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Investment in Turkey
2017
kpmg.com.trkpmgvergi.com
Tax Services
Investment in Turkey
2017
kpmg.com.trkpmgvergi.com
Tax Services
Contents
Preface 7
1. CountryProfile 9
1.1.GeneralInformation 9
1.2. Economy and Currency 11
1.3.EmploymentConditions 15
2. OpportunitiesforInternationalInvestors 19
2.1.IncentivesforInternationalInvestors 19
2.2.InvestmentIncentiveRegime 19
2.3.ApplicationofIncentives 25
2.4."SuperIncentives" 26
2.5.“CentreofAttraction”Programme 27
2.6.IncentivesregardingResearch,DevelopmentandDesignActivities29
2.7.IncentivesforTechnologyDevelopmentZones 30
2.8.IncentivesforFreeTradeZones(“FTZ”) 30
3. ForeignTrade&Customs 33
3.1.ForeignTradeLegislation 33
3.2.CustomsRegimesandSynopsisofCustomsTransactions 33
3.3.TurkeyandtheEU 34
3.4.TurkishImportRegime 35
3.5.CustomsValuation 36
3.6.Anti-DumpingandAnti-SubsidyPractices 36
3.7.ResourceUtilizationSupportFund(RUSF) 36
3.8.AuthorizedEconomicOperator(AEO) 37
4. CompanyLawRequirements 39
4.1.AvailableCorporateStructures 39
4.2.SubsidiaryTypes:JointStockCompanies(“JSC”)andLimited
LiabilityCompanies(“LLC”) 39
4.3.JointStockCompanies(“JSC”) 40
4.4.LimitedLiabilityCompanies(“LLC”) 45
4.5.OtherFormsofDoingBusinessinTurkey 46
4.6.GeneralRequirementsforJointStockandLimitedLiability
Companies 47
5. CorporateTaxation 51
5.1.TaxesonCorporateIncome 51
5.2.AllowableDeductions 53
5.3.DisallowableDeductions 56
5.4.Exemptions 58
5.5.CorporateTaxation 61
5.6.BookkeepingRequirements 66
6. SettlementandTaxCase 69
6.1.Settlement 69
6.2.TaxCase 70
7. TransferPricingRegulations 73
7.1.Arm’sLengthPrinciple 74
7.2.DocumentationRequirements 76
7.3.AdvancePricingAgreements(APA) 80
8. IndirectTaxation 83
8.1.ValueAddedTax 83
8.2.SpecialConsumptionTax 88
9. IncomeTaxonIndividuals 91
9.1.TaxableIncome 92
9.2.IncomeTaxRates 95
10.Labour 99
10.1.LabourLegislation 99
10.2.LabourCosts 105
10.3.SocialInsurance–GeneralHealthInsurance 105
10.4.RulesApplicabletoExpatriates 109
10.5.CollectiveAgreements-TradeUnionRights 109
11. TaxationofMergers,AcquisitionsandReorganizations 113
11.1.Mergers 113
11.2.Acquisitions 115
11.3.CorporateReorganizations 120
12.InternationalCorporateTaxation 123
13.Appendices 133
13.1.AppendixI:ChartofPrincipalTurkishTaxes 133
13.2.AppendixII:ChartofWithholdingTax 135
13.3.AppendixIII:ComputationofTaxesontheYear-endProfits 136
13.4.AppendixIV:TurkishWithholdingTaxesbyTreatyCountries 138
Preface
Thispublication“InvestmentinTurkey-2017”,compiledbyKPMGTurkey’sTaxPractice,aimstoprovidegeneraloutlineoftheTurkishtaxenvironmentinwhichforeigninvestorsconsiderinvestinganddoingbusinessinTurkey.ThesetofinformationcontainedinthispublicationisanintroductionfortheforeigninvestorsthatplantotakealookintotaxandbusinessenvironmentinTurkey.ItreflectsdevelopmentstoMarch2017andtheinformationhereinisnotexhaustiveandshouldbereadasaframe.Therefore,theinformationshouldnotbeperceivedasthesolebasisforinvestmentdecisionsinTurkey.Detailedadviceintax,accounting,legalandothermattersshouldbesoughtfromprofessionaladvisers.IwouldliketotakethisopportunitytothanktoKPMGTurkeyTaxProfessionalsastheauthorsofthisbooklet.
AbdulkadirKahramanHeadofTax,Partner
InvestmentinTurkey-7
1.1 General Information
Geography and Climate
TurkeyissituatedatthejunctionofEuropeandAsia.TheEuropeanpartofthecountryiscalledThrace(Trakya)andtheAsianpartisnamedAnatolia(Anadolu).
ThelocationontwocontinentshasbeenacentralfeatureoftheTurkishhistory,cultureandpolitics.ThecountrysharesborderswithGreeceandBulgariatothenorthwest,withGeorgiaandArmenia,andIrantotheeast,IraqandSyriatothesouth.TheBlackSeatothenorth,theAegeanSeatothewest,andtheMediterraneanSeatothesouthareconnectedbytheBosphorus,theSeaofMarmaraandtheDardanelles,awaterwayknownastheTurkishStraits.
TheclimateofcoastalregionsshowsfeaturesofatransitionbetweenaMediterraneanandBlackSeaclimate.SummerstendtobehotanddryexceptfortheBlackSeacoast.Whilespringandfallarewarmandtemperate,wintersarecold,butthenumberofsnowydaysisfew.Theinnerlandismoresnowyandcolderinwinter.ThecoldestmonthsoftheyearareJanuaryandFebruary,whilethehottestareJulyandAugust.
History and Government
TheRepublicofTurkeywasestablishedin1923.ThenewRepubliclookedtotheWestforindustrializationandtheestablishmentofasecularpoliticalsystemundertheguidanceofthenewRepublic’sfirstPresidentMustafaKemalAtatürk,whosereformsconstitutedtheframeworkforthedevelopmentofthemodernTurkishRepublic.Turkeyhasenjoyedmulti-partypoliticssince1946.Turkeyisaunitaryparliamentaryrepublic.TheGrandNationalAssemblyhas550memberselectedforfouryearsterm,bysecretballot.
1. Country Profile
InvestmentinTurkey-9
TheexecutivebranchistheGovernment,headedbythePrimeMinister.ThePresidentiselectedbycitizensforafiveyeartermands/hecannotbeelectedconsecutivelymorethantwice.ThePrimeMinister,whoisappointedbythePresident,nominatestheothermembersofthecabinet,whichisapprovedbythePresident,andissubjecttoaparliamentaryvoteofconfidence.Thejudiciaryisindependentofboththelegislatureandtheexecutive.ThelegalsystemislargelybasedoncontinentalEuropeanmodels.AConstitutionalCourtisalsoentitledtocancellegislationpassedbytheParliament.Itcancancelthoselaws,orpartsofthem,whichitdecidestobeincompatiblewiththeConstitution.
Foreign Relations of TurkeyTurkeyisafoundingmemberoftheUnitedNations(UN),theOrganizationofIslamicCooperation(OIC),theOrganizationforEconomicCo-operationandDevelopment(OECD)andtheOrganizationforSecurityandCo-operationinEurope(OSCE),amemberstateoftheCouncilofEuropeandNATO.
Since2005,TurkeyisinaccessionnegotiationswiththeEuropeanUnion.ThenegotiationshavebeenlaunchedwiththeadoptionoftheNegotiationFrameworkbytheCounciloftheEuropeanUnion.TurkeyandEuropeanUnion’srelationscover3elements.Theseare;theapplicationofCopenhagenCriteria’s,theapplicationofEUacquisandthestrengthofcivilsocietydialogue.Accordingtothebasis,negotiationsarekeepingupwithEuropeanUnion1.
TurkeyisalsoamemberoftheG20industrialnationswhichbringstogetherthe20largesteconomiesoftheworld.
1 www.abgs.gov.tr
Population and Language
The population of TurkeyAccordingtothePopulationServicesLawNo.5490actedin2006,newpopulationregistrationsystem,whichwillbethemaindatasourceofpopulationcensuses,wasestablishedinthecountry.Theresultsofthelatestcensusstatesthatthepopulationisapproximately79.814.8712asof31.12.2016.
10-InvestmentinTurkey
The proportion of population living in cities is 92.3%ThenumberofpeoplelivinginIstanbulis14.804.116.MostpopulatedprovincesareAnkara,Izmir,BursaandAntalya.Tunceli istheleastpopulatedprovinceinTurkey,withapopulationsizeof82.1933.
The half of the population is below age 31 in TurkeyThemedianageofthepopulationinTurkeyis31,4Whilethemedianageis30,8formales,itis32forfemales4.
The proportion of the population at ages between 15 and 64 is 68 %People between the ages of 15-64 are theworking group,whichconstitute68%ofthetotalpopulation.Theagegroup0-14formthe23,7%oftheoverallpopulation,whilethe8,3%ofthepopulationismadeupbypeopleat65andover5.
2-3-4-5 www.tuik.gov.tr
1.2 Economy and Currency
EconomyTurkeyhasmarkedaremarkablerateofgrowthafter1980’s.Thishasbeenattributedtothreefactors,namelyashiftfromagriculturetowardsindustryandserviceactivities,themodernizationoftheexistingindustryandtechnologytransfer,andtheeffectofinternationaltradeandcompetition.
SignificantimprovementsinsuchashortperiodoftimehaveregisteredTurkeyontheworldeconomicscaleasanexceptionalemergingeconomy,beingthe18thlargesteconomyintheworldandthe6thlargesteconomywhencomparedwiththeEUcountries,accordingtoGDPfigures(atPPP)in20166. • InstitutionalizedeconomyfueledbyUSD151billionofFDIin
thepastdecade• 18thlargesteconomyintheworldand6thlargesteconomy
comparedwithEUcountriesin2016(GDPatPPP,IMF-WEO)• RobusteconomicgrowthwithanaverageannualrealGDP
growthof4.7percentduring2002-2015
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• GDPreachedUSD720billionin2015,upfromUSD231billionin 2002
• Soundeconomicpolicieswithaprudentfiscaldiscipline• Strongfinancialstructureresilienttotheglobalfinancialcrisis
Turkey’sGDPcurrentpricesandgrowthratesofGDPareasfollows:7
Years
GDP Current Prices(TRY Million )
Growth Rate (%)
2006 758,391 16.9
2007 843,178 11.2
2008 950,534 12.7
2009 952,559 0.2
2010 1,098.799 15.4
2011 1,297.713 18,1
2012 1,416.798 9.2
2013 1,567.289 10.6
2014 1,747.362 11.5
2015 1,952.638 11.7
TheliberalizationofcapitalmovementsandthewillingnessofforeigncreditorstolendtoTurkishinvestorscontributedtothehighgrowthrateofprivateinvestment.
6http://www.invest.gov.tr7 www.tuik.gov.tr
12-InvestmentinTurkey
Annual Average Real GDP Growth (%) Forecast in OECD Countries 2014-20168
Turkey
Chile
Israel
Poland
Irelan
dSlovakia
Icelan
dUS
Swed
enEston
iaNew
Zea
land
Gre
ece
Aus
tralia
UK
Czech
Rep
.C
anad
aOECD
Luxe
mbo
urg
Norway
Switzerland
Hun
gary
Spa
inSlove
nia
Den
mark
Belgium
Nethe
rland
sG
erm
any
Portug
alE
uro
Are
aAus
tria
Finlan
dFran
ceJapa
nItaly
4
3,5
3
2,5
2
1,5
1
0,5
3,63,5
3,3 3,3 3,3
3,1 3,13
2,9 2,92,8 2,8
2,72,6
2,5 2,52,4 2,4
2,12
1,91,8 1,8
1,61,61,5 1,5
1,4 1,4
1,21,1 1,1
0,9
0,6
Turkeyattachesahighprioritytotheencouragementofforeigninvestmentandprovidesavarietyofincentives.
8 www.tuik.gov.tr
InvestmentinTurkey-13
CurrencyThe Turkish currency is called Turkish Lira (TL/TRY), which wasintroduced,insteadofNewTurkishLiraasfromJanuary1,2009.Inaddition,sixdigitsweredroppedfromTurkishLiradenominationsasfromJanuary1,2005.Ontheotherhand,togetherwiththe(TRY),Kurush(Kr),whichisahundredthof(TRY),hasbecomeinuseagainasfromJanuary1,2005.
TheTurkishCentralBankhasissuednotesofTRY5,TRY10,TRY20,TRY50,TRY100andTRY200.Therearealsocoins incirculation indenominationTRY1,Kr50,Kr25,Kr10,Kr5andKr1.
The following table shows the Central Bank’s exchange rate ofTurkishLira,toothermajorcurrenciesasofDecember31,2016.
Country Currency TRY value 9
US 1USD 3.5192
Euro 1 Euro 3.7079
GreatBritain 1PoundSterling 4.3189
Switzerland 1SwissFranc 3.4454
Japan 100JapaneseYen 3.0025
9www.tcmb.gov.tr
InflationTurkisheconomyhasexperiencedhighinflationratesformorethanadecade,buttherehasbeensignificantimprovementinreducingtheinflationratesunderthestabilizationprogramrunsince2001.
14-InvestmentinTurkey
Thefollowingtableshowstheinflationratesofpast5years10:
Years Producer Price Index (Annual %)
Consumer PriceIndex (Annual %)
2010 8.87 6.40
2011 13.33 10.46
2012 2.45 6.16
2013 6.97 7.40
2014 6.36 8.17
2015 5.71 8.81
2016 9.94 8.53
10 www.tuik.gov.tr
1.3 Employment Conditions
Residence and Work PermitsMostforeignersenterTurkeywithoutaVisaandtheycanstayinthecountryupto3months.Incaseswhereavisaisrequired,itmaybeobtainedattheairports.
AforeignindividualsentbyaforeigncompanytocarryoutbusinessonitsbehalfinTurkeyhastoobtainaworkpermitfromtheMinistryofSocialSecurityandLabourAffairsandaworkvisafromtheTurkishconsulate.(Thereisalsoawebsitenamedwww.goc.gov.travailableforonlineapplication)
However,aworkpermitisnotrequiredforforeignersinTurkeywhoaretemporarilyappointedforthefollowingconditions;
- InstallationofmachineryandequipmentimportedtoTurkey,maintenanceandrepairing,takingdeliveryofequipment,trainingonhowtouseoftheequipmentorfortherepairingofthefailedmachineryinTurkey;onlyifthestaydoesnotexceedthreemonthsinayearwitheffectfromthedateofentryintoTurkeyandtheconditionhastobeprovedwithdocuments
InvestmentinTurkey-15
- ForeignerswhovisitTurkeyforthepurposeoftrainingonusingofgoodsandserviceswhichareexportedfromTurkeyorimportedtoTurkey;onlyifthestaydoesnotexceedthreemonthsinayearwitheffectfromthedateofentryintoTurkeyandtheconditionhastobeprovedwithdocuments
Opening HoursOfficehoursoflargescaledcompaniesarefromMondaytoFridayfrom8:30amto5:30pm.ShoppinghoursarebasicallyfromMondaytoSaturdayfrom9:00amto7:30pm.However,onSundaysomehave longer shoppinghours.Government institutionsdonot haveofficehoursonweekends.Banksareopentill5:00pmfromMondaytoFriday.AutomatictellermachinesarewidespreadalloverTurkey.
Cost of Living and HousingLivinginTurkeyisnotexpensiveforforeignersfromEUandtheUSA.Exceptforcertainlocations,housingandthecostoflivingischeapercomparedtothatintheirhomecountries.
Cost of Living Index for Each Country in 201611
Country Consumer Price Index
Rent Index
Consumer Price Plus Rent Index
Groceries Index
Restaurant Price Index
Local Purchasing
Power Index
Switzerland 123.10 55.14 90.44 123.86 119.14 178,74
Germany 65.54 24.01 45.58 53.12 60.68 147,61
Australia 78.45 40.95 60.43 74.68 74.85 147,25
Denmark 84.88 30.83 58.90 69.20 97.88 142,14
UnitedStates
74.08 38.39 56.93 75.69 69.13 139,17
Canada 64.82 26.83 46.56 65.04 60.04 134,81
Finland 75.25 26.98 52.05 66.59 76.85 132,93
Netherlands 72.12 31.76 52.72 56.11 80.73 129,34
Sweden 75.70 25.21 51.44 67.89 79.18 128,22
SouthAfrica 34.75 13.18 24.38 29.15 32.27 126,1
Norway 99.80 37.04 69.64 93.27 110.77 125,75
SouthKorea 73.18 34.41 54.55 86.23 41.18 120,64
Austria 66.59 26.15 47.16 61.71 62.64 120,46
U.K. 81.03 36.29 59.53 68.48 86.68 120
France 75.30 26.22 51.72 69.62 73.48 118,51
Japan 81.25 29.75 56.50 86.90 47.45 117,55
Israel 75.75 26.78 52.21 65.71 77.27 115,54
Singapore 83.67 73.88 78.97 75.83 53.75 110,5
Belgium 75.44 31.42 54.28 67.15 82.87 106,69
Italy 68.77 21.49 46.05 58.64 75.27 105,67
Spain 56.11 18.86 38.21 46.02 56.99 105,31
India 24.14 6.37 15.60 24.92 15.31 89,65
Poland 38.53 13.54 26.52 30.76 31.71 80,77
Greece 54.40 9.51 32.82 44.75 55.07 79,27
China 48.10 23.24 36.15 53.27 29.28 77,42
Turkey 45.07 10.45 28.43 39.89 31.89 64,12
11http://www.numbeo.com/
InvestmentinTurkey-17
18-InvestmentinTurkey
2. Opportunities for Investors2.1 Incentives for International InvestorsTurkeyhasbeenrestructuringitseconomysince1980alongthelinesofamoreliberaleconomicpolicy.Inthiscontext,moreemphasisisbeingplacedonprivatesectorespeciallyinproductivesectorsofeconomyandtheroleofStateislimitedtoinfrastructuredevelopmentandtheprovisionofpublicservices.
Theneweconomicpolicyaimstodiminishunemployment,torealizetechnologytransfers,toprivatizeStateEconomicEnterprises,toovercomethedeficitinthebalanceofpaymentsandespeciallytoincreasetheintegrationoftheeconomywiththeworldeconomyandtoattractmoreforeigncapitaltotheCountry.Turkeyalsousestheoptionoffiscalincentivestochannelizedomesticandforeigninvestmentsforindustrialdevelopmentandrural-urbanintegration.
Theseincentivesortaxexpendituresareusuallyavailabletoinvestorsforthepromotionofprivateinvestmentactivitiesinselectedsectors/regionsdependingonthescaleofinvestmentandinthefollowingforms:
2.2. Investment Incentive RegimeTTheTurkishGovernmenthasbeengenerousin2016andintroducedtwonewincentivepackages(“centreofattraction”and“superincentives”whichprovidecomprehensivesupporttothequalifiedinvestments.
The“centreofattraction”programmeaimstobalancethedevelopmentlevelwithintheregionsthroughincreaseinemployment,productionandexportswhereas“superincentives”
InvestmentinTurkey-19
aimtomeetanycriticallyimportantcurrentorfuturerequirementsofTurkey,developtechnologiccapacityinthefieldsthattechnologicallyTurkeyfallbehind,reducedependencyonimports/foreignsources,improveTurkey’scompetitivepowerandsupportR&Dfocusedinvestments.
Theinvestmentincentiveregimeasageneralaimstofurtheraccelerateinboundinvestmentsoverthecourseofthenextfewyearsandcontributetotheemploymentwiththenewincentiveprogrammes.
Classification of investments
Generalinvestments:Theinvestmentsthatarenotqualifiedasaspecialtypeofinvestmentaresubjecttogeneralincentives.TheseincentivesarecustomsdutyandVATexemptiononthepurchaseofinvestmentgoods(i.e.machineryandequipment).Fortheinvestmentsinthe6thregion,thegeneralincentivesareexpandedwithincomewithholdingtax.Socialsecurityemployerpremiumreliefisaddedtotheshipconstructioninvestmentsintheshipyards.
TheminimuminvestmentexpenditureshouldbeTRY1millionforthefirsttworegionsoutofsixregionsandTRY500thousandfortherestoftheregions. Regionalandsector-basedinvestments: Turkeyisseparatedintosixregionsbasedonthedevelopmentlevelofthedistricts/citiesintheseregions.Thefirstthreezonesrepresentmoredevelopedregions,respectively,whereasthelastthreeshowrelativelylessdevelopedzonesinTurkey.
20-InvestmentinTurkey
Largescaleinvestments: InvestmentsinexcessofatleastTRY50millionareclassifiedaslargescaleinvestments.Thisamountcanincreasedependingontheindustryoftheinvestment.Theindustriesincludebutnotlimitedwithproductionofoilproducts,portandportservicesinvestments,drugmanufacturing,productionofairandspacevehiclesandtheirpartsandairportinvestments.
Prioritizedinvestments: Thistypeofinvestmentscanbenefitfromtheincentivesthataregrantedtotheinvestmentinthe5thregion.Iftheinvestmentsarelocatedinthe6thregion,investorscanbeentitledtoincentivestobegrantedtothisregion.Investmentsinthebelowindustriescanqualifyasprioritizedinvestment:
• Investmentsregardingseatransportationofloadand/orpassengers
• Railwayinvestmentsthataretobemadebytheprivatesectormembersforthepurposeofdomesticloadand/orpassengertransportationandinnercityloadtransportation
• Automotive,spaceordefenceorientedtestcentres,windtunnelsandinvestmentsinsimilarnature
• AccommodationinvestmentsfortourismpurposesthatareinthescopeofProtectionandDevelopmentofCultureandTourismortheaccommodationinvestmentsforthermaltourismthatareentitledtoregionalincentives
• Internationalfairinvestmentswithaminimumclosedareaof50thousandsquaremeters(excludingtheaccommodationandshoppingmallunits)
• InvestmentprojectsindefenceindustrytobeapprovedbytheUndersecretariesforDefenceIndustry.
• Mineextractionand/ormineprocessinginvestmentsofinvestorsholdinganexplorationlicenseissuedunderMineLaw(excludingcertainspecificinvestments)
• Daycarecentres,kindergartens,andprimary,secondary,andhighschoolinvestmentstobemadebytheprivatesectormembers.
• ProductsdevelopedasaresultofR&DprojectsthataresupportedbyMinistryofScience,IndustryandTechnology,SmallandMediumSizedEnterprisesDevelopmentOrganizationandtheScientificandTechnologicalResearchCouncilofTurkey.
• InvestmentsinmotorvehiclesindustrywithaminimuminvestmentamountofTRY300millionandautocomponents
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industry(i.e.engineproductioninvestmentswithaminimuminvestmentamountofTRY75million,investmentsincomponentsandtransmissioncomponentsofenginesandelectronicsofautomotivewithaminimuminvestmentamountofTRY20million)
• Investmentsincoalbasedelectricitygenerationpowerplants(underaminingandprospectinglicense).
• Exceptforun-incentivizedinvestments,energyefficiencyorientedinvestmentswiththebelowpropertiespursuanttotheapprovalofEnergyandNaturalResources:
a) Anannualenergyconsumptionof500tonsofequivalentoil,whichwillberealizedinthemanufacturingindustryplants;
b) Annualminimumof500tonsofequivalentoilenergyconsumption,
c) Shouldbeheldintheexistingmanufacturingfacilityd) Energysavingsbyatleast20%perunitofproductione) Returnoninvestmentismaximumof5years.
