraph, the differences that were calculated for September and October 2017 and for which no additional minimum survival allowance was used shall be offset by way of their addition to the employee's minimum survival allowance specified in Minimum Living Allowance Payroll for November. In case of an outstanding sum that cannot be set off in this manner, that sum shall be offset against withholding tax returns to be declared in subsequent months in accordance with the terms and conditions above, and therefore no correction shall be made for withholding tax returns for the said periods.

        (6) The total of the minimum survival allowance cannot exceed the employee’s income tax within the specific.

      4. EXAMPLES:

        EXAMPLE 1: The net wage of Mr. (A), a single employee with no child, 1,404.06 TL in January 2017, including his minimum survival allowance.

        Due to the tax tariff set out in Article 103 of the Law no. 193, Mr. (A)’s net wage for September 2017 is 1,374.17 TL, while his net wage for the months of October, November and December is 1,328.52 TL.

        Mr. (A)’s employer, (T), has declared the withholding tax returns for September and October 2017 within the legal term which has been specified. For this reason, Mr. (A) was not eligible for additional minimum survival allowance for the months of September and October.

        In this case, the employer (T) shall set-off a total sum of 105,43 TL; consisting of 29,89 TL and 75.54TL, the additional minimum survival allowances calculated for September and October, respectively, along with a sum of 75,54 TL the additional minimum survival allowance calculated for November 2017, against the withholding tax return that the employer shall declare in December 2017.

        Accordingly, the total amount of minimum survival allowance that Mr. (A) shall be eligible for in November, including additional minimum survival allowance shall be 314,28 TL (additional MSA of 29.89 TL for September, 75.54 TL for October, 75.54 TL for November, and 133,31 TL for regular minimum survival allowance for November). However, as the income tax calculated for Mr. (A) during that period is 302,17 TL, the maximum sum to be paid to this employee as minimum living allowance shall be 302.17 TL. Minimum survival allowance of 12.11 TL (317,08-302.17=12.11) for which Mr. (A) is not eligible due to the insufficient tax amount calculated for him for November 2017 shall be offset against the withholding tax to be filed for the subsequent period.

        This way, the loss suffered by our employee in our case that is attributable to the fact that he is in the second tax bracket for September, October, November and December 2017 shall be compensated by way of additional minimum survival allowance and the payment of a sum of 1,404.06 TL to him for the said months.

        EXAMPLE 2: Ms. (C), a married waged worker with a spouse who also works as a waged worker, earns a monthly gross salary of 1.860 TL. Her net wage for January, including minimum survival allowance is 1.463,04 TL. Due to the tax tariff set out in Article 103 of the Law no. 193, her net wage for September and October will decrease to 1.401,59 TL and 1.383,99 TL, respectively. Considering this fact, a difference of 2.47 TL for September (1.404,06-1.401,59= 2.47 TL) and a difference of 20.07 TL for October (1.404,06 -1.383,99= 20,07 TL) shall be added to her minimum survival allowance, and this way Ms. (C)’s net wage for September and October shall not fall below 1.404,06 TL. Moreover, an additional minimum survival allowance shall be paid to this employee in November and December.

        EXAMPLE 3: Mr. (D) is a waged worker earning minimum wage. Mr. (D) is married with 3 children and his spouse is unemployed.

        Mr. (D)’s net wage for January 2017 is 1.497,38 TL, including minimum survival allowance. Due to the tax tariff in Article 103 of the Law no. 193, Mr. (D)’s net wage falls to 1.467,49 TL for September and his net wage falls to 1.421,84 TL for October, November and December, respectively.

        As Mr. (D)’s net wage for September, October, November and December does not fall below 1.404,06 TL, Mr. (D) shall not be eligible for the minimum survival allowance, and he shall be paid a net sum of 1.467,49 TL for September and a net sum of 1.421,84 TL for October, November and December, respectively.

      Madde : 15
      —Date of Entry into Force: Has been implemented on December 5, 2017 to be applicable as of September 1, 2017

  3. REGULATIONS REGARDING VALUE ADDED TAX (VAT) LAW

    1. VAT duty has been introduced for services provided by foreigners to non-VAT payers in Turkey.

      The VAT regarding the services provided electronically to the real persons who are non-VAT payers, by those who do not have residence, workplace, registered principal office or business headquarters in Turkey is, similar to the EU implementations, declared and paid by the providers of such service.

      Article : 41
      —Date of Entry into Force : 01.01.2018

    2. Exception has been stipulated to apply for Roaming Services.

      By amending Article 17 of the Value Added Tax Law, which stipulates the exceptions, the fee for the roaming services given to the domestic operators by the foreign operators for the uses by mobile phone subscribers in roaming, and the recharging of such fee to the subscribers by the domestic operators, is exempted from value added tax.

      Article : 42
      —Date of Entry into Force : 01.01.2018

    3. VAT Exception has been introduced for Deliveries made to Financial Leasing and Finance Companies.

      The value added tax exception provided for the transfer and delivery to banks, of the real estates and affiliate shares by their debtors and sureties thereof against their debts, shall also be applicable to the transfers and deliveries to the financial leasing and financing companies.