• Wasteheatbasedelectricitygenerationinvestmentswheretheelectricityisgeneratedthroughwasteheatrecoveryfacilities.(Exceptfornaturalgas-basedpowergenerationplants).
• LiquefiednaturalgasandundergroundgasstorageinvestmentswithaminimuminvestmentamountofTRY50million
• Carbonandfibreproductionandproductionofcompositematerialsmadeofcarbonandfibretogetherwithproductionofcarbonandfibreinvestments
• ProductionofproductsinthehightechnologyindustriesdefinedbasedontheOECDTechnologyIntensityClassificationsuchasaircraftandspacecraft,pharmaceuticals,Office,accountingandcomputingmachinery,Radio,TVandcommunicationequipmentandMedical,precisionandopticalinstruments
• ExplorationinvestmentsofinvestorsholdinganexplorationlicenseorCertificateissuedunderMiningLaw
• Turbineandgeneratorproductioninvestmentsrelatedtorenewableenergygenerationandrotorproduction(forwindenergygeneration)
• Integratedinvestmentsforproducingaluminiumflatgoodswithspecialtechniqueidentifiedinincentivelegislation
22-InvestmentinTurkey
Strategicinvestments: Astrategicinvestmentshouldaltogetherqualifythebelow:
• TheminimumfixedamountoftheinvestmentshouldexceedatleastTRY50million.
• TotalimportsrelatedtotheinvestmentgoodshouldexceedUSD50millioninthelatestyear.
• Expectedaddedvaluetobeprovidedbythepotentialinvestmentshouldbeminimum40%.
• Thetotaldomesticproductioncapacityofthefinalgoodtobeproducedshouldbelessthantheimports.
PrioritizedinvestmentswithoverTRY3millionofminimumfixedinvestmentamountwillbequalifiedasstrategicinvestment(interestsupportforsuchinvestmentsislimitedtoTRY700thousand).
Investmentsentitledtoincentivesapplicableinasuccessiveregion: Theinvestmentssatisfiesoneofthebelowpropertiescanbenefitfromtheincentivesgrantedtoasuccessiveregionwithrespecttoreducedcorporatetaxandsocialsecuritypremium.
• InvestmentsmadeintheOrganizedIndustrialZones(OIZ)orinindustrialzonesformanufacturingindustryinvestments,
• Investmentsthataremadebyaninvestorwithatleast5individualsorcorporateshareholdersandprovidesanintegrationoftheinvestmentstobemadeinacommonoperating area.
Iftheinvestmentisinthe6thregion,2yearstosocialsecurityemployercontributionand5pointstotheinvestmentcontributionrateareaddedtothecurrentincentivesapplicableinthatregion.
Investment incentives:Investmentincentivesareavailabletoinvestorsthroughan“InvestmentIncentiveCertificate”(“IIC”),whichisobtainedfromtheGeneralDirectorateofIncentivePracticesandForeignCapitalundertheMinistryofEconomy(“Authority”).
InorderforaninvestmenttobegrantedanIIC,theminimuminvestmentexpendituresshouldbeatleastTRY1millionforthefirsttworegionsandTRY500thousandforotherregions.ItshouldbenotedthattheinvestmentprojectsarestillsubjecttoAuthorityevaluationinordertobegrantedanyincentives.
InvestmentinTurkey-23
TheincentivesunderanInvestmentIncentiveCertificatearesummarizedbelowforeachtypeofinvestment:
Customs duty
Incentives
General Investment
1st region
2nd region
3rd
region
4th region
5th region
6th region
6th region
6th region
6th region
6th
region
6th region
6th region
Large scale
Strategic
Prioritized
VATReduced rate CIT
SS employer
SS employee
Land allocation
Interest support
Income w/h tax
VAT refund
** * ***
***
***
***
***
***
***
***
***
***
* Fortheinvestmentsinthe6thregion,
** Fortheshipconstructioninvestmentsintheshipyards
*** Non-recoverableVATwithrespecttotheconstructionpartofaninvestmentwith minimumfixedamountofTRY500millionwillberefundedtotheinvestors.This incentivewillbegrantedtotheinvestorsuntil31December2023.
x: Notapplicable
24-InvestmentinTurkey
2.3. Application of Incentives
Customsdutyexemption: 100%customsdutyexemptionisavailableontheimportedmachineryandequipment(ImportsfromEUcountriescanbecustomsdutyfree).
ValueAddedTax(“VAT”)exemption:100%VATexemptionforbothdomesticpurchaseofandimportofmachineryandequipmentforthequalifiedinvestments(UndertheVATCode,importationofmachineryandequipmentunderanIICisnotsubjecttoVAT,aswellaslocalpurchasesofmachineryandequipment).
Corporatetaxreduction: Statutorycorporatetaxrateis20%.Regionalandsector-based,prioritized,large-scaleandstrategicinvestmentsareentitledtobenefitfromcorporatetaxreductionlimitedtothetaxsavingsthatreachtheinvestmentcontributionrate. Governmentprovidesacorporatetaxreductionfrom50%upto90%dependingonthelocationandtheamountoftheinvestment
Socialsecurityemployerpremiumcontribution: SocialSecurityemployerpremiumincentiveisgrantedfrom2yearsto10years,dependingonthelocationoftheinvestmentandlimitedtothepremiumsapplicabletominimumwageceiling(monthly).Theincentiveamountisalsolimitedtoapercentageoftheactualinvestmentamountwhichshouldbecheckedforeachinvestmentprojecteligibleforthisincentive.
Socialsecurityemployeepremiumcontribution:Thisincentiveisprovidedonlyfortheinvestmentsinthe6thregionlimitedto10yearsandtothepremiumcontributioncorrespondingtotheminimumwageamount.
AllocationofLand: Landcanbeprovidedtotheinvestorsasarightofeasementorusagerightfor49yearsbytheMinistryofFinance.(SubjecttotheprovisionsofLawno.4706)
Interestsupportonfinancing: Governmentcontributesalsotointerestpaymentsontheinvestmentloanswithamaturityofatleastoneyeargrantedinthescopeofincentiveregime.Interestsupportislimitedto70%ofthetotalprojectedinvestmentamountregisteredontheIICandgrantedonlytotheinvestmentsinthe3rd,4th,5thand6thregions.
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Interestsupportisgratedinarangeof3to7pointsforTurkishLiradenominatedloansandupto2pointsforforeigncurrencyandforeignexchangeloans.ThemaximumamountofinterestsupportamonginvestmentsotherthanstrategicinvestmentsisTRY900thousandwhichisprovidedforinvestmentsinthe6th region.Interestsupportforstrategicinvestmentsisthehighestwithalimitationof5%ofthefixedinvestmentamountbutcanreachuptoTRY50million.
Incomewithholdingtax: Thisincentiveisgrantedtoinvestorsonlyfortheinvestmentsinthe6thregionlimitedto10years.
VATrefund: ThisincentiveisgrantedtoinvestorsforinvestmentswithaminimumfixedamountofTRY500millionandlimitedtotherefundofnon-recoverableVATwithrespecttotheconstructionpartoftheinvestment.Thisincentivewillbegrantedtotheinvestorsuntil31December2023.
2.4 “Super incentives”
WiththeSuperIncentivesaflexibleincentivesystemhasbeeninitiated.Thenewmodelisaveryimportantmilestonewherethedevelopmentofourinvestmentincentivesystemisconcerned.Throughthismodel,aspecialincentivesystemuniquetoeachinvestmentprojectputforwardforsupportcannowbedeveloped.
Theprogrammeenvisagesaprojectbasissupportwhichwillenableaflexibleandcustomizedincentivemechanismtothequalifiedinvestments.ThequalificationofaninvestmentwillbedeterminedbasedonwhethertheseinvestmentsmeetthecurrentorfuturerequirementsofTurkeyinlinewiththetargetssetinthedevelopmentplansandannualprogramsand/orwhethertheycouldensurecontinuedsupply,reducedependenceonforeignsources,achievetechnologictransition,beinnovative,andaddvalueaswellasbeingR&Dfocused.
AsthisincentivemechanismisapartofIncentiveRegime,investorsarerequiredtoobtainanInvestmentIncentiveCertificatefromtheMinistryofEconomyinordertobenefitfromtheincentives.
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Theincentivesgrantedtotheinvestorsinthescopeof“superincentives”mechanismcanbesummarizedasfollows.
— VATandcustomsdutyrelief
— VATrefundpossibility
— Reducedtaxratesortaxexemptions(corporatetax)
— Socialsecurityemployerpremiumsupport
— Incomewithholdingtaxsupport
— Qualifiedpersonnelsalarysupport
— InterestsupportorGovernmentgrants
— Capitalcontributions
— Supportonenergyexpenses
— Governmentpurchaseguarantee
— Landallocationandfreeofchargetransferoftheland
— Infrastructuresupport
— Facilitationinbureaucraticprocess
ItshouldbenotedthatMinistryofEconomyistheauthoritytoevaluatetheprojectsandgranttheincentives/supports(allorlimited)totheinvestorsforthequalifiedinvestments.
2.5 “Centre of Attraction” Programme
TurkishGovernmentrecently(November2016)announcedanewincentiveprogrammecovering23comparativelydistressedcities.Theprogrammeaimstobalancethedevelopmentlevelwithintheregionsthroughincreaseinemployment,productionandexportsandvitalisingtheinvestmentenvironmentinrelativelylessdevelopedregions.
Theincentivesgrantedtotheinvestorsinthescopeof“centreofattraction”mechanismcanbesummarizedasfollows.
— Advisoryservicessupport,
— Turnkeyfactorybuildingconstructionsupport,
— Interest-freeinvestmentloansupport,
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— Low-interestoperationalloansupport,
— “ProductionFacilityRelocationSupport”forinvestorswhowishtorelocatetheirproductionfacilities,whicharestillinoperation,fromprovincesthataredesignatedbytheCouncilofMinisters,tothoseprovincesthatarecoveredundertheAttractionCentresProgram
— Supportsforcallcentresanddatastoragecentres,
— Allocationoftreasurylandforconstructionof“callcentresanddatastoragecentres”,
— Allocationofidlepublicbuildingspertainingtopublic,localadministrations,stateeconomicenterprisesandotherstateinstitutionsandorganisationsforuseascallcentreanddatastoragecentre,
— Callcentreanddatastoragecentrebuildingconstructionsupport,
— “Callcentreanddatastoragecentreinvestmentsupport”coveringthesupportsthatwillbeprovidedforthetelecommunicationinfrastructurethatisrequiredincallcentresanddatastoragecentres
— Additionalenergysupportfordatastoragecentres.
Basicconditionstobenefitfromthesupportsofferedundertheprogram;
IncentivesinthisgroupwillbeofferedtooverTRY2millionininvestment,whichpromisestoprovideatleast30newjobs.
— Forcallcentres,atleast200newemploymentagreementsmustbesigned.
—Newdatastoragecentreincentivescovertheinvestmentsthatarenosmallerthan5.000squaremetersofland,andthatmeetcertaintechnicalcriteria/certifications.
— Inordertobenefitfromproductionfacilityrelocationsupport,theprimaryconditionisthatthefacilityhasbeeninoperationforthelasttwoyears.Meetingthiscondition,ontheotherhand,wouldnotbesufficientalone.Additionally,relocationmustbecompletedwithintwoyearsfollowingthedatethatCMDisineffect,anditmustbeundertakenthat200peoplewillbeemployedafterrelocation.
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Bothindividualsandcorporationscanbenefitfromthisprogramme.
ItshouldalsobenotedthatthisprogrammeisstillapartofInvestmentIncentiveRegimehowever,willbeimplementedthroughDevelopmentBankofTurkey.Tobenefitfromthisprogramme,theapplicationshouldbedonetoDevelopmentBankofTurkeyandlocaldevelopmentagencies.
2.6 Incentives regarding Research, Development and Design Activities
BasicincentivesandsupportssetforthundertheLawNo.5746pertainingtheSupportofResearchandDevelopmentActivitiesfortheR&Dinvestmentprojectsareasfollows;
• 100%ofalleligibleR&Dandinnovationexpendituresmadewithintechnologycentres,R&Dcentres(whichshouldemployatleast15(mayincreaseto30forspecificsectors)full-timeequivalentR&Dpersonnel),R&Dandinnovationprojectssupportedbygovernmentalinstitutions,foundationsestablishedbylaw,orinternationalfundsanddesignexpendituresmadewithindesigncentres(whichshouldemployatleast10full-timeequivalentdesignpersonnel)anddesignprojectssupportedbytheaboveinstitutionscanbedeductedfromthecorporateincometaxbase.100%deductioncanbeincreasedto150%throughsatisfactionofcertain criteria.
• SalariesofR&D,designandsupportpersonnelareexemptfromincomewithholdingtaxatthedifferentpercentages(80%-95%)dependingontheirdoctoratediploma,master’sdegreeandbachelor'sdegree.
• 50%oftheemployer’scontributionofsocialsecuritypremiumsissupportedbytheMinistryofFinanceforeachR&D,designandsupportpersonnel.
• AlldocumentsmadeoutregardingR&D,innovationanddesignfacilitieswithinthescopeoftheLawNo5746(R&DLaw)areexemptfromStampTax.
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2.7 Incentives for Technology Development Zones
• Incomederivedfromsoftware,designandR&DactivitiesperformedintheTechnologyDevelopmentZones(“TDZ”)bythetaxpayers(doingbusinessinthesezones)areexemptfromincomeandcorporateincometax.
• SalariesofR&D,designandsupportpersonnelrelatedtotheR&D,designandsupportactivitiesinthesezonesandoutofthezones(limitedtocertainpersonnelandapplicabletocertainportionofincome)areexemptfromincometaxandstamptax.
• 50%oftheemployer’scontributionofsocialsecuritypremiumsissupportedbytheMinistryofFinanceforeachR&D,designandsupportpersonnelprovidedthattheirsalariesareexemptfromincometax.
• Deliveryofgoodsandserviceswhichareproducedexclusivelyinthesezonesandintheformofsystemmanagement,datamanagement,businessapplications,industrial,internet,mobileandmilitarycommandcontrolapplicationsoftwarearealsoexemptfromVAT.
2.8 Incentives for Free Trade Zones (“FTZ”)
Turkeyaimstoencourageproductionandexportactivities,fastentheforeigncapitalinflowandtechnologyinTurkeyaswellasdevelopingtheinternationaltradingactivitiesthroughthegrantoftheseincentivestoinvestors.
InvestorsshouldobtainaspeciallicensetobeableoperateintheFTZs.Theselicensesareprovidedforaperiodfrom15yearsto45yearsbasedonthetypeoftheoperator(e.g.lessee,manufacturer,investor,etc.)
ThefollowingincentivesaregrantedtoinvestorsinvestingintotheFreeTradeZones.TheseincentivesareapplicableuntiltheendofthefiscalyearinwhichTurkeyfullyaccessestotheEU:
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• TheincomederivedfromthesaleofgoodsthataremanufacturedbylicenseholdersinFTZisexemptfromincomeorcorporateincometax(Corporateincometaxexemptiondoesnotcoverthedividenddistributions).Moreover,incomederivedbythelicenseholdershavingavalidlicenseobtainedbeforeFebruary6,2004canalsobenefitfromcorporatetaxexemptionuntiltheexpirationdateoftheirlicenses.
• ThesalarypaymentsmadebytaxpayersoperatinginFTZtotheiremployeesareexemptfromincometax,providedthatthetaxpayersexportatleast85%ofannualproduction(i.e.FOBvalues).(CouncilofMinistersisauthorizedtodecreaseorincreasethisrate).
• ThedocumentsandtransactionsregardingoperationsinFTZareexemptfromstamptaxandcharges.
• Inadditiontotheabovementionedincentives,thedeliveryofgoodsandperformanceofservicesinfreetradezonesareexcludedfromVATunderVATCodewithoutanytimelimitation.
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3. Foreign Trade & Customs3.1 Foreign Trade Legislation
Someoftheapplicablelawsthatregulateforeigntradeactivitiesare:• CustomsLawNo:4458• CustomsRegulation• RegulationregardingAEO(RegulationRegardingSimplification
ofCustomsOperations)• ImportRegimeDecree• ExportRegimeDecree• LawonthePreventionofUnfairCompetitioninImportsNo:
3577• LawonRegulationofForeignTradeNo:2976• DecreeontheRegimeofTechnicalRegulationsand
Standardization• FreeTradeZoneLawNo:3218• CombatingwithSmugglingLawNo:5607• ValueAddedTaxLawnumbered3065• SpecialConsumptionTaxLawNo:4760
3.2 Customs Regimes and Synopsis of Customs Transactions
InTurkishCustomsLegislation,thereexist8customsregimeswhichare:• ReleaseForFreeCirculationRegime• TransitRegime• CustomsWarehousingRegime• InwardProcessingRegime• ProcessingUnderCustomsControlRegime• TemporaryAdmissionRegime• OutwardProcessingRegime• ExportationRegime
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Establishedcompanieswithavalidtaxnumbercanperformimportation/exportation.Exportersshouldalsobeamemberofrelevantexportersunion.Afteracustomsdeclarationissubmittedbycustomsbroker,computersystemevaluatesthedataanddesignatesalineforthetransaction.
Basically,therearefourlines:
• Redline(meansphysicalcontrol/inspectionanddocumentcontrol)• Yellowline(meansdocumentcontrol)• Blueline(meansdeferredcontroli.e.simplifiedprocedure)• Greenline(meansnocontrol)
Dependingonthegoods,theiroriginandregime,somedocumentsshouldbesubmittedforimportcustomsclearance:commercialinvoice,proformainvoice(whenfinalcommercialinvoicedoesnotexistatthetimeofentry);A.TR,EUR.1,FormAorEUR-MEDifapplicable;dependingontheconsignmentfreightand/orinsuranceinvoice,CertificateofOriginifapplicable,ValueDeclarationForm,PackingList,Inspection/Control/SurveillanceCertificateetc.(ifimportationissubjecttocertification).Someofthedocumentsthatshouldbesubmittedforexportcustomsclearanceare:commercialinvoice,A.TRifapplicable,packinglistetc.CustomsCodeArticle60andCustomsRegulationArticle114providemoredetailsaboutdocumentsthatshouldbeattachedtocustomsdeclarations.Specificationsrelatedtocustomsduty,excisedutyanddocumentationssuchasrequiredcertificatesaredesignatedaccordingtoHSnumberofproduct(12-digitcodeisusedinTurkey).
3.3 Turkey and the EU
AftertheEUTurkeyAssociationAgreementof1963,TurkeysignedaCustomsUnionagreementwiththeEUin1995whichseekstopromotetradeandeconomicrelations.TurkeyisacandidatecountrytoEUsince1999andanaccessioncountrysince2005.
TheEUandTurkeyhaveaprofoundtraderelationship.TheEUranksnumberoneinbothTurkey’simportsandexports,whileTurkeyranks6thintheEU’stopimportand4thinexportmarkets.Textiles,
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machineryandtransportequipment,plasticsandrubbersandmanufacturedgoodsdominateEUimportsfromTurkey.MainEUexporttoTurkeyaremachineryandtransportmaterial,chemicalproducts,plasticsandrubbersandmanufacturedgoods.(EuropeanCommissionTrade,2015)
Thecustomsunionisbasedonfreecirculationofgoodsandpreferentialtreatmentisapplicableforindustrialgoodsandprocessedagriculturalgoods(CustomsUnionbetweenEUandTurkeydoesn’tcoveragriculturalgoods,servicesandECSCgoods).AccordingtoCouncilDecisionaboutRulesofImplementationCustomsUnionbetweenTurkeyandECnumbered2006/10895,inordertoenjoypreferentialtreatmentgoodsthatshouldbedelivereddirectlytoTurkeywithanA.TRCertificate(thisisamovementcertificateratherthanacertificateoforigin).But,ifitisnecessarytodeliverover3rdcountry,goodsshouldbeundercustomsobservationofthecountryanditshouldbeprovedtoTurkishCustomsAuthoritiesthatthegoodsarenotfurtherprocessedin3rdcountries.TheinformationanddescriptionofgoodsontheinvoiceandcustomsdeclarationshouldcorrespondwiththeinformationontheA.TRcertificate(anA.TRcertificateshouldbesubmittedtocustomsadministrationwithin4monthsandifitisissuedretrospectivelyoritisduplicated,thisshouldbeindicatedontheremarkssectionofthecertificate).
Ontheotherhand,TurkeyhassignedFreeTradeAgreementwithEFTA(Norway,Iceland,SwitzerlandandLiechtenstein)andothervariouscountriesand18oftheseagreementsareinforce(includingthosewithRepublicofKorea,ChiliandGeorgia).TurkeyalsohasaPreferentialTradeAgreementwithIransince1stJanuaryof2015.
3.4 Turkish Import Regime
TheImportRegimereflectsbothTurkey’sinternationalrightsandobligationsandthecountry’seconomicneeds.TheImportRegimeDecreeispreparedeveryyear,publishedintheofficialjournalbyDecember31andputintoforcebyJanuary1.ImportRegimeDecreeindicatestheratesofthecustomsdutiesseparatelyforcountriesandcountrygroupsandtheproductsareclassifiedundersixlistswhichare:
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• Agriculturalproducts(List:I)• Industrialproducts(List:II)• Processedagriculturalproducts(List:III)• Fishandfisheryproducts(List:IV)• Suspensionlist(List:V)• Listofgoodsusedincivilaircrafteligibletorelieffrom
customsduties(List:VI)
3.5 Customs Valuation
Thecustomsvalueofgoodsisdeterminedtoapplyadvaloremratesofcustomsandexciseduties.i.e.;VAT,SCT,anti-dumpingdutiesandsomeotherapplicablefunds.TurkeyacceptedprovisionsoftheWTOAgreementonCustomsValuation.CustomsValuationisregulatedbetweenarticles23–31ofCustomsLaw.Thelawprimarilydefinesthecustomsvalueasthetransactionvalueofimportedgoodswhichisthepriceactuallypaidorpayableforthegoodsconsideringnecessaryadjustmentsoftheimportrelatedcostsandcharges.Othercomponentsofcustomsvalue;suchasTPadjustmentsandRoyaltypaymentshaveacomplexstructurethathastobeevaluatedcarefullyregardingcustomsvalue.
3.6 Anti-Dumping and Anti-Subsidy Practices
MinistryofEconomycarriesoutdumpingandsubsidyinvestigationsrelatingtounfairpricingpracticesofcompaniesorcountriesexportingtoTurkey.Accordingtoresultsoftheinvestigationananti-dumpingdutyorcountervailingdutymaybesetupovergoodsofsuchcompaniesorsuchcountries.
3.7 Resource Utilization Support Fund (RUSF)
RUSFonimportationdependsonthetermsofpayment.RUSFisapplicableonimportationswhichhavethedefinedtermsofpaymentsinrelevantregulations.Therearesomeapplicableexemptionssuchasimportationviaanincentivecertificate,inward
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processingregimeortemporaryimportationregime.Accordingtoarticle3/dofCouncilofMinister’sDecreeofRUSFnumbered88/12944dated12May1988,importsconductedthroughacceptanceletterofcredit,deferredpaymentletterofcreditorcashagainstgoodsshallbesubjecttoRUSFwhichiscalculatedovertheamountofinvoice.ThecurrentRUSFrateis6%forimportationoncreditbasis.Furthermore,RUSFisacceptedasimportduties.PleasenotethatregardingtheMinisters’Decreenumbered2015/7511anddated10.04.2015,importRUSFratehasbeendeterminedas0%onvariousproductsbasingontheirHSCodes.
3.8 Authorized Economic Operator (AEO)
AsofJanuary2013,TurkeyhaslaunchedAuthorizedEconomicOperator(AEO)Programwhichfacilitatesforeigntradeoperationsandminimizeleadtimesandcosts.Thecertificateprivilegesinvolvelocalclearance,authorizedconsignorstatus,usinglumpsumguarantees,issueA.TRcirculation,issueEUR.MEDinvoicedeclaration,submitincompletedeclaration&documents,simplified(FAS)declaration,labreportfacilitations,blue-linefacilitationsonFASdeclarations,lessdocumentationandphysicalcontrols,controlpriorities.
AEOcertificatewillbeobtainedbyreliableTurkishresidentcompanies,operatingatleast3yearswhohasadequatetraceabledocumentation,financialsolvencyandpracticingsafetyandsecuritymeasures.TheAEOprogrambringsrecognitionandcompetitiveadvantagetocompaniesinthelongrun.
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4. Company Law Requirements4.1 Available Business Structures
IndividualsandlegalentityinvestorsintendedtoconductbusinessactivitiesinTurkeyrealizetheirbusinessactivitiesinvariouslegalforms.Whiledecidingamongthosecommercialstructures,factorssuchasbusinessplan,exitstrategy,organizationalstructure,minimumcapital,shareholders’responsibility,liabilityandresponsibilityoftheexecutives,auditandpenaltiesprescribedaretaken into account.
Thecommercialstructurewhichinvestorsmayprefershallbedeterminedcompletelyaccordingtotheirneeds.Inotherwords,thereisnotonlysinglestructureapplicableandaccurateforeachprivateinvestor,buttailoredsolutionsforeachofthem.
Mostcommonly,investorstendtoincorporatecompanies,branchesorliaisonofficesinTurkeytoconducttheirbusinessactivities.ForthecorporateentitiesincorporatedinTurkey,theTurkishCommercialCodenumbered6102,whichisinforceasofJuly2012,shallbeapplicable.
4.2 Subsidiary Types: Joint Stock Corporations (JSC) and Limited Liability Companies (LLC)
TheJointStockCompany(inTurkish:AnonimSirket,A.Ş.)andtheLimitedLiabilityCompany(inTurkish:LimitedŞirket,Ltd.)arethemostcommonformsofcompaniesunderTurkishCommercialLaw.
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Although,theinvestorsarefreetooptforthebusinessstructuretheywishtopursue,someofthebusinessaresubjectedtocompulsoryestablishmenttypesaspertherelevantapplicablelawsandregulations.Someofthebusinessesthatneedstobeestablishedasjointstockcompaniesmaybelistedasfollows:
• Banks• InsuranceCompanies• FinancialLeasingCompanies• FactoringCompanies• HoldingCompanies• Stockexchanges• VentureCapitalInvestmentCompanies
4.3 Joint Stock Companies (JSC)
Number of shareholdersAjointstockcompanymaybeformedbyatleastoneshareholderandsuchshareholdersmayberealpersonsorlegalentitiesaswellasresidentsornon-residents.Thereisnoupperlimittothenumberofshareholders.However,JSCswithmorethan500shareholdersaresubjectedtoCapitalMarketsBoardregulations.
Shareholders’ liabilityLiabilitiesoftheshareholdersofJSCsarelimitedwiththecapitaltheyhavecontributed.
Articles of associationDocumentsofincorporation,mandatoryinformationinthearticlesofassociationandincorporationprocedureshavebeenregulatedunderTCCindetail.Primarily,thefoundersshallpreparethearticlesofassociation,whichincludetheprovisionsonthecompany’sbasicstructureandbodiesinwhichtheunconditionalpaymentofwholecapitalisundertaken;afterwards,thearticlesofassociationissubmittedtothesystemnamedMERSIS(TheCentralRegistrySystem)andeitherthefounders’signaturesinthesearticlesofassociationaffixedandcertifiedatthenotarypublicorsignedinfrontofthetraderegistryofficer.Thecompanydeemedtoacquireitslegalpersonalityafteritsregistrationattherelevanttraderegistry.
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Share CapitalTheminimumcapitalrequiredfortheincorporationofJSCisTL50.000-.InJSCsadoptingtheregisteredcapitalsystemwheretheboardofdirectorsisauthorizedtoincreasethecapitaluptotheprescribedupperlimit,thestart-upcapitalcannotbelessthanTL100.000-.Furthermore,fortheJSCswhicharesubjectedtoaspeciallegislation(banks,insurancecompanies,powerproducersetc.),ahigherminimumcapitalamountmayberequired.
Itemsthatcanbecontributedascapital:AssetswhichcanbecontributedinJSCsascapitalareasfollows;
• Intellectualpropertyrights• Movablesandallkindsofimmovable• Usufructrightsofmovablesandrealestates• Commercialenterprises• Assetsusedunderarightsuchastransferableelectronic
media,domains,namesandmarks• Minelicensesandothersimilarrightswhichhavesuch
economicvalue• Anykindofassetwhichcanbetransferredandevaluatedin
cash
Propertiesuponwhichrightinrem,pledgeorinjunctionisestablished;performancesofservice;commercialreputation;andunduereceivablescannotbecontributedtoJSCsascapital.
Theproperties,including,butnotlimitedtointellectualpropertyrightsandvirtualplatformsandmedia,whichcanbetransferredorassignedincash,withnolimitedrealrightsorattachmentorinjunctionorotherencumbrancesthereon,maybesubmittedascapitalinkind.
Payment of the CapitalItisnotmandatorytowhollypaythecapitalofJSCincashbeforetheregistration.Atleast25%ofthecashcapitalcontributedtotheJSCshallbepaidtoablockedaccounttobeopenedinabankbeforetheregistrationatthetraderegistry.ThisamountblockedatthebankreleasedonlyaftertheJSC’sregistrationisauthenticatedbyaregistryletterorifthecompanyisrefundedtoitsownersuponaconfirmingletterbytheregistryoffice(within3months)ifthecompanyisnotincorporated.Forthepaymentoftheportionup
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to75%ofthecashcapital,whichisnotpaidduringincorporation,partiesmaydecideonamaximumtermof24monthsasofthedatecompanyisregistered.
Bodies of the CompanyShareholdersoftheJSCarenotinvolvedinthecompany’sdailyactivitiesinconnectionwiththeirshareholdingcapacity.Theboardofdirectors(“BoD”)thatwillmanagetheJSCsiselectedbythegeneralassembly,andthedecisionsontheJSC’sbasicstructurearealsotakenbythegeneralassembly.
i. GeneralAssembly
Meetings:JSC’sgeneralassemblymayconveneordinarilyorextraordinarily.Ordinarygeneralassemblymeetingsareheldwithin3monthsasoftheendofeachtermofactivity,andnegotiationsareconductedanddecisionsaretakeninthismeetingfortheelectionandreleaseoftheboardofdirectors,financialstatementsandannualreport,howprofitisutilizedandothernecessaryissues.Extraordinarymeetingsontheotherhandareheldwhenitisdeemednecessary(suchasadvancedividenddistribution,lossofcapital,capitalincreaseetc.).
Attendants:Theprimaryattendantsofthesemeetingsaretheshareholders.Inadditiontotheshareholders,representativeoftheMinistryofCustomsandTradeshallalsoattendthegeneralassemblymeetingsofbanks,financialleasingcompanies,factoringcompanies,insurancecompanies,companiessubjecttoCapitalMarketsLaw(companiesthatissuecapitalmarketinstruments,offerthemtopublic,investmentcompanies,portfoliomanagementcompaniesetc.),andtoregularJSCgeneralassembliesprovidedthatcertaintypesofdecisionswillbenegotiated(i.e.capitalincreaseetc.).
Dutiesandauthorities:Therearesomeinalienabledutiesandauthoritiesofgeneralassembly,whichmaybeexemplifiedasfollows: • Amendmentofthearticlesofassociation• Appointmentofboardmembers,determiningtheirterms,
remunerationsandrightssuchasattendancefee,bonus,premium,decidingontheirreleaseanddismissingthem.
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• Terminationofthecompany.• Wholesaleofasubstantialamountofcompany’sassets.
ii. BoardofDirectors
Management:BoardofdirectorsisthemainbodywhichensuresthemanagementandrepresentationoftheJSCs.TheactivitieswhichtheJSCswillconductinordertoachieveitsgoalsareplannedandimplementedbytheboardofdirectors.
Numberofmembers:Boardofdirectorsmayconsistofoneormoremembers.
Appointmentofthemembers:Themembersareelectedunderthearticlesofassociationduringincorporationandbythegeneralassemblyresolutionafterwards.
Qualifications:Beingamemberdoesnotrequireshareholding.Legalpersonsmaybecomemembersasrealpersons.Industry-specificlegislationsmayrequirespecialconditionsformembership.
Termofofficeandterminationofmembership:Termofofficeofboardmembersshallnotexceed3years.Thememberswhosetermhasexpiredmaybereelected.Membershipisterminatedduetoareasonsuchastheexpirationofthetermofoffice,resignation,dischargeordeath.
Inalienabledutiesandauthorities:SomeoftheadministrativedutiesandauthoritiesgrantedtotheJSC’sboardofdirectorsmaynotbetransferred.Themajorinalienabledutiesandauthoritiesmaybeexemplifiedfollows;
• High-levelmanagementofthecompanyandprovidingtheinstructionsaboutthem
• Determiningthemanagementstructureofthecompany.• Establishingthenecessaryorderforaccountingandfinancial
audit,andfinancialplanningtotheextentrequiredbythecompany’smanagement.
• Keepingtheshareledger,boardofdirectors’resolutionledgerandgeneralassembly’smeetingandnegotiationledgers.
• Notifyingthecourtincaseofindebtedness.
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Transferofmanagement:AlldutiesandauthoritiesoftheboardofdirectorsapartfromtheinalienabledutiesandauthoritiesstipulatedintheTCCmaybetransferredtooneorsomeofthemembersorthirdpartiesunderaboarddecisiontobetakenintheframeworkofaninternaldirectiveissuedonthebasisofaprovisioninthearticlesofassociationthatallowstransfer.
Meetings:Theboardofdirectorsmaygatheratthecompany’sheadquartersoranyotherplacewhennecessary.Boardofdirectorsmayalsomeetelectronicallyunderanoptionalarrangementmadeinthearticlesofassociation.
Meetinganddecisionquorum:Meetingquorumisthemajorityofmembers,whiledecisionquorumisthemajorityofmembersattendingthemeeting.Thesequorumsmaybeincreasedbythearticlesofassociation.
LiquidationTheTCCregulatesthelegalframeworkfortheliquidationofthejointstockcompanies.Thecompaniesmayresolvetoenterintoliquidation,iftheydecidedtodosoduetoeconomic,financial,managerial,operational,strategicreasons.
PursuanttotheTCC,liquidationshallbeconductedbytheBoardofDirectorsunlessliquidatorisappointedbythearticlesofassociationoraGeneralAssemblyresolution.Liquidatormaybeashareholderoranyotherthirdparty.AtleastoneoftheliquidatorhavingtherepresentativeauthorityshallbeaTurkishcitizenandresideinTurkey.
Duringtheliquidationprocess,companyshallmaintainitscorporateentitytotheextentrequiredbytheliquidationactivities,howeverthephrase“underliquidation”shallbeaddedtothetradenameofthecompanyuntilthecompletionoftheliquidationprocedure.
Theremainingassetsofthecompany,afterpaymentofitsdebtsandtherefundingofthesharevaluetotheshareholdersarecompleted,shallbedividedamongtheshareholders,inproportiontotheircontributiontothecompany’scapitalandprivilegesunlessotherwiseisstipulatedunderthearticlesofassociation.Distributionmayonlyberealizedafterthesixmonths(6)waiting
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period,tobecalculatedasofthedatethatthelastannouncementtothecreditorsismadeattheTurkishTradeRegistryGazette,ends.Thecompletionofliquidationmaytakebetween6monthsto12monthsdependingonthecurrentstructureofthecompany(i.e.debts,ongoinglitigationsetc.).
4.4 Limited Liability Company (LLC)
RelevantexplanationsundertheJSCsshallbetakenintoaccountforthemattersthatarenotaddressedunderthissection.
Number of shareholdersAn LLC may be formed by at least one shareholder and suchshareholders may be real persons or legal entities as well asresidentsor non-residents.Numberof shareholders are regulatedtobemaximum50.
Shareholders’ liabilityLLCshareholdersareliabletothecompanyonlywiththeamountofsubscribedcapitalandinproportiontotheircapitalcontributionwithregardstothirdpartyreceivables.LLCshareholdersarejointlyandseverallyliableforpublicreceivablessuchastaxeswiththeirown/personal assets. Such liability occurs only if the tax office cannotcollectoutstandingtaxesfromtheassetsofthecompany.
Articles of associationThearticlesofassociationofLLCsdonothaveanydifferentcharacteristicthantheJSC’s,otherthantheamountofcapital,numberofshareholders,andnamesofcorporatebodies.
Share CapitalTheminimumcapitalrequiredfortheincorporationofLLCisTL10.000-.ItemsthatcanbecontributedascapitalarethesamewiththeJSCs.
Bodies of the Company
• GeneralAssembly• BoardofManagers:Boardofmanagersisthemainbodywhich
ensuresthemanagementandrepresentationoftheLLCs.
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4.5 Other Forms of Doing Business in Turkey
Liaison / Representative OfficesAliaisonofficemaybeestablishedinTurkeywiththepermissionoftheMinistryofEconomyIncentiveAdministrationandForeignInvestmentDepartment(FID).Underthepresentregulations,aliaisonofficeisnotallowedtobeengagedinanycommercialactivity.Inotherwords,itcannotbeauthorizedtodobusinessandtoconcludecontracts.Therefore,forinstance,aliaisonofficecannotissueinvoicesorproformainvoices.Allexpensesoftheliaisonofficeincurredinrelationtorunningtheoffice(includingthesalaries)shouldbemetwiththeimportofforeigncurrencysentbytheparentcompany.Underthepresentregulations,regardlessofnationality,remunerationstotheemployeesoftheliaisonofficeshallbeexemptedfromTurkishincometaxaslongasthepaymentofthesalariesisfromaforeignsource.
InaccordancewiththelatestamendmentsintheCommuniquérelatedtoDirectForeignInvestmentCode,Liaisonofficesaregrantedwithmaximum3yearspermissionuponfirstapplication.
BranchUnderTurkishlaw,aBranchOfficeactsandoperatesinthenameandonbehalfoftheheadoffice(headquarters)ofthecompanywhichtheyareassociatedwith.Accordingly,rightsandobligationsstemmingfromactionsandoperationsbelongtotheparentcompanybutnottheBranch.
ThedaytodayactivityofaBranchOfficeisrunbyitsmanagerwhoactsonapowerofattorneygrantedtohim/herbytheparentcompany.
IncaseaBranchOfficeisrequestedtobeincorporatedbyaforeignfirm,thenapersonwhoisresidingwithinTurkeyshallbeappointedasarepresentative.
Thebranchwillnothaveseparatearticlesofassociationbuttheparentcompany'sarticlesofassociationwillbeapplicable.TheTurkishBranch,therefore,willnothaveaseparatelegalpersonality.
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Attheoperationalstage,itmaybemorebureaucratictorunabranchsincethechangeorauthorizationofthebranchrepresentative;increaseofcapitaletc.requiresparent‘sdecisions.Inotherwords,thebranchwillnothaveaseparateshareholders’assembly,whichwilltaketherelatedresolutionsfortheoperationsofthecompany,buttheseshouldbeexecutedbytheboardoftheparentcompanyoftheTurkishbranch.
Thebranchesaresubjecttoofficialliquidationprocess.Additionally,therewillalsobetaxandaccountingrequirementstobefulfilledundertheTurkishLaw.Intermsofcorporatetaxliability,branchissubjecttosameratesasasubsidiarycompany.
4.6. General Requirements for Joint Stock and Limited Liability Companies
Company with Sole ShareholderCapitalcompaniessuchasjointstockcompaniesandlimitedliabilitycompaniesmaybeestablishedwithasoleshareholder.Furthermore,theaforesaidcompanieswhicharealreadyestablishedshallbeabletodecreasethecurrentnumberofshareholderstooneshareholderthroughsharetransfers.
Moment of EstablishmentThemomentofapprovalofarticlesofassociationbythenotarypublicorsigningthearticlesofassociationbeforethetraderegistryofficerbythecompanyfoundersshallbedeemedastheestablishmentmomentofthecompany.ThemomentofacquirementoflegalpersonalitywillbethemomentofregistrationwiththeTradeRegistry.
Web SiteCompaniesthataresubjecttoindependentauditshallberequiredtoestablishawebsitewithin3monthsasoftheirregistrationatthetraderegistryandtoallocateapartofsuchwebsiteforpublishingthelegallyrequiredannouncements.
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Prohibition to Become Indebted to the CompanyTheshareholdersshallnotbeindebtedtothecompanyunlessthefollowingconditionsaremet.
Shareholdersmaybeindebtedtothecompanyprovidedthattheydonothaveanyduedebtsarisingfromcapitalsubscription,andthetotalprofitofthecompanyalongwiththefreereservesareadequatetocoverthepreviousyear’slosses.
Group of Companies“GroupofCompanies”and“ControllingCompany”conceptsareregulatedundertheTCC.
AsperArticle195oftheTCC,ifacompanydirectlyorindirectly;
a) controlsthemajorityofvotingrights,b) isentitledtoappointnumberofmembers,whichwouldsuffice
toestablishamajorityinthemanagementbody,c) hasthecapacitytoexercisemajorityvotingrightsonitsownor
withothershareholdersarisingoutofacontractualrelationshipenteredintowiththesame;or
d) controlsanothercorporationviaacontractorinanyothermanner,
itqualifiesasa“ControllingCompany”whereastheothercompanyis“Affiliate”.
IftheprincipalplaceofbusinessofoneofthesecompaniesislocatedinTurkey,thesecompaniesforma“Group”andtheTCCputsspecialresponsibilitiesupontheControllingCompanies(i.e.illegaluseofcontrol).
TheBoDoftheAffiliatemustprepareanaffiliatereportwithinthefirstthreemonthsoftheyearregardingthetransactionsconductedwiththeControllingCompany.Thisreportshallbepresentedattheannualordinarygeneralassemblyofthecompany.
Independent AuditorUndertheTCC,companiesarenotobligedtohaveaninternalauditorasastatutoryorgan.CompaniestobesubjecttoindependentauditaredeterminedbytheCouncilofMinisters.
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IndependentauditinvolvestheinspectiontoensurethecompliancewiththeTurkishAccountingStandards,LawandprovisionsoftheArticlesofAssociationregardingthefinancialstatements.FinancialstatementsandannualactivityreportsoftheBoardofDirectorsthataresubjecttoaudithoweverfailedtobeauditedareconsideredtobenon-existent.Theauditorshallbeappointedbythegeneralassemblywhereasthegroupauditorshallbeappointedbythegeneralassemblyoftheparentcompany.TherequirementtoappointauditorhasbeeninforcesinceJanuary2013inaccordancewiththeimplementationofthenewTCC.
Independent Audit Requirement under the New Commercial CodeAspertheAmendmenttotheCouncilofMinistersDecisionRegardingtheDeterminationofCompaniesBeingSubjecttoIndependentAuditnumbered2016/8549publishedintheOfficialGazettedated09.03.2016tobeeffectiveasof01.01.2016,companiesmustfulfilltwoofthefollowingthreecriteriaintwoconsecutivefinancialyear,inordertobesubjecttoindependentaudit:
• TotalassetsofTL40.000.000andabove• AnnualnetsalesrevenueofTL80.000.000andabove• 200employeesandabove
Companiesoperatinginspecificfieldsarealsosubjecttoindependentauditwithoutconsideringtheabovementionedgeneralcriterion.ThosecompaniesaremainlytheonesoperatinginregulatedmarketssuchasEnergyMarket,ElectricityMarket,PetroleumMarket,Insurance,CMB,BRSAetc.
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5. Corporate TaxationNewCorporateIncomeTaxCode(LawNr:5520)hasbeenannouncedintheOfficialGazettedated21June2006andenforcedasof1January2006.TheformerCorporateIncomeTaxCode(LawNr:5422)dated3June1949anditsannexeswereabolishedthroughenforcementofNewCorporateIncomeTaxCode.
NewCorporateIncomeTaxCodebroughtsignificantchangesintheexistingtaximplementationsandalsointroducedsomenewconceptsintoTurkishtaxlegislation.ByvirtueoftheprovisionsofthenewCode,Turkishcorporatetaxlegislationhasbecomemoreclearandobjectivewithrespecttoparticularanti-avoidanceregulations,suchasthincapitalization”and“transferpricing”inlinewiththeinternationaltaxliterature.Ontheotherhand,thenewCodeintroducedsomenewconceptsintoTurkishtaxlegislationsuchas“ControlledForeignCorporation”,“TaxHeavens”.
5.1 Taxes on Corporate Income
Companies Subject to TaxThefollowingentitiesaresubjecttotaxesonincomeleviedundertheCorporateIncomeTaxCode,No.5520
(i) CompanieswithShareCapital:Jointstockcompanies(JSC),limitedliabilitycompanies(LLC)andlimitedpartnershipsdividedintosharesandsimilarforeigncompaniesincorporatedunderTurkishCommercialCodeareconsideredascapitalcompanies.FundswhicharesubjecttoregulationandsupervisionofCapitalMarketsBoardandsimilarforeignfundsarealsoincludedhere.
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(ii) Co-operatives:Co-operativesfoundedunderCo-operativesLaworunderitsspecialregulationsandsimilarforeignco-operatives
(iii) StateEconomicEnterprises:Commercial,industrialandagriculturalorganizationsotherthan(i)and(ii)above,whichareinvolvedincontinuousbusinessactivityandownedbyoraffiliatedtocentralandlocaladministrations,municipalities,andotherpublicorganizations.
(iv) Commercial,industrialandagriculturalorganizationsotherthan(i)and(ii)aboveownedbyoraffiliatedtoforeignstates,foreignstateadministrationsandorganizationsarealsotreatedasstateeconomicenterprises.
(v) Economicentitiesownedbyassociationsandcharities:Commercial,industrialandagriculturalorganizationsotherthan(i)and(ii)above,whichareinvolvedincontinuousbusinessactivityandownedbyoraffiliatedtoassociationsandcharitiesandsimilarforeignenterprisesareeconomicentitiesrunbyfoundationsorassociations.Unionsaretreatedasassociationandcongregationsaretreatedasfoundation.
(vi) JointVentures(JV)establishedbetweenentitiesorindividualstorenderworkwiththeobjectiveofsharingprofitsunderthejointresponsibilityaresubjecttocorporateincometax.
Stateeconomicenterprisesandeconomicentitiesrunbyfoundationsandassociations,whetherornottheyhavea)legalpersonality,b)independentaccountingsystems,orc)sharecapitalord)ownbusinessplacesandregardlessofwhethertheyareformedforthepurposesofprofit,aresubjecttotaxesonincome.
TerritorialityTaxpayerswhoselegalorbusinessseatsarelocatedinTurkey,aresubjecttocorporateincometaxontheirworldwideincome.IncaseswherebothofthelegalandbusinessseatsarenotlocatedinTurkey,theentityisqualifiedasnon-residentinTurkeyandwillbesubjecttotaxonlyonTurkish-sourcedincome.