      Article : 42
      —Date of Entry into Force : 01.01.2018

    4. The application of Return of Value Added Tax Incurred Due to Construction Works for Manufacturing Industry Investments, will also continue in 2018.

      In order to mitigate the financial burden on the manufacturing industry investments arising from the value added tax, the application of return of value added tax incurred due to construction work expenditures to be made in 2017 due to these investments, will also continue in 2018.

      Article : 43
      —Date of Entry into Force : 05.12.2017

    5. VAT Exception has been stipulated for the Movement of Enhancing Opportunities and Improving Technology in Education (FATIH Project).

      A regulation has been made to provide exemption from VAT, Special Communication Tax, Stamp Duty, Special Consumption Tax and charges, with respect to the goods and service purchases made within the scope of Movement of Enhancing Opportunities and Improving Technology in Education (FATIH Project).

      Article : 44
      —Date of Entry into Force : 05.12.2017

  4. REGULATIONS REGARDING SPECIAL CONSUMPTION TAX LAW

    1. It has been stipulated to set limitations to vehicle purchases of disabled persons within the scope of exception.

      The exception applicable on the initial acquisition by disabled persons of the goods listed under 87.03 HS Code (car, land vehicle, SUV, etc.), is limited to the vehicles other than those subjected to the highest rate determined, in the event that different rates are determined by price groups by the Council of Ministers taking as basis the special consumption tax base pursuant to Article 12, paragraph (2), item (c) of the Special Consumption Tax Law.

      Article : 72
      —Date of Entry into Force : 01.01.2018

    2. Macaroons and Soda Pops have been included within the scope of Special Consumption Tax (ÖTV)

      Macaroons and soda pops have been included within the scope of Special Consumption Tax, and the effective date is December3 2017 for macaroons, and January 1, 2018 for soda pops.

      Article : 73,74 and 75

  5. REGULATIONS REGARDING TAX PROCEDURAL LAW

    1. The address registered in Mernis (Central Civil Registration System) will be considered within the scope of Known Addresses.

      Article 101 of the Tax Procedural Law has been amended, and the address registered in MERNIS will be considered within the scope of “known addresses”.

      Article : 16
      —Date of Entry into Force : 01.01.2018

  6. REGULATIONS REGARDING EXPENDITURE TAX LAW

    1. BSMV (Banking and Insurance Transaction Tax) exception has been introduced for the monies received in favor, in terms of futures and option contracts.

      Article 29, first paragraph, item p of Expenditure Tax Law No 6802 has been amended to stipulate that monies received in favor, as a result of futures and option contracts, will be exempted from Banking and Insurance Transaction Tax, regardless of the transaction place.

      Article : 11
      —Date of Entry into Force : 01.01.2018

    2. The rate of Special Communication Tax has been reduced to 7,5%

      Article 29 of the Expenditure Tax Law No 6802 has been amended to stipulate the rate of Special Communication Tax as 7,5%.

      Article : 10
      —Date of Entry into Force : 01.01.2018

  7. REGULATIONS REGARDING LAW ON INHERITANCE AND SUCCESSION TAX

    1. The rate of Inheritance and Succession Tax applicable to prizes won at the games of chance and the competitions and lotteries organized by real persons and legal entities, has been increased to 20%.

      The rate mentioned in the fourth paragraph of Article16 of Law no 7338 on Inheritance and Succession Tax, which is currently 10%, has been amended as to be 20%.

      Article : 13
      —Date of Entry into Force : 01.01.2017

  8. REGULATIONS REGARDING MOTOR VEHICLE TAX LAW

    1. The taxation criteria have been amended and revised.

      The description of “Vehicle Value” has been added to the first paragraph of Article 2 of Law No 197 on Motor Vehicle Tax. Additionally, the tariff given in Article 5 of the same law has been amended. The increase rate in the article, which has been on the agenda of the public opinion as “40% Motor Vehicle Tax Increase”, has been reduced to 25% by way of the motion entered.

      Article : 22 and 23
      —Date of Entry into Force : 01.01.2018

  9. REGULATIONS REGARDING REAL ESTATE TAX LAW

    1. It has been prevented that the increase in the sqm unit prices of Lands and Fields in 2018, exceed by more than 50% of the values in 2017.

      An interim article has been added to Real Estate Tax Law No 1319 to ensure that the minimum square meter unit values of lands and fields to be appraised by the appraisal commissions for 2018, do not exceed a certain percentage of the unit values applied in 2017. It is aimed to use the unit values applied in 2018 also for the calculation of the building and land tax values in the subsequent years 2019, 2020 and 2021.

      Article : 35
      —Date of Entry into Force : 05.12.2017

For further information you can access the full General Communique on Income Tax in Turkish from this link.

Please click here to view the draft law which includes the relevant regulation. Please contact your customer representative or an expert for further information.

Written by Mükremin Akbulut, Posted in Labour Law

About the Author

Mükremin Akbulut

Mükremin Akbulut
CPA, Accounting Manager