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ThelegalseatisdeterminedintheArticlesofAssociationandthebusinessseatistheplace,wherebusinessactivitiesareconcentrated.
Taxable IncomeCorporateincometaxiscomputedthroughmultiplicationofcorporateincometaxrateandthefiscalprofitsgeneratedwithinafiscalyear.Fiscalprofits(i.e.corporateincometaxbase)iscalculatedbyadditionofnon-deductibleitemstonetbusinessprofitsandapplicationofexemptionsandcarried-forwardlossfigurestothebusinessprofits.
5.2 Allowable Deductions
Thenetbusinessincomeisdeterminedthroughdeductionofbusiness-relatedexpensesfromthegrossincomegeneratedwithinafiscalyear.Asaprincipalrule,theexpensesincurredforthepurposeofgeneratingandmaintainingbusinessincomearetreatedasdeductiblefortaxpurposes.Apartfromthis,otherparticulardeductibleexpensesarelisted,butnotlimitedtobelow,:
• Managementfeecharges(incompliancewithTurkishtransferpricingregulations)toTurkishcompaniesbyrelatedparties(Pleaserefertosection7fordetailedinformation).
• Taxesimposedongoods,suchasrealestatetax,stamptax,registrationdutiesandmunicipalfees
• Royaltypaymentsfortheuseofpatents,copyrights,know-howandtrademarksprovidedthattheyaredeterminedonanarm’slengthbasis
• Aspecificbaddebtreserveisallowed,where:
(a) ThedisputeonthereceivableisunderreviewbytheCourts,or(b) Thereceivablehasnotbeenpaidafteraformalnotarizedor
writtenrequesttopay,(c) Specialreserverequirementsfornon-performingloansdefined
intheBankingLawandrelatedregulations.
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• Business-relatedrepresentationandentertainmentexpenses
• Travelexpenses(includingmealsandlodging)aredeductibleiftheyareincurredforbusinesspurposesandarereasonableascomparedwiththeimportanceofbusiness.
• Donationstogovernmentalinstitutions,municipalities,villages,associationsthatpursuethepublicinterestandfoundationsundertheCivilCodewithataxexemptstatusgrantedbytheGovernment,andorganizationsengagedwithscientificresearchanddevelopmentaredeductible,upto5%oftaxableincomeoftherelevantyear
• Allexpensesanddonationsmadefortheconstructionofschools,healthpremises,dormitories,nurseryschools,resthomes,rehabilitationcenters,andallkindofdonationsandgiftsmadetothesecorporationsfortheconstructionofthementionedpremisesorforthecontinuanceoftheactivitiesoftheexistingpremises
• Donationsmadeincashorin-kindviaPrimeMinistryuponreceiptforthenaturaldisastersdecidedtobehelpedbyBoardofMinisters
• Sponsorshipexpensesforamateursportactivitiesdeterminedbytherelevantlawsand50%ofsponsorshipexpensesfortheprofessionalsportactivities
• Employeesalariesandpaymenttothechairman,directorsandauditorsaredeductible.Paymentsmaybeintheformofallowances,fees,premiumsandbonuses.Paymentsinkindarealsotaxdeductiblebutaredeemedassalaryandtaxedassuch.
• Interestcosts;eitherasadirectchargeorasdepreciationexpense,whencapitalized
• Undocumentedexpensesupto0.5%ofthegrossincomerealizedinforeigncurrencyrelatedtoexport,constructionandmaintenanceservicesperformedoutsideofTurkey,andinternationaltransportations
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• FeespaidtotheEmployer’sUnionaredeductiblewiththeconditionthatmonthlyfeespaidshouldnotexceedthedailytotalpaymentofsalaries
Deduction of the Venture Capital FundTheamountsallocatedasaventurecapitalfundwillbedeductedfromtaxableincomestartingfrom01.01.2013.
Conditionsforthededuction;
• Theamountoffundsallocatedfortheventurecapitalshouldnotexceed10%ofthedeclaredincome,andthetotalamountofthefundshouldnotexceed20%ofthepaidincapital.(Bothconditionsmustbesatisfied)
• InvestmentshouldbemadeintoventurecapitalinvestmentfundsorpartnershipswhichareestablishedorwillbeestablishedinTurkeyandsubjecttoregulationandsupervisionofCapitalMarketBoarduntiltheendoftheyearoffundsareallocated.
• Theamountofallocatedfundsshouldbeshownonthecorporatetaxreturnoftherelevantyearseparately.
Deduction for services provided from Turkey to non-resident corporations and individuals TheincomederivedfromtheservicesrenderedinTurkeytonon-residentswhicharesolelybenefitedoutofTurkeymaybesubjecttoa50%deductionfromcorporatetaxbase.Incasethereisnosufficientcorporatetaxbaseforthededuction,theamountwhichisnotdeductedfromthecorporateincometaxbasecannotbecarriedforward.
Theserviceswithinthecontextofthisdeductionare:
• Architectural,engineering,design,software,medicalreporting,bookkeeping,datastorageservicesandcallcenterservices
• Educationandhealthserviceswhicharesubjecttorelevantministry’spermissionandsupervision.
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Incentive for cash capital increases Effectivefrom01.07.2015,stockcorporations(exceptforthoseoperateinfinance,bankingandinsurancesectors)willbeabletodeduct50%oftheinteresttobecalculatedoverthecashcapitalincreasesregisteredinTradeRegistryfromtheirtaxableincome.Thedeductibleinterestamountwillbecalculatedbyusingthelatest“annualweightedaverageinterestrateappliedoverthe“TRY”denominatedcommercialloansgrantedbybanks”tobeannouncedbyTurkishCentralBankandfortheperiodfromthecapitalincreasetothelastdayofthefinancialyear.
5.3 Disallowable Deductions
Thenon-deductibleexpensesarealsoseparatelydeterminedinthetaxlaws,butnotlimitedtobelow:
Disguised Profit Distributions through Transfer PricingIfataxpayerentityconductstransactionswithrelatedparties,wherethepricesarenotsetinaccordancewitharm’slengthprinciple,therelatedprofitsareconsideredtobedistributedinadisguisedmannerthroughtransferpricing.Suchdisguisedprofitdistributionsthroughtransferpricingarenottreatedastaxdeductibleforcorporateincometaxpurposes.(Pleaserefertosection7forfurtherinformation).
Cost AllocationInterest,commissionsetc.paidtoaparentcompanyorbranchesoutsideTurkeyforpurchasesandsalescarriedoutonbehalfofanon-residentcompanyinTurkeyandamountsallocatedtomeettheexpensesandlossesoftheparentcompanyanditsbranchesoutsideTurkey,arenottaxdeductiblewiththeexceptionsof;
• amountsrelatedtothegenerationandcontinuationofincomeinTurkeyandallocatedinlinewiththecostallocationkeysdeterminedinaccordancewiththearm’slengthprinciple,and
• travelexpensesincurredbyauthorizedpersonssentfromforeigncountriesinconnectionwiththeauditingandsupervisionofabranchinTurkey.
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Thin Capital Interest,foreignexchangelossesandothersimilarexpensesrelatedtotheborrowingsfromrelatedpartieswhichareregardedasthincapitalaretreatedasnon-deductibleexpensesforcorporateincometaxpurposes.
TheCorporateTaxLawimposesaspecificdebt/equityratioof3:1forconsiderationofthincapital.Iftheborrowingobtaineddirectlyorindirectlyfromshareholdersorpersonsrelatedtoshareholdersexceedthreetimestheshareholders’equityofthecompanyatanytimeduringtherelevantyear,theexceedingportionoftheborrowingwillbetreatedasthincapital.
Iftheshareholder(orrelatedparty)providingtheloanisqualifiedasabankorafinancialinstitutionwhichoperatesinlinewithitsownfieldofactivity,thenthe50%oftheborrowingsobtainedfromthesewillbetakenintoconsiderationinthecalculationofdebt/equityratio-hencetheallowabledebt/equityratiowillbeincreasedto6:1.
However,borrowingsobtainedfromtheintra-groupcreditcompanieswhichareonlyfinancingtherelevantgroupcompaniescannotbetakenintoconsiderationas50%inthecalculationofdebt/equityratio.
Loansmentionedbelow(butnotlimitedto)willnotbequalifiedasthincapital;
• Loansobtainedfrom3rdpartiesagainstnon-cashguaranteesprovidedbyshareholdersorthepersonsrelatedtoshareholders,
• Loansobtainedbycompanies’subsidiaries,shareholdersorrelatedpersonsfromthebanksandfinancialinstitutionsorfromthestockmarketsthataretransferredwhollyorpartiallytothecompanywiththesametermandconditions.
Excludingforeignexchangedifferences,theinterestspaidorcalculatedandothersimilarexpensesoverthethincapital(thatexceedsthe3:1debtequityratio)istreatedasdividenddistributedtoshareholdersasofthelastdayoftheaccountingperiodinwhichthincapitalconditionsaresatisfied.
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Financial Expense RestrictionEffectivefrom01.01.2013,acertainpercentageofthefinancialexpenses(i.e.interest,commission)incurredovertheborrowingsfromexternalsourcesexceedingtheshareholder’sequityofaTurkishcompanymayberegardedasdisallowableexpense.TheCouncilofMinistersisauthorizedtodeterminethepercentageupto10%andre-determinetheratepersectors.Thecreditinstitutions,financialinstitutions,leasing,factoringandfinancecompaniesareexcludedfromthisapplication.SincenoratehasbeendeterminedbytheCouncil,thelegislationisnotapplicableyet.
5.4 Exemptions
Exemptionsareseparatelydeterminedinthetaxlaws,butnotlimitedtobelow:
Dividends – domestic participation exemptionDividendsreceivedbyaTurkishcompanyandventurecapitalinvestmentfunds/partnershipsfromaresidentcorporatetaxpayerarenotsubjecttocorporateincometax.Theexemptionisalsoavailablefornon-residentcompaniestotheextentthatthedividendsareattributabletoaTurkishpermanentestablishmentorbranch.Dividendsreceivedbythecompaniesfromfounder’ssharesthatgiveaparticipationrighttotheprofitofanotherresidentcompanyandfromotherredeemedsharesarealsoexemptfromcorporatetaxation.Capitalgainsarenotcoveredunderthisexemption.
Dividends – foreign participation exemption Dividendsreceivedfromnon-residentsubsidiariesareexemptfromcorporatetaxuponprovisionofbelowconditionstogether. (i) theparticipationrateshouldbeatleast10%,(ii) theparticipationshouldhavebeenheldatleastfor1year,(iii) overalltaxburdenoverthesedividendsmustbeatleast15%,
and (iv) gainshouldbetransferredtoTurkeyuntilthedateoffilingof
corporatetaxreturnofthefiscalyearinwhichtherelevantgainisobtained.
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Capitalgainsupondisposalofsharesinforeignparticipationsarenotcoveredunderthisexemption.Underthesameconditions,foreignbranchprofitsmayalsobeeligibleforthisexemption.
Capital gains exemption on the disposal of participation sharesForeign participation shares
Thecapitalgainsderivedbyaresidentcompanyfromthedisposalofthesharesofparticipations/subsidiarieswhoselegalandbusinesscentersarelocatedoutofTurkey(i.e.sharesoftheforeignsubsidiaries)areexemptedfromcorporatetax,whereallthefollowingconditionsaresatisfiedalltogether;
• Atleast75%oftotalassetsoftheTurkishcompany,otherthancashequivalents,shouldbecomposedofparticipationinforeignsubsidiariessharesatleastforanuninterruptedperiodof1yearasofthedateofthegainobtained,
• ATurkishjointstockcompanymustholdatleast10%ofsharesoftheseforeignsubsidiaries,
• Theforeignsubsidiarymustbeacompanyinthestatus/natureofajointstockoralimitedliabilitycompany,
• Thesharesoftheforeignsubsidiarymustbeheldbytheresidentjointstockcompanyatleastfor2fullyears.
Domestic participation shares 75%ofcapitalgainsarisingfromthedisposalofimmovablepropertiesandparticipationshares,founder’sshares,pre-emptiverightsandredeemedsharesinothercompaniesareexemptfromthecorporatetax.Majorrequirementsare(i)assetssoldshouldhavebeenheldatleastfortwoyears;(ii)theexemptionisappliedintheyearinwhichsaleoccurredandcapitalgainbenefitfromtheexemptionshouldbekeptinaspecialreserveaccountatleastforfiveyears(iii)salesrevenueshouldbecollecteduntiltheendofsecondcalendaryearfollowingsaleyear(iv)exemptedamountcannotbetransferredtoanotheraccount(otherthanpaid-upcapital)orwithdrawnfromcompanywithinfiveyears.Inthecasethatcompanyisliquidatedwithinthese5years’time,theexemptedamountshouldbesubjectedtocorporatetax.
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Exemption for the gains derived from non-resident place of business and legal representative Gainsderivedbythecompaniesthroughtheplaceofbusinessorlegalrepresentativesabroadareexemptedfromcorporatetaxuponfulfillmentofcertainconditions.Theseare,generally,amongothers,(i)gainsshouldbesubjecttoatleast15%taxburdeninaccordancewiththetaxlegislationoftherelevantcountries,(ii)gainsshouldbetransferredtoTurkeyuntilthedateofthefilingofthecorporatetaxreturnofthefiscalyearinwhichtherelevantgainisobtained.
Exemption on Emission PremiumsNewshareissuepremiums(Agio),whichrepresentthedifferencebetweenthenominalandsalevaluesofsharesissuedbyjoint-stockcompanies,areexemptfromcorporationtax.
Exemption on Off-shore Construction and Technical Services IncomeOffshoreincomefromconstruction,repair,maintenanceandtechnicalservicesisexemptfromcorporatetax.
Exemption on Portfolio Management IncomePortfoliomanagementincomebysecuritiesinvestmentfundsandcompanies,theprofitsofrealestateinvestmentfundsandcompanies;venturecapitalinvestmentfundsandcompanies;pension,housingandwealthfinancingfunds;andtheportfoliomanagementprofitsobtainedbyinvestmentfundsorcompanieswhichhaveportfoliobasedonthegoldandpreciousmetalsdealinginexchangemarketsfoundedinTurkeyareexemptfromcorporatetax. Exemption on Education Services IncomeProfitsderivedfromeducationandrehabilitationservicesareexemptfromcorporatetaxforaperiodof5yearsstartingfromcommencementofsuchbusinessesundercertainconditions.
Investment Incentive AllowanceInvestmentIncentiveAllowanceisamechanismwhichenablestaxpayerstodeductsomeoftheireligibleinvestmentexpendituresagainsttheirfiscalprofits.Intheabsenceofanyfiscalprofits,the
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carriedforwardinvestmentallowancewasbeingallowedtobecarriedforwardforutilizationagainstthefuturefiscalprofitswithoutanytimelimitation.
Exemption for the income derived from industrial property 50%oftheincomederivedfromtheleasing,transfer,sale,massproductioninTurkeyandmarketingoftheinventionsofthecorporatetaxpayers,whichhavepatentorutilitymodelregistration,andwhichresultfromresearch,development,innovationandsoftwareactivitiescarriedoutinTurkeyisexemptedfromcorporatetaxasfrom01.01.2015,providedthatcertainconditionsaresatisfied.Iftheinventionisusedinthemanufacturingofaproduct,50%oftheincomederivedfromthesaleofthisproduct(limitedtotheportionofincomeattributabletothepatentedinnovation)canalsobetaxexempt.
Regional Headquarters TheincomeoftheRegionalHeadquarters,establishedupontheapprovalobtainedfromMinistryofFinance,fulfillingtheconditionsbelowarenotsubjecttoCorporateIncomeTaxinTurkey:
- TheexpensesoftheHeadquartershallbecoveredbythenon-residentcorporations
- TheexpensesshallnotbereflectedintotheaccountsofanentityresidesinTurkey
5.5 Corporate Taxation
Computation of Corporate Income TaxThecorporateincometaxrateis20%.Corporateincometaxiscalculatedoverannualfiscalprofitsofthetaxpayerandeachtaxpayeristaxedonstand-alonebasis.TaxgroupingisnotallowedinTurkey.
Advance Corporate Income TaxAllresidentandnon-residentcompanies,whogeneratecommercialorprofessionalincomeandwhoareobligedtofileannualcorporateincometaxreturn,arealsorequiredtofileadvancecorporateincometaxreturnandbesubjectedtocorporatetaxat20%onthebasisoftheiractualquarterlyprofits.
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Advancecorporateincometaxreturnispaidduringtheyearisimputableagainstthefinaltaxescalculatedontheannualcorporateincometaxreturn.Anyexcesspaymentmaybeoffsetagainstothertaxliabilities,andintheabsenceofsuchliabilitiesitisrefundableupontheclaimwithinoneyear.
Tax lossesAlossincurredinanyfinancialyearcanbecarried-forwardfor5yearsagainstfutureprofitsforpurposesofcorporationtax.Taxlossescannotbecarriedback.
Tax Returns and PaymentsThenormalfiscalyear-endisDecember31st.Wherethecalendaryearisnotappropriateduetothenatureofbusiness,taxpayersmayoptanalternativeperiodtodeterminetheirfiscalyearuponthepermissiontobeobtainedfromtheMinistryofFinance.
Annualcorporateincometaxreturnsmustbefiled,withintheperiodfrom1stto25thdaysofthefourthmonthfollowingtheendofthefiscalyearandcorporateincometaxispayable(aftertheoffsetofACITandotheravailabletaxcredits)untiltheendofthemonthinwhichthetaxreturnisfiled.
Advancecorporateincometaxreturnmustbefiledbythe14thofthesecondmonthfollowingthequarterendandispayableonthe17thofthesamemonth.
Withholdingtaxondividendsmustbefiledbythe23rdofthemonthfollowingthedividendpaymentstoshareholdersandpaidon26thofthesamemonth.
Advance Profit DistributionLimitedliabilityandjointstockcompaniesincorporatedinaccordancewiththeTurkishCommercialCodemaydistributeprofitsreportedintheirinterim/quarterlyfinancialstatementsasperNewTurkishCommercialCode.
Inordertodistributeadvanceprofitsduringtheyear,companiesshouldreportprofitsduringfirst,secondandthirdadvancetaxperiodsandtakeadecisioninthegeneralassembly.Itisenvisaged
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thatupto50%oftherelatedperiods’profitscanbesubjecttodistributionaftertheoffsetoftaxesandpreviousyears’lossesandprovisionsforlegalreserves.
Incasetheadvanceprofitwhichisdistributedduringadvancecorporatetaxquartersexceedsthefinaldistributabledividendamount,theexceedingamountswillbesettledfromthelegalreserves,ifany.Also,incasetheamountoflegalreservesisnotenoughtooffsetthedistributedadvancedividendamount,theoverpaidamountswillberenderedtothecompanybyshareholders.Companiesareobligedtooffsetthedistributedadvanceprofitstotherelevantyear-endprofitbeforemakinganyfurtherdividenddistribution.
Withholding tax on dividendsWhendividendsarepaidout,thecompanyisrequiredtomakeawithholdingfromthedividends.Theratefordividendwithholdingtaxis15%.DividendspaidtoaTurkishresidententity(i.e.Turkishholdingcompany)oraTurkishbranchofaforeigncompanyisnotsubjecttothewithholdingtax.Althoughthelocalratefordividendrepatriationisdeterminedas15%,theratecanbereducedthroughtaxtreatyprovisions.
Withholding tax on branch profitsTherewillbeawithholdingonthebranchprofitsofnon-residentcompaniesuponremittanceofsuchprofitstotheheadquarters.Therateofwithholdingtaxis15%whichisappliedonthedistributablebranchprofitsafterthedeductionofcorporateincometax.
Controlled Foreign Corporation (CFC)Theprofitsofforeigncompaniescontrolledbytaxresidentcompaniesorpersonsbymeansofthedirectorindirectandseparateorjointownershipofatleast50%ofthecapital,dividendsorvotingrightsaresubjecttocorporateincometaxinTurkeyirrespectiveofwhetherdistributedornot,ifallofthefollowingconditionsaremet:
• Atleast25%ofthegrossrevenueofCFCmustbecomposedofpassiveincomesuchasinterest,dividend,rent,licensefee,securitysalesgainetc.,
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• TheCFCshouldbesubjecttoataxburdenlowerthan10%overitscommercialincomeinitscountry,
• TheCFC’stotalgrossrevenueintherelevantyearshouldexceedtheforeigncurrencyequivalentofTRY100,000.
Thehighestrateownedatanytimewithintherelevantfiscalyearshouldbetakenintoconsiderationas“ControlRate”.IfCFCdistributesdividendoveritsprofit,dividendsthathasalreadybeentaxedinTurkeywillnotbesubjecttoanyadditionaltaxinTurkey.However,profitswhichhasnotbeenpreviouslytaxedinTurkeywillbesubjecttocorporatetaxwhendistributed.TaxespaidbyCFCoveritsrelatedprofitinforeigncountrieswillbeoffsetagainstthecorporateincometaxcalculatedoverthisprofitinTurkey.
Foreign Tax CreditTaxespaidabroadonprofitstransferredbacktoTurkeymaybecreditedagainstcorporateincometax,butonlytotheextentthattheydonotexceedlocalcorporateincometaxcalculatedthereon.
Withholding Taxes Applicable on Certain PaymentsIngeneral,theTurkishTaxationSystemhasthefollowingtypesofwithholdingtaxesapplicabletocorporations.
Multi-year Construction or Repair worksProgresspaymentsfortheconstructionandrepairworkslastingmorethanoneyeararesubjectto3%withholding.Suchconstructionworksistaxedoncompletedprojectbasis,andtheamountofwithholdingtaxespaidonprogresspaymentsaredeductedfromthetaxdueattheendoftheconstruction.
Payments to Non-resident EntitiesThefollowingpaymentstonon-residentcompaniesaresubjecttowithholdingtax;
• Progresspaymentsfortheconstructionandrepairworkslastingmorethanonecalendaryearat3%
• Professionalfeesat20%,• Rentalsandroyaltiesat20%,• Dividendsandinterestsat15%,• Salesproceedsofcopyrights,patents,trademarksetc.at20%.
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Theratesapplicableforpaymentstonon-residentscanbeseeninAppendixIVindetail.
Withholdingtaxwillnotbeappliedtoprincipal,interestanddividendpaymentsfortheborrowingsobtainedfromforeignfinancialinstitutionsandalsoinsuranceandreinsurancepayments.
WithholdingtaxesoverpaymentsmadetoCFCsinlinewiththeaboveregulationcanbeoffsetagainstthecorporateincometaxcalculatedoverCFC’sprofitincludedinthetaxreturninTurkey.
Payments to Tax HeavensAllsortsofpaymentsmadetotheentities(includingbusinessplacesofresidentcompaniesintherelevantcountries)thatareestablishedoroperatinginthecountrieswhichareannouncedbytheCouncilofMinistersbytakingintoconsiderationwhetherthereisanunfairtaxcompetitionornotandtheexchangeofinformation,wouldbesubjecttowithholdingtaxatarateof30%untilanewrateisdeterminedbytheCouncilofMinistersirrespectiveofthefactthat;
• Thesaidpaymentsareinthescopeoftaxornotor,• Theentitythatreceivesthepaymentsisataxpayerornot.
Ontheotherhand,theCouncilofMinistershasauthoritytoamendtheabovementionedratewithincertainlimitsandmightuseitsauthorityforeachsortofpaymentsorforeachlineofactivitiesandsectorsseparately.
Payments to Resident CompaniesThefollowingpaymentstoresidentcompaniesaresubjecttowithholdingtax:
• Interestonalltypesofbondsandbills• Capitalgainsderivedfromthesaleofbondsandbillsissuedon
orafter1.1.2006andfromthesaleofstocksquotedinIstanbulStockExchange(ISE)thatarepurchasedonorafter1.1.2006andheldlessthan1year.
• Interestonbankdepositsandrepoincome..
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Alternate Tax BasisAnon-residentcompanywhichdoesnothavecommercialincomegeneratedfromabusinessinTurkeyandpayswithholdingtaxatsourcemayfileacorporateincometaxreturnshowinggrossrevenueandexpensesandcalculatingthetaxespayableonnetincome.Ifthetaxcomputedislessthanthetaxdeductedbywithholding,thenaclaimmaybemadetorefundtheexcesstaxespaid.Otherwise,withholdingtaxesrepresentthefinaltaxationforthenon-residentcompanies.
Statute of LimitationAtaxreturnisnotsubjecttoquestionoradditionalassessmentaftertheendofthefifthyearfollowingtheyearthetaxliabilitywasincurred.Thisperiodcannotbeprolonged.However,thetimetakenforanadministrativeorcourtproceedingisnotcountedinthefiveyears.
5.6 Bookkeeping Requirements
BasedonTurkishTaxProceduralCode,Companieswhokeeptheirrecordspertothebalancesheetmethodshouldmaintainbelowlegalbooks:
• Journalledger• Generalledger• Inventoryledger
Belowarethecertaincriticalissuesforlegalbooksthatmentionedinthetaxlaws:
• Abovelegalbooksaresubjectedtopublicnotarycertificationprocedure.
• LegalbooksmustbekeptinTurkish(duallanguagecanalsobeused),intermsoftheTurkishLira,andinlinewiththeTurkishUniformChartofAccount.
• Legalbooksshouldbeprintedashardcopiesifthecompanyisnotregisteredwithe-invoicing/e-ledgersystems.
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E-invoice,e-ledgerande-archivesystemshasrecentlybeenintroducedbytheTurkishRevenueAdministrationtoadopttheelectronictransformationintotaxenvironment.Throughthesesystems,companieshavetheopportunitytocreate,storeandsubmittheirinvoices,journalsandledgerselectronically.Implementationofe-invoice,e-ledgerande-archiveareobligatedforcertaintaxpayers:
• E-archive:Taxpayerswhichsellproductsandservicesoverinternetandhavingagrosssalesrevenueof5millionTLandhigherin2014andonwardsareobligedtoimplemente-archiveapplication.
• E-invoiceande-ledger:LubeoillicensedfirmswithinthescopeofPetroleumMarketLaw,producers,constructorsandimportersoftheproducts(coladrinks,alcoholicdrinksandtobaccoproducts)includedthe(III)numberedlistattachedtotheSpecialConsumptionTaxLaw,taxpayershavingagrosssalesrevenueof10millionTLandhigherin2014andonwardsareobligedtoimplemente-invoiceande-ledgerapplication.
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6. Settlement and Tax Case
Legalremedies,whichtaxpayersmayresorttoconcerningthetaxesandpenaltiesassessedagainstthem,areregulatedundertheTaxProceduresCodeNo.213.
Remediesthatmayberestoredbythetaxpayersagainstthetax/penaltyassessmentsareasfollows;
• Settlement• Directlegalaction(TaxCase)• Legalactionincasenosettlementisreached.
6.1 Settlement
Taxpayersmayapplytosettlementagainstthetax/penaltynotificationswithin30daysfollowingthenoticeofthetax/penaltyassessment.
Settlementapplicationsshouldbeaddressedtoauthorizedsettlementcommitteewhichwouldbedeterminedinaccordancewiththetaxamountassessedbythetaxoffice.
Settlementapplicationwouldbeevaluatedbytheauthorizedcommissionandthesettlementdatewouldbenotifiedtothetaxpayerbefore15daysfromthesettlementdate.
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Inthesettlementmeeting,thesignatureauthorityoftaxpayer,itsattorneyanditsSwornFiscalAdvisormayattendwiththeproxyshowingthattheyhavetherighttoattendsettlementmeeting,accept/rejecttheproposedamountsandsignthesettlementminute.
6.2 Tax Case
Taxpayersmaydirectlyapplytothetaxcourtagainsttax/penaltyassessmentsfollowingtheassessmentinthefirstinstance.Inthiscase,litigationshouldbeinitiatedbeforetheTaxCourtwithinthirty(30)daysfollowingthedeliverydateofthetaxpenaltynoticetothetaxpayerand/oraddresseeofthepenaltyunlessotherwiseisprovidedunderlegislation.
Besides,incasenosettlementisachievedattheendofthesettlementmeetingandrelevantminutesarepreparedconcerningtheresult,litigationshouldbeinitiatedbeforetheTaxCourtagainstthetaxes/penaltynotificationwithin15daysasofthenotificationdateofthesettlementminutestothetaxpayer.
Initiationofataxcasewillsuspendthecollectionproceduresoftax/penaltyassessmentsuntiltheendofthefirstinstancetaxcourtprocess(notificationofthefirstinstancetaxcourtdecision).Andthepaymentshouldbemadewithin30daysfollowingthenotificationof2ndtax/penaltynotificationtobeissuedupontheunfavorabledecisionofthefirstinstancetaxcourt.
Firstinstancetaxcourtdecisionswillbefinaldecisionsforthetaxcases,fullremedyactionsandlitigationsinitiatedagainstadministrativeactsofwhichthelitigatedamountisunderTRY5.000.Itisnotpossibletoobjectto/appealthesedecisions.Accordingly,thedecisionsheldbyfirstinstancetaxcourtswillbefinaldecisions.
Evenotherwiseisprovidedunderotherlaws,thedecisionsoffirstinstancetaxcourtforthetaxcases,fullremedyactionsandlitigationsinitiatedagainstadministrativeactsofwhichthelitigated
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amountishigherthanTRY5.000canbeappealedbeforetheRegionalAdministrativeCourt(BİM).
BİMdecisionswillbefinalforthelitigationsinitiatedagainstadministrativeactsofwhichthelitigatedamountisbetweenTRY5.000andTRY100.000.
Forthelitigationswhichthelitigatedamountinhigherthan100.000,taxpayershavetherighttoappealtheBİMdecisionsbeforeCouncilofState.DependingonthedecisionoftheCouncilofState,thisdecisionwouldbefinal.
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7. Transfer Pricing RegulationsInTurkey,transferpricingprovisionshavebeenstatedundertheArticle13ofCorporateTaxLawwiththeheadingof“disguisedprofitdistributionviatransferpricing”.TheTransferPricingCommuniquéNo.1ondisguisedprofitdistributionviaTransferPricing,datedNovember18,2007setsdetailsaboutimplementationoftherules.TransferPricingCommuniquéNo.2wasreleasedasasupplementarydocumenttothefirstcommuniquéonApril22,2008.ThetransferpricingregulationsinTurkeyarecreatedinlinewiththeprinciplesestablishedbytheOECDTransferPricingGuidelinesforMultinationalEnterprisesandTaxAdministrations.Withthe6728numberedlawwhichisineffectiveasof09August2016;newregulationsrelatedtotransferpricingruleshavebeenenacted.Withtheamendmentsmadetoarticle13ofcorporatetaxlawnumbered5520;TurkishtransferpricingruleshavebeenmoreconvergedtoOECDtransferpricingguidelines.
Ifataxpayerentersintotransactionsregardingsaleorpurchaseofgoodsandserviceswithrelatedparties,wherethepricesarenotsetinaccordancewitharm’slengthprinciple,thenrelatedprofitsareconsideredtobedistributedinadisguisedmannerthroughtransferpricing.Suchdisguisedprofitdistributionsthroughtransferpricingarenotacceptedastaxdeductibleforcorporateincometaxpurposes.
Thenewlawstipulates10%thresholdto“relatedparty”definition,itremovesthestricthierarchyamongsttransferpricingmethods,itallowscertaintypeof“rollback”forAPAagreementsandremoves50percentoftaxpenaltiesfortaxpayerswhofulfilltimelyand
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properdocumentationrequirements.Transferpricingrelatednewregulationsareinforceasof09August2016.
Inaddition,On16March2016,TheTurkishRevenueAdministrationhavereleasedadraftGeneralCommuniquéonDisguisedProfitDistributionthroughTransferPricingSerialNo:3whichintroducescertainsignificantchangesandamendmentstoGeneralCommuniquéonDisguisedProfitDistributionthroughTransferPricingSerialNo:1.
ThedraftCommuniquéincludesnewrequirementswhichconstituteanenlargementofthecurrentlegalrequirements.Inaddition,thenewdraftCommuniquéintroducesadditionalTransferPricingDocumentationrequirementsinlinewithBEPSAction13.Thisdraftcontainsinstructionsforthefurtherelaborationoftheadditionaldocumentationrequirementsformultinationalenterprises,includingCountry-by-CountryReporting(CbCReport),MasterFileandLocalFile.
AlsointhedraftCommuniqué;locationsavings,assembledworkforceandMulti-NationalEnterprise(MNE)GroupSynergiesasnewcomparabilityfactorsaswellasdescriptionandgeneralinformationregardingCostContributionArrangements(CCA)andtreasurylossareincludedassignificantparts.
7.1 Arm’s Length Principle
Arm’slengthprincipleisdefinedassettingpricesoramountsforthepurchaseorthesaleofthegoodsorservicesbetweentherelatedpersonsasthepricesoramountswouldbechargedforthesametransactionscarriedoutwithunrelatedparties/thirdparties.
Thetransferpricingregulationsstatethattaxpayersshouldselectthebestsuitabletransferpricingmethodologyforsettingthearm’slengthpricesandamountsforthetransactionswithrelatedpersons.Theselectionofatransferpricingmethodologyservestofindthemostappropriatemethodforthenatureoftheintercompanytransactionsunderconsideration.Taxpayerswillsetthearm’slengthpricesoramountsfortheirintercompanytransactionsbychoosingoneofthefollowingmethodsstatedinthearticle.
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• Comparable uncontrolled price method: Thismethodmeansthatarm’slengthsellingpriceappliedbyataxpayerisdeterminedbycomparingwiththemarketpricestatedforthecomparablepurchaseorsaleofthegoodsortheservicesbetweentheunrelatedparties.
• Cost plus:Arm’slengthpriceiscalculated/determinedbyincreasingthecostsoftherelevantgoodsorserviceswithareasonablerateofgrossprofitmargin.
• Resale price method:Arm’slengthpriceiscalculated/determinedbydeductingareasonablerateofgrosssaleprofitmarginfromthepricewhichwillbeappliedfortheresaleoftherelevantgoodsorservicestotheunrelatedparties,
Transactionalprofitmethods:Referstothemethodsbasedonprofitsarisingfromthetransactionsbetweenrelatedpartiesindesignationofarm’slengthpriceorreturn.Thesemethodsconsistoftransactionalnetmarginmethodandprofitsplitmethod.Transactionalnetmarginmethodisbasedontheexaminationofanestablishednetprofitmarginrealizedbythetaxpayerresultingfromacontrolledtransactiononcertainrelevantandappropriatebasissuchascosts,salesorassets.Profitsplitmethodreferstothearm’slengthsplitoftotaloperatingmarginorlossbetweenrelatedpartiesrealizedfromoneormorerelatedpartytransactionswithregardstothefunctionsperformedandrisksbornebyeachparty.
Incircumstanceswhereanarm’slengthpriceorremunerationcouldnotbeidentifiedviaoneofthemethodsmentionedabove,anothermethodwhichisconsistentwiththenatureoftherelatedpartytransactionanddefinedbythetaxpayercanbeutilized.
Therelatedprofitregardedasdistributedwhollyorpartiallyinadisguisedwayviatransferpricingistreatedeitherasdividenddistributedoramounttransferredtotheheadquartersforthenon-residententitiesasofthelastdayoftheaccountingperiodinwhichtheconditionsspecifiedundertheArticle13ofCorporateTaxLaw13Articleoccur.Previoustaxationswillbeadjustedforthepartiesinvolved.Inordertomakethisadjustment,taxesassessedforthecompaniesdistributingtheprofitinadisguisedwayshouldbefinalizedandpaid.
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Forintra-countrygrouptransactions,disguisedprofitdistributionviatransferpricingwouldbeapplicableiftreasurylossresultsfromthedomesticintercompanytransactionsofthecorporatetaxpayers.Thetreasurylossisdefinedasunderdeclarationorlatedeclarationofalltypeoftaxesasaresultofthepricesortheamountswhicharenotinlinewiththearm’slengthprinciple.
7.2. Documentation Requirements
AccordingtogovernmentdecreeandtheTransferPricingCommuniquéNo.1taxpayershavetwodifferentdocumentationrequirements;preparationoftransferpricingformandyearlytransferpricingreport.
Alsoin2014,anewguidanceissuedbyCapitalMarketsBoardofTurkey(SPK)requiresadditionalinformationreportingaboutcontrolledtransactionsoflistedcompaniesandthusmayaffectthetransferpricingdisclosuresbythesecompanies.Thecommuniqué(CommuniquéofCorporateGovernance)datedJanuary3,2014concernscorporategovernanceanddirectslistedcompaniestosubmitanadditionalboarddecisionandanexplanatoryreportregardingcertaincontrolledtransactions(i.e.,thosecontrolledtransactionshavingavalueabovecertainlimitsassetforthinthecommuniqué).
WiththeamendmentsmadebytheArticle59oflawnumbered6728,incircumstanceswheretransferpricingdocumentationobligationsarefulfilledcompletelyandinduetime,taxpenaltyarisingfromunderassessedorpastduetaxesbyreasonofdisguisedprofitdistributionwillbeimposedwitha50percentdiscount(excludingthestateswhichgiverisetolossoftaxthroughactswordedin359thclauseofTaxProcedureLaw).
Transfer Pricing FormAccordingtotheregulations,alltaxpayersareobligedtocompleteaformcalled“transferpricing,controlledforeigncompanyandthincapitalizationform”attachedtothecompany’sannualcorporatetaxreturn.Inthisform,taxpayersarerequiredtopresentallintra-grouptransactionsthattakeplaceduringtheyearandindicatethe
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selectedtransferpricingmethodstotestthearm’s-lengthnatureoftheintra-grouptransactions.Taxpayersarealsorequiredtocompletethe‘controlledforeigncompany’and‘thincapitalization’sections.
Annual Transfer Pricing ReportCorporatetaxpayersregisteredwiththeLargeTaxpayerTaxOfficearerequiredtodocumenttheirinternationalanddomesticrelatedpartytransactionsintheannualtransferpricingreports.CompaniesregisteredwiththeLargeTaxpayerTaxOfficearetypicallythelargestcompaniesdeterminedbyreferencetotheirturnover,payabletaxes,andassetsizeandlocationbeinginIstanbul.AllbanksandinsurancecompaniesarealsoamongthemembersoftheLargeTaxpayerTaxOfficeregardlessoftheirlocationandsize.CorporatetaxpayerswhoarenotregisteredwithLargeTaxpayerTaxOfficearerequiredtopreparethetransferpricingannualreportsincludingonlytheirinternationaltransactionswithrelatedparties.
Additionally,TransferPricingCommuniquéNo.2requiresthatallcorporatetaxpayersshoulddocumenttheirtransactionswiththeirrelatedentitiesand/ortheirbranchesthatoperateinFreeTradeZoneinTurkey.
TransferPricingCommuniquéNo.1setsforthdetailsoftheinformationthatneedstobeincludedinthetransferpricingdocumentation.Accordingtothecommuniqué,transferpricingreportsshouldbepreparedcoveringthefollowinginformationanddocuments.
• Descriptionofactivitiesofthecompany,organizationalstructure,definitionoftherelatedparties(i.e.,taxidnumber,addresses,phonenumber,etc.)andownershipinformationoftheseparties,
• Allfunctionsareperformedandriskstaken,• Pricinglistsoftheproductsoftheyear,• Detailsofcostofgoods,• Theamountandinvoiceinformationaboutalltransactionswith
relatedandunrelatedpartieswithintheyear,• Allagreementssignedwiththerelatedparties,• Financialstatementsofrelatedparties,
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• Intra-grouppricingpolicies,• Intra-groupaccountingstandardsandpolicydifferencesifthey
exist,• Ownershipofintangibleassets,• Transferpricingmethodselectedbythecompany
(comparabilityanalysis,selectedcomparableswhetherexternalorinternal),
• Calculationsandassumptionforreachingthearm’s-lengthprice,
• Calculationsforreachingthearm’s-lengthrange,ifapplicable.
Corporatetaxpayerswhodonothaveinternationalrelatedpartytransactionsandindividualtaxpayersarenotrequiredtoprepareayearlytransferpricingreport.However,theabovementioneddocumentsandinformationshouldalsobesubmittedifrequestedbythetaxauthoritiesbycorporatetaxpayersotherthanthoseregisteredatLargeTaxpayerTaxOfficefortheirdomesticoperationsperformedwithrelatedpartiesandbythepayersofincometaxfortheirdomesticandforeignoperationsperformedwithrelatedpartiesduringacalendaryear.
TheGovernmentDecreeandtheGeneralCommuniquéstatethatdocumentationshouldbepreparedbythetaxreturnsubmissiondate,whichis25thofAprilfornormalcalendaryear,anditshouldbesubmittedtotheTaxAuthorityuponrequest.Thedecreeandgeneralcommuniquéstatethatifthetransferpricingdocumentationispreparedinaforeignlanguage,Turkishtranslationsalsohavetobesubmittedtothetaxauthorities.
New Documentation Requirements Introduced by Transfer Pricing Communiqué No. 3
On16March2016,TheTurkishRevenueAdministrationhavereleasedadraftGeneralCommuniquéonDisguisedProfitDistributionthroughTransferPricingSerialNo:3whichintroducescertainsignificantchangesandamendmentstoGeneralCommuniquéonDisguisedProfitDistributionthroughTransferPricingSerialNo:1whichregulatestransferpricingruleseffectivefrom 01.01.2007.
ThedraftCommuniquéincludesnewrequirementswhichconstituteanenlargementofthecurrentlegalrequirements.In
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addition,thenewdraftCommuniquéintroducesadditionalTransferPricingDocumentationrequirementsinlinewithBEPSAction13.TheapplicationofBEPS13ActionPlanisalsoguaranteedbytheclauseinArticle59oflawnumbered6728whichstatesthatCouncilofMinistersisentitledtoimposedocumentationobligationsandinclusionofinformationregardingtheactivitiesofcrossborderrelatedpartieswithinthescopeofmentionedobligations,sharingoftheseinformationwithothercountrieswithinthecontextofinternationalagreementsanddetermineandspecifyothertransferpricingprocedureandfundamentals.
Thisdraftcontainsinstructionsforthefurtherelaborationoftheadditionaldocumentationrequirementsformultinationalenterprises,includingCountry-by-CountryReporting(CbCReport),MasterFileandLocalFile.
• Country by Country Reporting:Ultimateparentcompanies,whicharetaxresidentsinTurkeyandwithaminimumconsolidatedturnoverofTRY2.037billion(EUR750million)areobligatedtoprepareandprovideaCountrybyCountryreport.Thefirstreportingperiodwillbe2016andwillbereportedasof31December2017whichisinlinewithOECDpractice.
• Masterfile:AsstatedinthenewdraftCommuniqué,Companiesthatarepartofamultinationalgroupwithaminimumof250millionTLassetvalueasofendofpreviousfiscalyearandturnoverof250millionTLandoverarerequiredtopreparethe“MasterFile”untiltheendofthesecondmonthfollowingthesubmittalofCorporateIncomeTaxReturnandprovideittotheTaxAuthoritiesincaseofaquery.TheMasterFilewillconsistof5maincategories;organizationstructure,definitionofbusinessoperations,intellectualproperty,intragroupfinancialtransactionsandTaxandFinancialpositionofallgroupcompanies.
• Local File:Furthermore,allgroupentitiesthataretaxresidentinTurkeyandwhichhaveintercompanytransactionswillcontinuetopreparetransferpricingreportandannualtransferpricingformwhichareexplainedabove.AccordingtothedraftCommuniqué,theFreeTradeZonetaxpayersarerequiredtodocumenttheirinternationalanddomesticrelatedpartytransactionsintheannualtransferpricingreports.
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Theannualform(EK2)willbefilledfortransactionsexceedingTRY30thousand.Ontheotherhand,companieswithaminimumassetvalueattheendofpreviousfiscalyearandturnoverofTRY100million,arerequiredtosubmitaform(EK4)whichrequiresdetailedinformationregardingtheirrelatedpartiesandrelatedpartytransactions.
7.3 Advance Pricing Agreements (APA)
Themethodsdeterminingthearm’slengthpriceorvaluefortherelatedpartytransactionscanalsobeagreedonwiththeMinistryofFinanceupontherequestofthetaxpayer.Themethoddeterminedviasuchagreementwillbecertainintheconditionsandperiodsstatedintheagreement,notexceedingthreeyears.
AtaxpayercanagreeuponthemethodstobeusedfordeterminingthetransferpricesforhisintercompanytransactionswiththeMinistryofFinance.Themethodsthataredeterminedwithinthetermsandconditionsoftheagreementcouldbeusedbythetaxpayerforamaximumperiodofthreeyears.
Iftheagreementisenteredintobetweenonetaxauthorityandataxpayer,thenitiscalledunilateralAPA;andastransferpricesaffectrelatedenterprisesthatarelocatedinothercountries,therecanbebilateralormultilateralAPAs.Inthisrespect,unlesslocallawsandregulationsprovideguidancefortaxauthorityandtaxpayers,themutualagreementprocedureofapplicabledoubletaxtreatiescanbeusedtoconcludebilateralormultilateralAPAs.
SincethetransferpricingregulationswentintoeffectonJanuary1,2007,TurkishtaxpayershavebeenentitledtoenterintoAPAswiththeMinistryofFinanceforthedeterminationofmethodsinrelationtosettingfeesandpricesfortheirtransactionswithforeignrelatedparties(i.e.,non-residentrelatedparties)upontheirrequest.
AccordingtopressreleasesfromtheTurkishRevenueAdministration(TRA)onJuly15,2011,December26,2012,June19,2014,April30,2015andDecember25,2015thefirstsix
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unilateralAPAshavebeenconcludedandsignedbetweentheTRAandtaxpayers.InDecember2016,firstbilateralAPAhasbeensignedbetweentheTRAandtaxpayer.
ThemainpurposeoftheapplicationofAPAsistopreventpotentialtaxrelateddisputesandcontroversiesinrelationtotransferpricesappliedbytaxpayersfortheirtransactionswithrelatedparties.ConcludinganagreementwiththeTRA,taxpayerswillbeprotectedagainstpotentialtaxrisksandpenaltiesthatmaybeimposedbythetaxauthorities.
WiththefirstsixunilateralandfirstbilateralAPAssignedinTurkey,weexpectthattherewouldbemoreunilateralAPAapplicationsfromnowonandthiswillpavethewayforbilateralandmultilateralAPAsinthefuture.Inaddition,Article59oflawnumbered6728providesacertainrollbackforAPAfortheprioryears.
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8. Indirect Taxation8.1 Value Added Tax
Taxable Transactions
VATappliestothefollowingtransactions:
• Thesupplyofgoodsorservicesinthecourseofperformingcommercial,industrial,agricultural,orindependentprofessionalactivitiesmadeinTurkeybyataxableperson.
• GoodsandservicesimportedintoTurkey
• Deliveriesandservicesarisingfromotheractivitiesspecificallystatedinlaw.
VAT Taxpayer
AtaxablepersonisanypersonorlegalentitythathasVATliabilityinTurkey.Anyentitythathasafixedplaceofbusinessorregularlycarriesoutcommercialorprofessionalactivities inTurkeymustregisterinTurkey.
VATregistrationisgrantedautomaticallybythetaxofficewhenabusinessregistersforcorporateincometaxpurposes.
Group registration: VATgroupingisnotpermittedunderTurkishVATlaw.LegalentitiesthatarecloselyconnectedmustregisterforVATindividually.
Non-established businesses:Anon-establishedbusinessmaynotregisterforonlyVAT.IfaTurkishtaxablepersonreceivesservicesfromanentitythatdoesnothaveafixedplaceinTurkey,VATisaccountedforusingthereverse-chargemechanism.
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Reverse charge:ThereversechargeappliesifcertainsuppliessubjecttoTurkishVATaremadebyapersonthatisnotresidentinTurkeyorthatdoesnothaveapermanentestablishmentorheadquartersinTurkey.Itisaformofself-assessmentforVATthroughwhichtherecipientofasupplyofservicesaccountsforthetax.
Thereversechargeappliestothefollowingservicesperformedbynon-residentswithoutafixedplaceofbusinessinTurkey:
• Services of independent professionals, such as engineering,consulting,dataprocessingandprovisionofinformation
• Transfers of copyrights, patents, licenses, trademarks, know-how,andsimilarrights
• Importcommissions
• Interest paymentsmade to foreign entities other than banksandfinancialinstitutions
• Rentpayments
• Transfer or assignment of the right to use capacity for thetransmission, emission, or reception of signals, writings,images, sounds, or information of any nature by wire, radio,opticalorotherelectromagneticsystems
• OtherservicesnotspecifiedinthislistbututilizedinTurkey
VAT rates
InTurkey,thefollowingVATratesareapplied:
• Standardrate:18%
• Reducedrates:1%and8%
ThestandardVATrateappliestoallsuppliesofgoodsorservices,unlessaspecificmeasureprovidesforareducedrateorexemption.
Examples of goods and services taxable at 1%
• Newspapersandmagazines
• Certainfoodsandbeverages
• Usedpassengercars
• Financialleasingservices(withcertainconditions)
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Examples of goods and services taxable at 8%
• Certainfoodsandbeverages
• Books
• Pharmaceuticalsandmedicalproducts
• Someconstructionequipment
• Ready-wearproducts,garmentsandtextileproducts
• Admissionchargesforcinemas,theaters,andoperas
VAT Exemptions
Exemptionsareclassifiedintwodifferentgroups:
• The term“fullyexempt”supplies refers tosuppliesofgoodsandservicesnotsubjecttoVATandrecoveryorrefundoftheinputVATispossible(exemptwithcredit).
• “Partiallyexempt”suppliesrefertosupplyofgoodsandservicesnotsubjecttoVATbutnorightofinputtaxdeduction.
Examplesoffullyexemptwithcreditsuppliesofgoodsandservicesare;
• Exportsofgoodsandservices
• Services rendered atmarines and airports formarine and airconveyances
• Suppliestopersonsengagedinpetroleumexploration
• Suppliesofgoodstoinvestmentcertificateholders
• SalestotheDirectorateoftheDefenseIndustry
• Sales todiplomatsor diplomatic entitiesbasedon reciprocityprinciple
• Internationaltransport
• Deliveryoffertilizerandbait/feed
Examplesofpartiallyexemptsuppliesofgoodsandservicesare;
• Leasingimmovablepropertybyanindividual
• Financialtransactions
• Suppliestocertainculturalbodies
• Suppliesbyandtocertaingovernmentalbodies
• Waterforagriculture
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• The supply of unprocessed gold, foreign exchange money,stocksandbonds,dutystamps,scrapmetal,plasticetc.
• Storageservicesperformedatbondedwarehousesortemporarystorageplaces
• Delivery of goods or performance of services in free-tradezonesandtransportationtoorfromfree-tradezonesforexportpurposes.
Time of supply or service
Timeofsupplyforgoodstakesplacewhentheyaredeliveredandforservicesittakesplacewhentheyareperformed.However,ifthesupplierissuesaninvoicebeforethetimeofsupply,VATappliestotheextentthatthesupplyiscoveredbytheinvoice.Aprepaymentordepositdoesnotresultinataxabletransaction.
Thetimeofsupplyforimportedgoodsiseitherthedateofimportation,orthedateonwhichthegoodsleaveadutysuspensionregime.
Taxable Base
Thetaxablebaseofatransactionisgenerallythetotalvalueoftheconsiderationreceived,notincludingtheVATitself.TheVATLawdealswiththetaxablebaseunderfourheadings,namelythetaxablebaseondeliveriesandservices,onimportation,oninternationaltransportation,andspecialtypesoftaxablebase.
Incaseaconsiderationdoesnotexist,isunknownorisinaformotherthanmoney,thetaxablebaseisthemarketvalue.MarketvalueistheaveragepricepayableinthemarketforsimilargoodsandservicesandisdeterminedwithreferencetotheTaxProceduralLaw.
Recovery of input VAT
AtaxablepersonmayrecoverinputVAT,whichischargedongoodsandservicesreceivedforbusinesspurposesandrelatedwithtaxableorfullyexempttransactions.
InputtaxincludesVATchargedongoodsandservicessuppliedinTurkey,VATpaidonimportsofgoods,andVATself-assessedonreverse-chargeservices.
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Avalidinvoiceorcustomsdocumentmustaccompanytorecoverinputtax.
Therightofdeductionmaybeexercisedinthetaxperiodinwhichthepurchasedocumentsareenteredintotherecipient’sbooksofaccount,butonlyduringthecalendaryearinwhichthetaxableeventtakesplace.
Non-deductible input tax: Inputtaxisnotrecoverableifitischargedonpurchasesofgoodsandservicesthatarenotusedforbusinesspurposesandareconsideredtobenon-deductibleexpensesforcorporatetaxpurposes.Inaddition,inputtaxmaynotberecoveredforpartiallyexempttransactions(inputVATassociatedwithpassengercarsisrecoverableonlyiftheyarerentedoroperatedforausagefee).
Partial exemption:AninputtaxdeductionisgrantedfortaxablesuppliesandforsuppliesthatareVATexemptwithcredit.Aninputtaxdeductionisnotgrantedforpartiallyexemptsupplies.Ifataxablepersonmakesbothtaxableandpartiallyexemptsupplies,itmayrecoveronlyinputtaxallocatedtosuppliesthataretaxableorfullyexempt.
Refunds:IftheamountofinputVATrecoverableinaperiodexceedstheamountofoutputVATpayableinthesameperiodtheexcessamountiscarriedforwardtofollowingperiodswithoutanylimitation.ItispossibletorefundsuchcarriedforwardVATonlyinthebelowcases:
• DeliveryofgoodsandservicessubjecttoreducedrateVAT• DeliveryofgoodsandservicesthatarefullexemptfromVAT• Deliveryofgoodsandservices thataresubject topartialVAT
withholding
TheamountoftheVATrefundcanbeclaimedeitherintheformofoffsettingtoothertaxliabilitiesorcashrefund.
Invoicing
Deliveryofgoodsorperformanceofservicesshouldbeinvoicedwithin7days.Moreover,recipientsofthesuppliesmustretaincopiesoftheinvoices.
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Foreign-currency invoices:AninvoiceissuedforadomesticsalemustbeissuedinTurkishlira(TRY).TheinvoicemayalsoshowtheinvoicedamountinaforeigncurrencyiftheTRYequivalentsarestated.However,aninvoiceissuedforanexportsalemaybeissuedin a foreign currency.
VAT returns and payment
ReturnsarefiledonmonthlybasisandmustbesubmittedbytheReturnsarefiledonmonthlybasisandmustbesubmittedbythe24thdayofthefollowingmonth.
Paymentinfullmustbemadebythe26thdayofthesamemonthandinTRY.
8.2 Special Consumption Tax
SpecialConsumptionTaxisanexcisetaxanditisimposedontheimport,manufactureandfirstacquisitionofarangeofgoods.
SpecialConsumptionTaxwasimplementedinAugust2002byabolishing16differentindirecttaxesandfundsinordertomaketheindirecttaxationsystemharmonized.UnlikeVAT,whichisappliedoneachdelivery,SpecialConsumptionTaxischargedonlyonce.Therearemainly4differentproductgroupsthataresubjecttoSpecialConsumptionTaxatdifferenttaxrates.
Scope of Tax
GoodsintheListsattachedtotheSpecialConsumptionTaxLawarethesubjectofthetax.
Therearemainly4differentproductgroupsthataresubjecttospecialconsumptiontaxatdifferenttaxrates;
• ListIisrelatedtopetroleumproducts,naturalgas,lubricatingoil,solventsandderivativesofsolvents.
• ListIIisrelatedtoautomobilesandothervehicles,motorcycles,planes,helicopters,yachts.
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• ListIIIisrelatedtotobaccoandtobaccoproducts,alcoholicbeveragesandcola.
• ListIVisrelatedtoluxuryproducts(durablewhitegoods,cellularphones,diamondsetc.).
Taxpayers of the Special Consumption Tax
Taxpayersof special consumption tax changesbasedon the lists.Theyare;
• ForListI;manufacturers(includingrefineries)andimportersofthepetroleumproducts,
• ForListII;Motorvehicledealers,importersforspecialpurposeormotorvehiclesellersthroughauction.
• ForListIII;manufacturers,importersorsellersthroughauctionoftobacco,alcoholicbeveragesandcola.
• ForListIV;manufacturers,importersorsellersthroughauctionofluxuryproducts.
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9. Income Tax on IndividualsIncometaxisunitaryinnature.Thesourceofincomeisdefinedin7categories:Businessprofits,agriculturalprofits,employmentincome,professionalincome,rentalincome,interest÷nds,andotherincome.
Thecategoryof“otherincome”coversincome,whichdonotfallunderthefirst6categories,mainlybeingcapitalgainsandincomefromcertainincidentaltransactions.
Therearetwomaintypesoftaxstatutes:residenttaxpayers,andnon-residenttaxpayers.Residentsaretaxedontheirworldwideincome,whereas,non-residentsaretaxedonlyontheirTurkishsourceincome.
Turkishcitizens,whoworkabroad,evenifemployedbycompanieswithheadquarterssituatedinTurkeyorbytheTurkishGovernment,arenotsubjecttoTurkishtaxationinrespectofincomeobtainedandtaxedoutsideTurkey.
AforeignerwhospendslessthanacontinuousperiodofsixmonthsinTurkeyduringacalendaryearandwhosecentreofvitalinterestisnotconcentratedinTurkeyorwho,althoughstaysinTurkeyformorethansixmonthsbuthascometoTurkeyforaspecificandtemporaryassignment(e.g.businessman,expert,pressorradiocorrespondent),isregardedasnon-residentandistaxedaccordingly.
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9.1 Taxable Income
Gross IncomeTaxablegrossincomeincludesamountsreceivedfromthefollowingsources:
• Incomefromcommercialactivities,• Incomefromagriculture,• Incomefromprofessionalservices,• Incomefromemploymentservices(wagesandsalaries),• Incomefrommovableproperties(interestanddividends),• Incomefromimmovableassetsandrights(rentalincome),and• Otherincomeandearnings(capitalgains,etc.).
Withsomeexceptions,income(orlosses)fromtheabovecategoriesiscombined.
Exclusions and ExemptionsCertainamountsreceivedbyindividualsneednottobereportedfortaxpurposes.Thefollowingsarespecificallyexempt:
• AnnualrentalincomeuptoTRY3.900• Employmentincomewhollyconsistingofsalariesderivedfrom
oneresidentemployer,providedthatallpaymentsaretaxedbywithholdingmechanismonpayroll,
• Interest incomewhichhasbeensubjectedtowithholdingtaxatsource,
• Halfofdividendincomereceivedbyaresidenttaxpayerfromaresidentcorporation,
• Incomederivedbyauthors,sculptors,paintersandcomposers,etc.andtheirheirsfromcopyrightsandpatentrights,
• Pensionsandothersocialsecuritycompensationsreceiveduptocertainlevels,
• Reimbursement(madebytheemployer)oftravellingexpensesincurredbyemployeesforbusinesspurposes,
• Salaries paid in foreign currency by the representative/liaisonofficesofforeigncompanies,
• Retirement and termination indemnity payments (maximum;TRY4.426,16forthefirsthalfof2017)
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• Capital gains from the disposal of Turkish corporation sharesheldformorethantwoyears,
• Capital gains from the disposal of real estates retained byindividualsformorethanfiveyears.
Deductions and AllowancesTurkishincometaxlawprovidesvariousdeductionsandallowancesforeachcategoryofincome.Someimportantdeductionsandallowancesareexplainedbelow:
• Businessexpensedeductionssetout forcompaniesarealsoapplicable to individuals, to the extent that they relate to anindividual’sbusinessincome,and
• Compulsorypensioncontributionsandsocialsecuritypremiums,
The following benefits are not taxable from the employee standpoint:
• Insurance premiums paid for the taxpayer and his family fordeath, sickness, disability, birth and education are deductiblefromthetaxablesalary.However,theinsurancecompanyshouldbe established in Turkey and monthly insurance premiumsshouldnotexceedthoseestablishedbylaw,
• Ifmealsareprovidedatthebusinesspremises,totalpaymentmadebytheemployeristaxexempted.Otherwise,onlycertainamountisexempted.
• Transportationprovidedbytheemployer,• Accommodationprovidedby theemployer, to theemployees
working in mining, factory and those whom the employeeshouldprovideaccommodationinaccordancewiththespeciallegislation.(whichshouldbeownedbytheemployerandnotbemorethan100squaremeters),
• Childrenallowanceuptotheamountreceivedbyagovernmentemployee,formaximumtwochildren,
• Indemnity and assistance payments for reasons of death,disability,illnessandunemployment,
• Assistancepaid toemployeesbecauseofmarriageandbirth,limitedtotwomonths’salary.
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- Donationstogovernmentoffices,municipalities,villages,associationsinthepublicinterestandfoundationsundertheCivilCodeofupto5%oftaxableincome,and
- 50%ofthelifeinsurancepremiumspaidtotheinsurancecompaniesestablishedinTurkeyand100%ofthepremiumsfordeath,sickness,disability,motherhood,etc.upto15%ofdeclaredincomeandwithamaximumoftheminimumwage/salaryforeachmemberofthefamily.Thisdeductionisnotapplicablefornon-residents.
- Annualexpensesincurredoneducationandhealthupto10%oftheincomedeclaredontheannualtaxreturnaredeductible,
- EffectivefromJanuary1,2007,minimumsubsistenceallowanceenteredintoforce.Accordingly,itisadoptedthatanamountiscalculatedbymultiplyingtherateappliedtothefirstincometaxbracketoftheincometaxtariffwith50%forthetaxpayer,10%forhisspousenotworkingornothavinganyincome,7,5%forthefirsttwochildren,10%forthethirdchildrenand5%foreachofthechildrenremaining,oftheannualgrossamountoftheminimumwage(amountvalidatthebeginningofthecalendaryearwhenthewageisearned,fortheemployeeswhoareabove16andworkingintheindustrialsector);thenthisamountcanbedeductedfromtheincometaxtobecalculatedoverthewage.
- Rentalincomeearnersmayeitheritemizeexpensesrelatedtoimmovableormaydeductalumpsumof25%ofgrossrentalsexpenses,
- Incalculationoftaxablecapitalgains,thecostofassetswhosedisposalledtocapitalgainsmaybeindexedtotheinflationonlyiftheinflationduringtheholdingperiodisinexcessof10%.Non-residentsareallowedtoeliminateforeignexchangegainswhencalculatingthetaxablegainsfromdisposalofTurkishsecurities.
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9.2 Income Tax Rates
TheincometaxrateisappliedatprogressiveratesinTurkey,currentlyfrom15%to35%.
Theincometaxratesandbracketsapplicableforincomegeneratedthroughpersonalinvestments(excludingemploymentincome)in2017calendaryearareasfollows:
Income scales (TRY) Rate (%)
Upto13.000 15
13.001-30.000 20
30.001-70.000 27
70.001andupwards 35
Theincometaxratesandbracketsapplicableforemploymentincomein2017calendaryearareasfollows:
Income scales (TRY)(Employment income)
Rate (%)
Upto13.000 15
13.001-30.000 20
30.001-110.000 27
110.001andupwards 35
Tax CreditsAftertaxhasbeencalculated,creditsagainsttaxpayableareallowedfor;
• Taxwithheldatsourceoncertainincome,and• ForeignincometaxthatislimitedtotheamountofTurkishtax
applicable to foreign incomeprovided that the primary taxingrightbelongstoTurkeyandcertainconditionsaresatisfied.
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Tax Credit on DividendsResidenttaxpayershavetoinclude1/2ofgrossdividendsreceivedfromaresidentcompanyintheirtaxableincome.Withholdingtaxpaidatsource,however,iswhollycreditableagainsttaxcalculatedonthereturn.
Tax Returns, Filing, PaymentsTaxreturnsmustbefiledby25thofMarchinthefollowingyear.IncometaxispayableintwoequalinstallmentsinMarchandJuly.
Non-residentsaretaxableonallearningsofincomecollectedorrealizedinTurkeyunlessexempted.Thefilingrequirementsandtaxationsystemsonnon-residentsingeneral,areasfollows:
• Incomefromcommercialandagriculturalactivitiesmustbeincludedinthetaxreturn,
• Salaries,incomefromservicesandproceedsofsaleofrights,interest,rentanddividendsaresubjecttowithholdingtax.Nofurtherfilingisrequired,and
• Theproceedsofsaleofrealestateandincomefrommovablesthathavenotbeensubjectedtowithholdingtaxmustbedeclaredonindividualdeclarations.
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10. Labour10.1 Labour Legislation
TheTurkishConstitutionof1982standsasthemostprominentsourceandone,whichtakesprecedenceoverotherareasoflegislation.TheLaborLegislationinTurkeyconsists,atpresent,ofthefollowingacts:theLaborCodenumbered4857,SocialSecurityAndGeneralHealthInsuranceLawnumbered5510,MaritimeLaborActnumbered854,ActConcerningLabor/ManagementRelationsinthePressnumbered5953,OccupationalHealthAndSafetyLawnumbered6331,LawOnTradeUnionsAndCollectiveLaborAgreementsnumbered6356,UnemploymentInsuranceLawnumbered4447,LawOnWorkPermitsOfForeignersnumbered4817,LaborCourtsActnumbered5521,NationalHolidayandGeneralVacationsActnumbered2429,WeekendHolidayActnumbered394,TurkishLaborInstitutionActnumbered4904andrelevantregulations.
Weekly Working Hours and Vacations Ingeneraltheworkingweekconsistsofamaximumof45hours.Weeklyworkinghoursmaybeunequallydistributedthroughouttheworkingdaysoftheweek.However,employeesmustnotworkformorethanatotalof11hoursinonedayincludingovertime.Inaddition,workinghoursinanightshiftmustnotexceed7.5hoursper day.
UnderWeekendHolidayAct(No:394),itisobligatorytoholdaholidayonedayinaweek.
Employeesareentitledtouseminimumsubsequent24hoursweekendholidayina7daysworkingperiod.Nevertheless,onconditionofobtainingpermission,itispossibletokeeptheworkplaceopen7daysaweek.Forexample,largedepartmentstorescanholdtheirworkplacesopenwithoutholdingaweekend
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holiday.Incasetheemployeesdonotworkondaysacceptedasnationalandgeneralholidaysinthelaws,theyarepaidthewagespertainingtosuchdaycompletelywithoutanyworkcorrespondenceandincasetheydonotgoonholidayandworkonsuchdays,theyareadditionallypaidthewageofonedayforeachworkedday.
Under theNationalHolidayandGeneralVacationsAct, theofficialholidaysarethefollowing:
• January1st,NewYear’sDay.• April23rdNationalSovereigntyandChildren’sDay,1day.• May1st,LaborandSolidarityDay• May19th,YouthandSportsDay,1day.• July15th,DemocracyandNationalSolidarityDay,1day• August30thVictoryDay,1day.• October29ththeRepublicDay,startsat13.00pm.onOctober
28andcontinuesonOctober29.• RamadanHolidays,3.5days,thedatesvary,startsat13:00pm
onthedaybeforethereligiousday• SacrificeFeastHolidays,4.5days,thedatesvary,startsat13:00
pmonthedaybeforethereligiousday
Overtime WorkOvertimeworkisdefinedastheworkinghours,whichexceeds45hoursinaweek.Hourlywagesforovertimeis50%morethanthatforordinaryworkinghours.Whereanemploymentcontractstipulateslessthan45hoursofworkinaweek,anyworkupto45hoursthatexceedstheweeklyworkinghoursprovidedbythecontractaredeemedasextrahours.Thesalarypayableforeachextrahouris25%morethanthesalarypayableforonestandardhourofwork.Anemployeewhoworksovertimeorextrahoursis,athisdiscretion,entitledtorequest1.5hoursoffreetimeforeachhourofovertimeworkedand1.25hoursoffreetimeforeachextrahourworked,inlieuofincreasedsalary.Thedaysonwhichovertimeworkisdonecannotexceed270hoursayear.
Whenovertimeworkisundertakenintheweekendholidayoronofficialholidays,theemployeeisentitledtoanadditionalfulldayworkingwage.Thewrittenconsentoftheemployeemustbeobtainedannuallyforovertimeworking.
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Annual Paid Leave Employeeswhohaveworkedforatleastoneyear,includingtheprobationperiod,fromthedateofrecruitmentareentitledforannualpaidleave.Therightforannualpaidleavecannotbewaived.Thedurationofannualpaidleavetobeallowedtoemployeescannotbelessthan;
• 14workingdaysforthosehavingaserviceperiodbetweenoneyearandfiveyears(includingfiveyears),
• 20workingdaysforthosehavingaserviceperiodmorethanfiveandlessthanfifteenyears,
• 26workingdaysforthosehavingaserviceperiodoffifteenyears(included)andmore.
Incaseofterminationforanyreasonunusedannualleaveaccruedmustbepaidtoemployee.
Employment ContractsWork,whichcontinuesformaximum30workdaysonaccountofitsnature,iscalledtemporarywork,andworkthatlastslongeriscalledpermanentwork.Incaseoftemporarywork,alargenumberofprovisionsoftheLaborCodearenotapplied.
Employmentcontractsthathavedurationofoneyearorlongershouldbeconcludedinwrittenform.Itisnotnecessarytoexecutetheseattheofficeofthenotarypublic,andemploymentcontractsareexemptfromalltaxes,dutiesandcharges.Nevertheless,shouldthenotarypubliccertifythecontract;afeemustbepaidtoit.Incaseswherenowrittencontractismade,theemployerisobligedtopresenttotheemployeeawrittendocumentindicatingthegeneralandspecialworkingconditions,dailyorweeklyworkperiod,basicwageandwageadditions,ifany,wagepaymentperiod,termofcontract,ifdefinite,andtheprovisionsthatthepartiesshouldobserveincaseofterminationwithintwomonthsatthelatest.
Work on Call BasisThelaborrelationwhereitisagreedthroughawrittencontractthattheactionofworkingshallbeperformedwhenemployeeisrequiredinrelationwiththeworkundertakenbyhim/herisapart-
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timelaborcontractbasedonon-callwork.Insuchacase,ifnototherwisestatedintheemploymentcontract,theworkinghoursareacceptedas20hoursinaweekandatleast4hoursinaday.Thecallshouldbemadeatleast4daysbeforethestartingdateofthework.
“Distantwork”isanewlydefinedemploymentagreement,wheretheemployerrequestsfromtheemployeetoperformhis/herworkathis/herhomeorviatechnologicaldevicesoutofofficeandthetermsofsuchagreementshouldbedrawninwritten.
Compensating WorkEmployerhastherighttorequestforcompensatingworkwithintwomonthsiftheworkisstoppedduetothecompulsoryreasonsoriftheemployeeshaveholidaysbeforeandaftertheofficialandgeneralholidaysorwork less thanordinaryworkinghoursor if a vacationright isgiven to theemployeeathisown request.Compensatingwork cannot bemore than three hours in a day and cannot alsoexceedmaximumworkinghourswhichis11hoursperday.
Termination of the ContractThefixedtermemploymentcontractsterminatesautomaticallyattheendofthedeterminedperiodwithoutpriornotice.Beforeterminatinganemploymentcontractwithanindefiniteterm,anoticemustbeservedtotheotherparty.
Statutory NoticeTheindefinitetermemploymentcontractwillbeconsideredasannulledin:
• 2weeksfromthedateofnotificationforemploymentof0-6months,
• 4weeksfromthedateofnotificationforemploymentof6months-1.5years,
• 6weeksfromthedateofnotificationforemploymentof1.5years-3years,and
• 8weeksfromthedateofnotificationforemploymentofexceeding3years.
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Theseintervals,socalledtheperiodofnotice,maybeextended,butnotcurtailed,throughcontracts.
Theemployermayimmediatelyterminatetheemploymentcontractbypayingthesalarycorrespondingtothenoticeperiod(paymentinlieuofnotice)inadvance.Whereanemploymentcontractisterminatedbypayinginlieuofnotice,allotherentitlementsarisingfromtheemploymentrelationshipmustadditionallybetakenintoconsideration.
Severance PayAseverancepaymentintheamountof30dayssalary(limitedwithasemi-annuallydeterminedthreshold)foreachcompletedemploymentyearispaidinthecasesoftheterminationoftheemploymentcontract:
• bytheemployerwithoutanycause;• bytheemployeewithjustcauses;• becauseoftheemployeeistakenunderregularmilitary
service;• becauseofretirementordisability,orsinglepaymentfromthe
legalinstitutionorthefundthattheemployeeisrelatedto;• employee’sownrequestbycompletingtherequiredperiodof
insuranceandpaymentofpremiumstotakeold-agepension;• femaleemployee’sterminationwithherownwillwithinone
yearbeginningfromhermarriagedate;or• becauseoftheemployee’sdeath.
Severancepayisassessedaccordingtothelastwagereceivedandnumberoftheyearsworkedfortheemployer.Suchpaymentsarecalculatedataminimum30days’wageperyearofemploymentattherateofpayofwhichmaximumamountisannouncedbythegovernmentapplicableatthedateofretirementortermination.Incalculatingthewagethatwillformthebasisoftheseverancepay,anybenefitsotherthanwagesthatweregiventotheemployeeduringthelastyearundervariousnamesandallprivilegesthataccruefromthecontractandcanbemeasuredinmoneywillbetakenintoconsideration.
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Presently,themaximumseverancepayforeachyearofemploymentisTRY4.426,16(fortheperiod01.01.2017-30.06.2017).
Collective DismissalCollectivedismissaloftheemployeesfromaworkplaceisdefinedunderArticle29oftheTurkishLaborCode.Accordingly,whentheemployerintendstodismissemployeesinmassduetoeconomic,technologic,structuralandsimilarenterprise,businessorworkrequirements,he/shenotifiesthistothebusinesstradeunionrepresentative,respectiveregionaldirectorateandTurkishEmploymentAgencyinwritingatleastthirtydaysinadvance.
Thedismissalofthefollowingnumbersofemployeesinaccordancewiththeirnoticeperiodsandonthesamedateordifferentdateswithinthesamemonthisconsideredasmassdismissal:
• between20and100,atleast10employees• between101and300,atleast10%oftheemployees• 301andmore,atleast30employees.
Thenotificationshouldincludeinformationonthereasonsofemployeedismissal,thenumberandgroupofemployeeswhowillbeaffectedandtheperiodoftimethatthedismissalprocedureswilltakeplacein.
Noticesofterminationbecomeeffectivethirtydaysafterthenotificationofregionaldirectoratebytheemployerofhis/herintentionofmassdismissal.
Incasetheemployerintendstoemployemployeesforaworkwiththesamequalificationswithinsixmonthsfromthefinalizationofmassdismissal,he/shepreferablyinvitesqualifiedonesforthework.Theemployerwhowishestoreemployemployeesforworkofsamenatureduringthisperiodpublishesthesituationthroughsuitablemeans,andnotifiestheformeremployeesofthefactthroughthenotarypublic.Employeeswhodonotapplytotheworkplacewithin15daysforfeitthisright.
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10.2 Labour Costs
Wage RegulationThereisnoceilingtothewagesthatcanbegiven.Ontheotherhand,wagescannotbebelowtheminimumwage.TheminimumconditionsconcerningwageshavebeenspecifiedintheLaborCode.
However,therestrictionsstipulatedbythelawmaybealteredinfavoroftheemployee.Therepresentativesofthegovernment,employeesandemployersdeterminetheminimumwagestobegivenintheagriculturalandindustrialsectorslatesteverytwoyears.Inrecentyearstheminimumwagehasbeendeterminedbeforethetwo-yearperiodwasover.
Monthlyminimumwageapplicablefortheperiodof01.01.2017-31.12.2017isdeterminedasTRY1.777,50ingrossterms.Itisforbiddentoemployemployeesatwagesbelowthisminimum.Theemployerisobligedtopayortoadvancetoallemployeesusingtheirannualvacationthewagesforthevacationperiodbeforetheemployeestartshis/hervacation.Wagesfortheweekendholidays,nationalholidaysandgeneralholidaysthatcoincidewiththeannualpaidvacationperiodarepaidseparately.
Bonuses and Other Extra PaymentsTherearenolegalobligationsinthisrespect.Theyaredeterminedtotallybytheownaccordoftheparties.Shouldacertainsumbegivenasamonthlywageorbonus,therewillbenotaxadvantages.
10.3 Social Insurance - General Health Insurance
Social InsuranceAllemployeesandfunctionariesareconsideredassecuredfromthemomenttheystarttowork.TheemployerisobligedtosubmittheSocialSecurityInstitution(“Institution”)theworkplacenotificationatthelatestonthedatetheinsuranceholderstartsworking.
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EmployersareobligedtonotifytheInstitutiontheemployeeswithaninsuranceholderemploymentreport,beforethedateofinsurancestart.However,incasetheemploymentisnotifiedbytheemployertotheInstitution;
a) atthelatestonthedateofstartingtoworkforinsuranceholdersemployedforworkplacesofconstruction,fishingandagriculture,
b) atthelatestuptotheendofonemonthtimeperiodfromthedatetheystarttoworkforinsuranceholderswhostartworkingwithinonemonthfromthedateonwhichtheinsuranceholdersareemployedforthefirsttimeintheworkplaceswhichwillsubmitthefirstworkplacereporttotheInstitutionandfortheoneswhoareemployedduringtravelinthetransportationvehicleswhichtraveltoforeigncountries,
c) withinmonthfromthedateofstartingtoworkofcontractedpersonnelwhoarenotsubjecttounemploymentinsurancepursuantUnemploymentInsuranceLawNumber4447andareemployedbypublicadministrationsorofindividualswhoareemployedbypublicadministrationsinordertoworkinabroadduties,
Thenitisconsideredthatthesubmissionismadebeforethestartofinsurance.
Socialinsurancecoversworkaccidentsandoccupationaldiseases,illness,maternity,disability,oldageanddeath.
Incaseaworkaccidentoccursinconnectionwithhisjobattheworkplaceorinanotherlocationoranoccupationaldiseaseoccurs,he/shereceivesassistancefortreatment,ispaidwagesfortheperiodshe/sheisunabletowork,andwhennecessaryhe/sheisprovidedwithartificialdevicesandappliances.
Thisinsurancebranchisappliedingeneralillness,accidentanddisablementcasesotherthanworkaccidentsandoccupationaldiseases.Forthispurposeaphysician,hospitalization,medicationandtreatmentgivetheemployeeassistanceforexamination.
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Thespouse,childrenandparentsoftheemployeealsobenefitfromthesicknessinsurance.
ThehospitaltreatmentsoftheinsuredpersonsarecarriedoutattheSocialSecurityhospitalsestablishedforthispurpose.
Maternityinsuranceprovidesfortheextensionofacertainandnecessaryassistancetotheinsuredwomenandthenon-insuredwivesofinsuredmenincaseofpregnancyandchildbirth.
Social Insurance PremiumsSocialsecuritypremiumsarecompulsoryinrespectofallpersonsearningsalariesandwages.
Socialinsurancepremiumsarecalculatedonthebasisofthemonthlywagesandarepaidjointlybytheemployeeandtheemployeratthefollowingrates:
BranchesEmployee
(%)Employer
(%)Total(%)
ShortTermSocialSecurityBranchesincludingworkaccidentsandoccupationaldiseases(variesdependingonthejob)
- 2 2
Disability,OldAge,Death 9 11 20
GeneralHealthInsurance 5 7,5 12,5
Total Minimum 14 20,5 34,5
UnemploymentInsurance 1 2 3
Theaboveratesareappliedtothegrosstotalofsalaries,wagesandbonusesuptoacurrentmaximummonthlyofTRY13.331,40fortheperiodof01.01.2017-31.12.2017.
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ThepremiumsarepaideachmonthtotheSocialInsuranceInstitutionattheplacewheretheemployeeisemployedpriortothe30thdayofthefollowingmonth.
Incalculatingtheincomewithholdingtaxonthewagesbytheemployer,theemployeecontribution(e.g.15%)isdeductedfromthewithholdingtaxbase.
General Health InsuranceAsexplainedabove,socialinsurancealsoincludeshealthinsurance.Furthermore,socialinsuranceiscompulsory.Individualsorenterprises,whichwishtodoso,cannotbereleasedfromtheobligationofsocialinsuranceonthegroundsthattheyhavesubscribedtoaprivatehealthinsurancescheme.
SocialSecurityandGeneralHealthInsuranceLawnumbered5510willbeimplementedafter01.01.2012.Accordingly,anyoneresidentinTurkeywillbecoveredbytheGeneralHealthInsuranceaccordingtotheconditionsofthe60tharticleoftheSocialSecurityandGeneralHealthInsuranceLaw.
EffectiveJanuary1,2012thislawappliestoforeignerswhohavebeenresidentinTurkeymorethan1year.
TheforeignersarerequiredtoapplytoSocialSecurityInstitutionwithintheonemonthafterthecompletionofoneyearresidencewithoutinterruptioninTurkey.Otherwise,accordingtomentionedlawarticle102;theseforeignerswillbechargedwithinterestappliedbytheSocialSecurityInstitution.
ForeignersentitledtosocialsecurityintheirhomecountriesarenotcoveredbytheGeneralHealthInsuranceinTurkey.
InTurkeymanyemployerssubscribetoprivatehealthinsuranceschemesfortheiremployeesinadditiontothesocialinsurance.Theycan,inthismanner,ensurethattheiremployeesareexaminedandtreatedinbetterhospitals.However,aprivatehealthinsuranceisnotobligatory.Therearemanyinsurancecompaniesthatofferhealthinsuranceschemes.
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10.4 Rules Applicable to Expatriates
AforeignindividualsentbyaforeigncompanyestablishedabroadtocarryoutbusinessonitsbehalfinTurkeywhohasnotifiedtheDepartmentofSocialSecuritythatheisinsuredabroadwillnotbesubjecttoSocialSecuritydeductionsinTurkeyincasetheyprovidetheofficialdocumentstoTurkishSocialSecuritythattheyareinsuredintheirhomecountry.
International AgreementsTurkeyhasagreementswithGermany,Austria,Belgium,Denmark,Sweden,Libya,Norway,UK,Switzerland,Netherlands,France,T.R.N.Cyprus,Azerbaijan,Romania,Albania,BosniaHerzegovina,CzechRepublic,Georgia,Canada,Quebec,Macedonia,Luxembourg,Bulgaria,Italy,Slovenia,Montenegro,Korea,Croatia.Incaseofindividualswhoarenationalsofoneoftheabovecountries,whichhavesocialsecuritytotalizationagreements,theprovisionsoftheaboveagreementshavetobeconsideredtodeterminetheirsocialsecuritystatusinTurkey.Exceptinthecasesreferredtoabove,aforeigneremployedbyaTurkishcompanyisliableforfullSocialSecuritydeductionsasisthecaseforaTurkishnational.
10.5 Collective Agreements - Trade Union Rights
MatterspertainingtotradeunionsandcollectiveagreementshavebeenregulatedbyLawonTradeUnionsandCollectiveLaborAgreementsnumbered6356.
Collective Labor AgreementsAccordingtothelaw,collectiveagreementsareagreementsconcludedbetweenthetradeunionandtheemployers’associationorthenon-affiliatedemployerfordrawingupaservicecontractandregulatingitscontent,terminationandrelevantmatters.
Collectiveagreementscanalsocontainprovisionsregulatingthemutualrightsandobligationsoftheparties,theimplementationandsupervisionoftheagreementandthemethodstobeappliedforthesettlementofthedisputes.
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Collectiveagreementshavetobemadeinwritingandcanhavedurationofminimumoneyearandmaximum3years.Thisperiodcannotbeshortenedorextendedaftertheagreementhasbeensigned.
Theprocedureforcontractingacollectiveagreementhasbeenstipulatedbythelaw.Thisconsistsof,inthestatedorder,determiningtheunionsthatwillmaketheagreementandobtainingthecertificateofauthorizationformakinganagreement,callingtheotherpartytocollectivenegotiationswithin15daysfromthedateofreceiptofcertificateofauthorization,specifyingthevenue,dateandhourofthecollectivenegotiationswithin6workdaysfollowingtheforwardingofthecalltotheotherparty,carryingoutthecollectivenegotiations,andfinallysigningtheagreement.
StrikesTheexpression“strike”meansanyconcertedcessationbyemployeesoftheirworkwiththeobjectofhaltingtheactivitiesofagivenestablishmentorofparalyzingsuchactivitiestoaconsiderableextent,oranyabandonmentbyemployeesoftheirworkinaccordancewithadecisiontakentothateffectbyanorganization.Lawfulstrikemeansanystrikecalledbyemployeesinaccordancewiththislawwiththeobjectofsafeguardingorimprovingtheireconomicandsocialpositionandworkingconditions,intheeventofadisputeduringnegotiationstoconcludeacollectivelaboragreement.
Strikecanbeexecutedwithin60daysprovidedthatthenotificationhasbeenmadetotheotherparty6daysbefore.Unlessthestrikedecisionistakenorthestrikedateisnotifiedtotheotherparty,theauthoritytoexecutecollectiveagreementwilldrop.Strikesexecutedwithoutfulfillinglegalconditionswillbedeemedasillegalstrikes.
Thecasesofoccupationoftheworkplace,slow-downs,decreasingefficiencyandothertypesofjobactionsaresubjecttothesamesanctionsasillegalstrikes.Astrikeorlockoutthatisinthenatureofendangeringpublichealthornationalsecuritycanbepostponedfor60daysbytheCouncilofMinisters.
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Lockouts Lock-outmeansanyactiontakenbyanemployerorhisrepresentative,eitheruponhisowninitiativeorinaccordancewithadecisiontakenbyanorganization,tocollectivelysuspendemployeesfromworkinamannerthatcompletelystopstheactivitiesintheworkplace.
Theemployers'tradeunion,ortheemployernotbelongingtoanyunion,thatispartytothedisputemaytakeadecisiontoorderalock-outwithinsixtyworkingdaysofthedateonwhichthedecisiontocallastrikeiscommunicatedtohimandshallputintopracticewithinthisperiodandthedateofthelock-outshallbecommunicatedtotheoppositepartysixworkingdaysbefore.
Special arbitratorThepartiesmayagreetoresorttospecialarbitrationatanystageinthecollectivedisputeinvolvingrightsandinterests.
Provisionsprovidingforrecoursetospecialarbitrationattherequestofeitherofthepartiesmaybeincludedinthecollectivelaboragreement.
Wherethepartiesagreeinwritingtoresorttospecialarbitrationinadisputeinvolvinginterests,theprovisionsgoverningmediation,strikeandlock-out,statutoryarbitrationshallnotthereafterapply.Inthedisputesinvolvinginterests,thedecisionsofspecialarbitrationshallhavethesameforceandeffectasacollectivelaboragreement.
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11. Taxation of Mergers, Acquisitions and Reorganizations
Thischapteraimstoexplainthebasictaxationrulesandconsiderationsforaninvestorplanningamerger,acquisitionorare-organizationinTurkey:
11.1 Mergers
TheabsorptionofoneormorecompaniesintoanexistingcompanywheretheabsorbedcompanyisdeemedtobedissolvedwithoutliquidationisdefinedasamergerunderTurkishCommercialLaw.UndertherecentchangesinTurkishCommercialLawcompaniesofdifferentlegaltypecanalsoparticipateinamerger.
Taxable MergersAmergerundertheTurkishCommercialLawprovisionsisconsideredtobeataxablemergerifthespecificrequirementsforataxfreemerger(pursuanttoprovisionsofArticles18,19and20ofCorporateTaxLaw)arenotsatisfied.Inataxablemerger,theassetsoftheabsorbedcompanyaredeemedtohavebeentransferredatmarketvaluetotheabsorbingcompanywhichleadstotaxablecapitalgains.Theabsorbingcompanyisentitledtobooktheassetsattheirmarketvaluesastheirtaxbasisfordepreciationpurposes.
Inataxablemerger,taxlossesoftheabsorbedcompanycannotbetransferredtotheabsorbingcompany.Nevertheless,theabsorbedcompanycanusetheexistingtaxlossestooffsetagainstthecapitalgainsarisingfromthetransferofassetsthroughataxablemerger.
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Tax Free MergersAmergerundertheTurkishCommercialLawprovisionsisrecognizedasataxfreemerger(alsoreferredtoasa“takeover”)ifthefollowingtestsaresatisfiedalltogether:
• Boththeabsorbingandabsorbedcompaniesaretaxresidents
• Theabsorbingcompanyincorporatesallassetsandliabilitiesoftheabsorbedcompanyintoitsbalancesheetonacarryoverbasis(i.e.thewholebalancesheetistransferredonthebasisofbookvalues)
• Otherproceduralandfilingrequirementswithrespecttothemergeraresatisfiedonatimelybasis
Under a tax free merger• Theabsorbedcompanyissubjecttotheusualtaxationrulesfor
profitsuptothedateofthemergerhoweverthegainsarisingfromthemergeritself(andtherelatedtransferofassets)isnotcalculatedandtaxed
• Theabsorbingcompanyassumesallknownorunknowntaxliabilitiesoftheabsorbedcompany
• Taxlossesoftheabsorbedcompanycanbetransferredtotheabsorbingcompany,iftheabsorbingcompanycontinuesthebusinessactivitiesoftheabsorbedcompanyminimumfor5yearsfollowingthedateofthemerger.However,taxlossesthatcanbetransferredtotheabsorbingcompanyare
• limitedtotheshareholdersequityoftheabsorbedcompanyasofthedateofthemerger.
• Thetaxfreemergerdoesnotaffectthetaxattributesoftheabsorbingcompany
• Therearealsotaxexemptionsinotherlaws(suchasVAT,stamptax,realestatetransfertax)inreferencetoataxfreemergerconductedasperCorporateTaxLawprovisions.
Simplified merger processAccording to the new Turkish Commercial Code, a simplifiedmerger process is allowed if; oneof the parties owns all sharesthat provide voting rights in the other company or the mergingcompanies are sister companies. Through the simplified mergerprocess,someobligationssuchasdraftingofamergerreportand
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providingtheauditrighttorelatedinstitutionsorpersonsstatedintheTurkishCommercialCodewillnotbeapplied,hencethemergercanbeimplementedinarelativelylesstimeframeandadministrativeburden.
Asimplifiedmergercanalsoqualifyasa“taxfreemerger”subjecttotherulesandconditionsexplainedabove.
11.2 Acquisitions
AninvestormayexecuteanacquisitioninTurkeyeitherthroughacquisitionofacompany(sharedeal)oracquisitionofacertainbusiness(assetdeal).ThefollowingrepresentsthekeyconsiderationswhenplanninganacquisitioninTurkey:
Regulations for AcquisitionTherearenogeneralgovernmentcontrolsorrestrictionsoninvestmentsinassets,businessentitiesoracquisitionofotherrightsinTurkey.However,certainspecificbusinessactivitiesrequirearegulatoryapprovalbeforechangeofownership(e.g.,bankingandinsurance,telecommunications,tobaccoandalcoholicbeverages,productionanddistributionofenergy,etc.).AcquisitionofrealestateinTurkeybyforeigninvestorsisalsosubjecttospecificregulationswhichneedtobeobservedbytheforeigninvestors.AmergeroracquisitiontransactionmayalsotriggerapprovalrequirementfromTurkishCompetitionBoardbasedoncertaincriteria.
Asset vs. Share AcquisitionAforeigncompanycanacquireaTurkishcompanybyacquiringeithertheassetsorthesharesofthetargetcompany.Incaseofanassetacquisition,thiscanbedoneeitherviaabranchoftheforeignentity,whichistaxableinTurkeyonnon-residentstatus,orviaaTurkishsubsidiaryoftheforeigncompany.Therespectivetaximplicationsaresummarizedbelow:
• Purchase of assets
AcquisitionofassetscanonlybedonethroughaTurkishcompanyoraTurkishbranchofaforeigncompany.
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Purchase PriceInprinciple,thetransferofassetsshouldbeconductedatfairvalue,whichshouldrepresentthemarketvalue.Transfersbetweenrelatedpartiesmustbedocumentedtocomplywithtransferpricingrequirements.
GoodwillIncaseofanasset-deal,theexcessofthepurchasepriceoverthefairvalueoftheassetsbeingtransferredrepresentthegoodwill,whichcanbecapitalizedbythebuyeranddepreciatedfortaxpurposes.Turkishtaxlawdoesnotrequirerecognitionofinternallydevelopedgoodwillandrightsinthetaxbasisbalancesheet,sothereisusuallynotaxbasiscostforthegoodwillintheseller’sbooksandit,therefore,representspuretaxableincome.
DepreciationThedepreciationperiodofassetsarerefreshedinanassetdeal.Thesellingentityhastherighttodeductallremainingnetbookvalueofassetsasthetaxbasiscostagainstthetransfervalue;andthebuyerhastobooktheassetsattheirtransfervalueandstartdepreciatinganewtermofusefullifeforeachasset(asprescribedbytheCommuniquésoftheMinistryofFinance).
Tax AttributesThetaxattributes(i.e.taxlossesandincentives)arenottransferredtoabuyerinanassetdeal.However,thesellingentityhastherighttouseitsexistingtaxlossesandVATcreditsagainstthetaxableprofits(suchascapitalgains)andVATobligationsarisingfromtheassettransfer.
Value Added Tax (VAT)TransferofassetsthrougharegularassetpurchaseagreementissubjecttoVATatregularratesdependingonthetypeofassetsbeingtransferred(normally18%).
RealestatepropertiesthatareincludedintheassetpurchaseagreementcouldpotentiallybeexemptfromVATifheldforaperiodofmorethan2years.ThebuyerhastherighttogetadeductionoftheVATincurredonassetdealagainstVATgeneratedfromitssales.However,thefullrecoveryofVATcantaketimedependingontheVATgenerationoftheacquiringentity,whichmayleadtoanadditionalcashflowproblemonassetpurchasetransactions.
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Transfer TaxesInanassetdeal,assetpurchaseagreementwouldusuallybesubjectto0.948%stamptaxonthebasisofcontractvaluewhereastransferoftitletorealestateissubjecttoatitledeedregistrationfeeof2%forbothsellerandbuyerseparately.Incaseoftransferofanexistingagreementtotheacquiringentity,stampdutyispayableat1/4thofthestampdutythatwaspayableontheoriginalagreement.
• Purchase of shares AcquisitionofsharesbyaforeignentityhasnoimmediateTurkishincometaxconsequences.
GoodwillIftheacquisitionisviaaTurkishbranchorsubsidiary,goodwillimplicitinthesharepricecannotberecognizedfortaxpurposes.Thereisnostep-upavailabilityfortargetcompanyassetsduringashareacquisition.
DepreciationATurkishcompanybuyingthesharesinanotherentitycannotdepreciatethevalueofsharesfortaxpurposes.Thesharesarebookedathistoricalacquisitionvalueandoffsetagainstfutureproceedsfromsalesasataxbasiscost.
Tax AttributesAchangeintheshareholdingwillnothaveanyeffectonthetaxattributesofthetargetcompany.Followingtheacquisitionofshares,thetargetcompanycancontinuetocarryforwarditstaxlosses.
Value-Added Tax (VAT)SharetransfersbyanindividualareoutofthescopeofTurkishVAT.Wherethetransferorofsharesisacorporateentity(e.g.acompanyorabranch)inTurkey,thetransactionisprincipallyinthescopeofTurkishVAT.Inthiscase,transferofshares(inJointStockCompanies)areexemptedfromVAT,howeversaleofparticipationshares(inLimitedLiabilityCompanies)byaTurkishentitycanpotentiallyattractTurkishVATat18%unlesstheparticipationsharesareheldforaperiodofmorethan2years.
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Tax Indemnities and WarrantiesInasharedealtransaction,thehistoricaltaxliabilitiesofthetarget(knownorunknown)remaininthecompanyandareacquiredbythenewshareholder(s).Itis,therefore,usualforthebuyertoaskfortaxindemnitiesandwarrantiesinashareacquisition.
Transfer TaxesAccordingtoarecentchangeinstamptaxlaw(Number6728),enactedon29September2016,documentsconcludedforsharetransfersofjoint-stockcompanies,limitedliabilitycompaniesandlimitedpartnershipsshallbeexemptedfromstamptax.
• Concerns for the Seller
Sale of assetsThesaleofassetsofanentityissubjecttousualcorporatetaxonthegainsrealizedfromthesaleoftheassets.Lossesarisingfromthesaleofassetsareavailableforimmediatedeductionorcarry-forward.Withrespecttosaleofcertainfixedassets(e.g.realestateproperty),75%ofthegainsrealizedfromsuchsalesmaybeexemptedfromcorporatetaxationprovidedthattherealestatehasbeenheldforatleasttwoyearsandthegainsareretainedinaspecialreserveaccountinthebalancesheetforatleastfiveyears.NotethatthetransferoftherealestatepropertywhichhasbeenheldatleastfortwowholeyearsbythecompaniesisexemptfromVAT.
Sale of sharesThesaleofsharesinanothercorporationissubjecttocorporatetaxonthegainsrealizedfromthesaleofshares.Lossesareavailabletooff-setincomefromotheractivitiesoftheentity.Thecorporatetaxexemptionon75%ofsuchgainsisavailableundertheconditionsmentionedabove(i.e.2yearholdingperiodandrequirementtoretainthegainsinaspecialreserveaccountforatleast5years)inrespectofsaleofrealestateproperty.
Ifthesellerofthesharesisanindividual,capitalgainsderivedbyindividualsonthesaleofshares(ofaJointStockcorporation)heldformorethantwoyearsarefullyexemptfrompersonalincometax(Pleasenotethat,theproposedchangestotheIncomeTaxLawmaylimittheexemptionsgrantedtosharesaletransactions,howeveritisyetsubjecttofurtherdiscussionandpossiblechanges
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intheParliament);otherwise,ifthesharesareheldlessthantwoyear,thenthecapitalgainsaresubjecttopersonalincometaxatusualrates(i.e.15%to35%).TherearenosimilarexemptionsforindividualsinrespectofcapitalgainsarisingfromtransferofparticipationrightsinaLimitedLiabilityCompany.
PleaserefertoourcommentsabovewithrespecttoVATimplicationsincaseofsharetransfertransactions.
• Comparison of Assets and Share Purchases
Inviewoftheabove,pleasefindbelowasummaryofthetaxconsiderationscomparinganassetpurchasetransactionvs.asharepurchasetransaction:
Advantages Disadvantages
Asset Acquisition
Purchasepricecanbedepreciatedfortaxpurposes
Potentialneedtorenegotiatethecontracts,renewthelicensesetc.
Step-upintaxbasisofassetsispossible
Taxattributeslikecarriedforwardlossesremainwiththeseller
Previoustaxliabilitiesnotinheritedbythebuyer(exceptforcertainanti-avoidancerulesforrelatedpartytransactions)
Moretransactionscosts(stampduty,transfertaxes,registrationfeesetc.)
Possibletoacquirepartofabusiness
Potentiallyrepresentsmoretaxcosttotheseller(comparedtoshareacquisition)
Share Acquisition
Possibletopurchaseonnetassetbasis;hencelowercapitaloutlays
Acquisitionofpotentialtaxliabilityduetodifferencebetweenmarketvalueandbookvalueofassetsinthetargetcompany
Likelytobemoreattractivetothesellersduetopossibletaxexemptions
Inabilitytorecognizeagoodwillfortaxpurposes
Taxattributeslikecarriedforwardlossesarealsoacquiredwiththecompany
Acquisitionofcontingent(unknown)taxliabilitieswiththecompany
Continuetoenjoyexistingcontracts,licenses,incentivesetc.
Potentialneedforpost-acquisitionstructuringifnon-coreassetsarealsoacquiredwiththecompany
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11.3 Corporate Reorganizations
TaxFreeDe-mergerTherearetwotypesoftaxfreede-mergerallowedundertheTurkishtaxlaws:
• Afullde-mergerisreorganizationwhereacompanyisdividedintotwoormoreexistingornewcompanieswhilethetransferringcompanyisdissolved,pursuanttotheprovisionsofArticle19-3-aofCorporateTaxLaw.Thistypeofde-mergerallowstransferoftaxlosses.BytheintroductionofthenewTurkishCommercialLaweffectivefromJuly2012,italsobecamepossibletoimplementsuchade-mergerfromaCommercialLawperspective.
• Apartialde-merger(alsocalleda“partialde-merger”)isreorganizationwherecertainassets(i.e.participationsharesorrealestatepropertythathasbeenheldforaperiodofmorethan2yearsorcompleteproduction/servicefacilities)ofacompanyarecontributedintoaneworexistingcompanyascapitalinkindonacarryoverbasis,pursuanttotheprovisionsofArticle19-3-bofCorporateTaxLaw.AreorganizationofaTurkishbranchofaforeigncompanybywayofapartialde-mergerhasrecentlybecomepossibleprovidedthatthetransfereecompanyisataxresident.Taximplicationsaresimilarasataxfreemerger,exceptthattransferoflossesisnotpossibleunderapartialde-merger.
TaxFreeShareSwapsAshareswapisataxfreetransactioniftheacquiringcompanyreceivesthetargetsharesinexchangeforitssharestoacquirecontrolofmanagementaswellasamajorityofsharesinthetargetcompany.Althoughataxfreeshareswapisprincipallydefinedasanon-cashtransaction,itisallowedtopaytheshareholdersofthecompanywhoseshareshavebeenacquiredupto10%ofthenominalvalueofthesharestobegiventothem.
Conversions Conversions(i.e.changeoflegalformofacompany)carriedoutundertherequirementsfortax-freemergerswillnotbeconsideredasataxablereorganization.
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Liquidations ATurkishCorporationmayliquidateitsassetsanddistributetheproceedstoitsshareholdersthroughaformalliquidationprocesstobecarriedoutinaccordancewithTurkishCommercialLawrequirements.
Inthetaxationofliquidations,financialperiodisreplacedbyliquidationperiod,whichstartswhenacompanyisputintoliquidation.Theperiodbetweenthisdateandtheendofthesamecalendaryear,aswellaseverycalendaryearfollowingthisdate,isconsideredasaseparateliquidationperiod.Whenliquidationisfinalized,thefinalliquidationprofitorlossiscomputedandtheliquidationreturns,whichwerepreviouslyfiled,arecorrectedand,ifnecessary,taxesoverpaidarerefunded.
Thecompanywillbesubjecttousualtaxationrulesduringtheliquidationperiodandwillberequiredtomaintainalllegalbookkeepingandfilingobligationsasanormalcompany.
Therepaymentofcapitaltoshareholdersattheendofliquidationdoesnottriggeranytaxes,butdistributionofexcessprofits,reserves(orhiddenreservessuchasthecapitaladjustmentdifferences)totheshareholderswillattractdividendwithholdingtaxat15%(maybereducedbyDoubleTaxTreatyprovisions).Notethatitisastatutoryrequirementforthetaxofficetocarryoutataxauditupontheclosingofliquidation.
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12. International Corporate TaxationResidency and Taxation of Non-Resident EntitiesAcompanyisconsideredtoberesidentinTurkeyifithaseitheritslegalseatorplaceofeffectivemanagementinTurkeyorboth.Legalseatreferstotheplaceofofficialcenterofcompany,definedin,suchas,thearticlesofassociation.Theplaceofeffectivemanagementreferstotheplacewherethetopmanagementofthecompanyislocated.Asageneralrule,residenceofacompanyisdeterminedbythedomesticrulesofthecontractingstates.However,insomecasesprovisionsoftaxtreatiesmightbeapplied.
IfneitheroftwoconditionsismetfortheresidencyinTurkey,thenacompanyisconsideredtobenon-residentfortaxpurposes.Non-residententitiesaresubjecttotaxationinTurkeyontheirTurkeysourcedincome.
Taxableincomeofnon-residentsisdetermined-butnotlimitedtothese-basedonthefollowingtypeofincome:
• Profits fromcommercial (business)activitiesearnedthroughaplaceofbusinessorapermanentrepresentativeinTurkey
• IncomederivedfromprofessionalservicesperformedinTurkey(orthefeesthatareobtainedinTurkey)
• Income derived from income from lease of immovableproperties,intangiblesandmachineryinTurkey(alsotransferofintangiblesinTurkey)
• InterestincomeobtainedfromTurkey• DividendincomeobtainedinTurkey• CapitalgainsoftransactionsperformedinTurkeyorobtainedin
Turkey
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ForeignentitiesmayoperateinTurkeytorunabusinessinformofbranchorthroughtheirsubsidiariesasseparateentity.Theseformsareelaboratedinmoredetailbelow.Besides,operationsofnon-residententitiesmightbeconsideredtoconstituteapermanentestablishmentfortaxpurposes.Thesecreatetheconceptofbusinessplaceinlocalrules.Ofcoursetheprovisionsoftaxtreatiesshouldalsobetakenintoaccount.Businessprofitsofnon-residententitiesareassessedinthesamewayasthatofresidentcompaniesfortheirTurkishsourcedincome(pleaseseetheothersectionsin“CorporateTaxation”).
Permanent EstablishmentUnderTurkishCorporateIncomeTaxLegislation;theincomederivedbynonresidententitiesthroughtheirPermanentEstablishment(“PE”)orPermanentRepresentative(“PR”)inTurkeyaresubjecttotaxinTurkey.TurkishCorporateTaxLawreferstoprovisionsofTaxProceduralLawregardingthedefinitionofPEandprovisionsofIncomeTaxLawregardingthedefinitionofPR.
Inthisrespect,aworkplace(PE)isdefinedastheplacesofbusinesswhichisdedicated/allocatedtothecarryingoutcommercial,industrial,agriculturalorprofessionalactivities.Abusinessplaceofanon-residententityoperatinginTurkeysolelyforthepurposeofbuyingorproducinggoodsinTurkeytobelaterexportedisnotconsideredtobeaPE.
Ontheotherhand,aPRisdefinedasthepersonwhoisboundtoaprincipalbyaserviceorrepresentationact,andisauthorizedtocarryouttransactionsonbehalfandonaccountoftheprincipalforadefiniteorindefiniteperiodoftime.
TherearenofurtherspecificdefinitionsorguidelinesinrespectofthedefinitionofaPEunderdomesticlaw.Basedonthegenerallyacceptedinterpretationoftheabovementionedtaxlawprovisions,thefollowingareseenascommonfeaturesofaPEofaforeignentityinTurkey:
• Thereshouldbeanincomegeneratingactivityperformedbytheforeignentity(oritsrepresentatives)inTurkey
• The foreign entity should have a fixed place of presence inTurkeywheretheactivitiesareconcentrated
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• Thereshouldbeacloselinkbetweenthisfixedplaceofpresenceandincomegeneratingactivities
Based on the above, it is usually accepted that Turkish tax lawsfollow thePEdefinitionOECDmodel tax treatieswhereactivitiescarriedoutinTurkeywhodonothaveastrongconnectionwiththeincomegeneration (e.g. preparatory and auxiliary services) shouldnotleadtorecognitionofPE;ontheotherhand,thepersonswhocarryoutcommercialtransactionsonbehalfofaforeignentitymaystillleadtotaxationinTurkeyifdeemedasPRasexplainedabove.
Incontrasttotheprovisionsunderdomesticrules,warehousesandindependent agents aregenerallynot included in thedefinitionof“permanentestablishment”underTurkey’streaties.
BranchesBranchesaretreatedasnon-residententitiesfortaxpurposesandsubjecttocorporatetaxationinTurkeyfortheirprofitsgeneratedinTurkey.
Underlocalforeigninvestmentlegislation,abranchofaforeigncompanyisatypeofforeigndirectinvestmentandtheestablishmentofabranchissubjecttothesamerequirementsandproceduresasaforeigncompanythatintendstorunabusinessinTurkey.Abranchofficemayonlyoperateintheareasofactivitiesoftheheadoffice.Itismanagedbyarepresentative(couldbeaforeignerbutisrequiredtobeaTurkishresident)whoisappointedtothiseffectbyapowerofauthorizations.TherepresentativemustbeauthorizedtorepresenttheforeignentityinTurkeybeforeallpublicandprivateauthorities.
ABranchhastofulfillallstatutorybookkeepingandfilingrequirementsinTurkeysameasausualresidententity.
SubsidiariesAnotherformwhichcanbeusedtorunabusinessinTurkeyistosetupasubsidiaryasaseparatelegalentity,whichcanbeestablishedasLimitedLiabilityCompany(Ltd.)orJointStockCompany(A.Ş).
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ThesetwoformsofcompaniesareconsideredasTurkishresidentfortaxpurposesandsubjecttocorporatetaxationontheirworldwideincomeasopposedtoPEandBranches.
Withholding TaxationThetaxationofincomereceivedbynon-residententitiesinTurkeyisregulatedundertheArticle30ofCorporateIncomeTaxLaw.AccordingtotheArticle,partieswhomakethepaymenttonon-residentsareresponsibleforwithholdingandthepaymentoftaxes.Thegeneralwithholdingtaxrateis15%underthearticle,howevertheCouncilofMinistersareauthorizedtodeterminetheratesbetweentherangeof0%and30%.
DividendsDividendsdistributedtonon-residententitiesaresubjectto15%withholdingtax.Thewithholdingtaxapplieswhenthedividendsareactuallydistributedincashoronaccount.Theuseofprofitstoincreasethecapitalofthecompanyisnotconsideredasprofitdistributionandhencenotsubjecttodividendwithholdingtaxation.Thisisthefinaltaxfornon-residentsandthereisnofurtherfilingrequirement.
IncomeofBranchesinTurkeyisnotsubjecttowithholdingtaxationunlessremittedtoheadquarters.The15%withholdingtaxationappliesforremittanceofincometoheadoffice.ThetransferofincomeofPEsisalsosubjectto15%remittancewithholding.Therateof15%withholdingtaxcanbereducedto5%-10%throughtheuseoftaxtreaties.
RoyaltiesRoyaltiespaidtonon-residentsaresubjecttowithholdingtaxat20%.Inacasethatthenon-residentcompanyhasaPEinTurkey,nowithholdingtaxapplies,howeverthoseroyaltiesshouldbedeclaredintheannualcorporateincometaxreturnandsubjecttotaxationaccordingly.Thisisthefinaltaxfornon-residentsandthereisnofurtherfilingrequirement.
Gainsreceivedfromthesaleofcopyrights,patents,trademarksandotherintangiblerightsaresubjecttoafinalwithholdingtaxof20%.
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ThereducedratesofwithholdingtaxovertheroyaltypaymentsareavailableforallTurkishTaxTreatiesandtheratesvarybetween5%and15%(thegeneralcapof10%appliesfornearlyalltaxtreaties)
InterestInterestpaidtonon-residententitiesissubjecttowithholdingtaxationatthegrossamountofinterestpaidtonon-residententity.Inacasethatthenon-residententityhasaPEinTurkey,theinterestincomeisincludedintheannualtaxreturnandsubjectedtotaxationaccordingly.Thisisthefinaltaxfornon-residentsandthereisnofurtherfilingrequirement.
Withholdingtaxratesappliedtointerestpaymentstonon-residentcompaniesareasfollows,unlessatreatyprovidesforalowerrate;
Arateof0%appliesto:• InterestonTurkishgovernmentbondsanddebentures(including
thoseissuedabroad);• Interestonbondsanddebentures issuedbycompaniesonor
after1January2006;• Loaninterestpaidtoforeignbanksorstates,ortointernational
institutions;• Loan interest paid to other companies that are authorized
habitually to provide loans in the country in which they areestablishedandprovideloansnotonlytorelatedcompaniesbutalsotoallindividualsandlegalentities.
• Interest on debentures issued by Turkish resident companieswiththematurityoverthan5years.
• Income on lease certificates issued by Turkish resident assetleasecompanieswiththematurityoverthan5years.
Arateof1%appliesto:• Interestpaidbybanksonsubordinatedloanssimilartoequity
andinterestpaidbybanksandothercompaniesonloansreceivedbywayofsecuritizationabroad.
Arateof3%appliesto:• InterestondebenturesissuedbyTurkishresidentcompanies
withthematuritybetween3and5years.• IncomeonleasecertificatesissuedbyTurkishresidentasset
leasecompanieswiththematuritybetween3and5years
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Arateof5%appliesto:• Interestinrelationtothesaleofgoodsoncredit.
Arateof7%appliesto:• InterestondebenturesissuedbyTurkishresidentcompanies
withthematuritybetween1and3years.• IncomeonleasecertificatesissuedbyTurkishresidentasset
leasecompanieswiththematuritybetween1and3years
Arateof10%appliesto:• Interestonotherloans• InterestondebenturesbyTurkishresidentcompanieswiththe
maturitylessthan1year• IncomeonleasecertificatesissuedbyTurkishresidentasset
leasecompanieswiththematuritylessthan1year• Interestondepositaccountswiththematuritymorethan1
year• Portionofprofitsreceivedfromprofit/losspartnership
accounts/certificatesinparticipationbanks(interest-free)withthematuritymorethan1year;
Arateof12%appliesto:• Interestondepositaccountswiththematuritybetween6
monthsand1year• Portionofprofitsreceivedfromprofit/losspartnership
accounts/certificatesinparticipationbanks(interest-free)withthematuritybetween6monthsand1year;
Arateof13%appliesto:• Interestonforeigncurrencydepositaccountswiththematurity
morethan1year;
Arateof15%appliesto:• Interestondepositaccountswiththematuritylessthan6
monthsordemanddepositaccounts• Interestoverprofitparticipatingloans• Portionofprofitsreceivedfromprofit/losspartnership
accounts/certificatesinparticipationbanks(interest-free)withthematuritylessthan6months
• Interestonforeigncurrencydepositaccountswiththematuritybetween6monthsand1year
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• Incomefromrepotransactionsfortreasurybondsanddebentures;
Arateof18%appliesto:• Interestonforeigncurrencydepositaccountswiththematurity
lessthan6monthsorforeigncurrencydemanddeposits.
Capital GainsInaccordancewiththeprovisionsofIncomeTaxLaw,capitalgainsreceivedbynon-residentsupondisposalofsharesandotherassetsaretaxableinTurkeyaslongastherelatedgainsaredeemedtobeTurkishsourced.InreferencetoTurkishincometaxcodeprovisions,suchcapitalgainisdeemedtobeTurkishsourcedifthesaletransactionisperformedinTurkeyorthetransactionisevaluatedinTurkey(i.e.thepaymentisbornbyaTurkishtaxpayer).
Ifcapitalgain,receivedbynon-residententities,isconsideredasTurkishsourcedthenitwouldbesubjecttocorporateincometaxatusualrateof20%.Furthermore,theremainingamountaftercorporatetaxeswouldalsobesubjectto15%dividendwithholdingtaxation(taxationofremittanceofcapitalgains).Hence,theeffectivetaxratereachesupto32%.
Thetaxationrightofthecapitalgainsoverthedisposalofsharesisgenerallyremainswiththecountryofwhichthesellingentityisaresidentprovidedthattheminimumholdingperiodshouldbemorethan1yearundermanyofTurkishTaxTreaties.
Professional ServicesProfessional service fees paid to non-resident companies aresubject to20%withholding if theservice is rendered inTurkeyorthepayment ismade inTurkey.Turkeygenerally follows183daystestintaxtreaties.Accordingly,inmostofTurkishTaxTreaties,theprofessionalservicesaretaxableinTurkeyiftheemployeesofthenon-residententitystayinTurkeymorethan183daysina12monthsperiodorhasfixedplaceofbusinessinTurkey.
Withholding tax rate is reducedto5%foroilexplorationactivitiesperformedinTurkey.
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Income from Lease of Tangible AssetsAccordingtolocalrules,paymentstonon-residentsfortheleaseofmovableorimmovablepropertiesaretaxableinTurkeyiftheassetsareinTurkeyortherelevantrightsareusedinTurkey.Suchleasingpaymentstonon-residentsaresubjecttowithholdingtaxat20%.Thepaymentsforthefinancialleasing,however,aresubjectto1%reducedrateofwithholdingtaxes.
Construction and Repair Works, Spread Over the YearsPaymentsforconstructionworksandrepairprojectswhichspreadmorethanonecalendaryeararesubjectto3%withholdingtaxes.
Turkey’s Treaty NetworkTurkey’sdoubletaxtreatynetworkconsistof94countries,82ofthisarealreadyineffect,4newtreaties(Philippines,Senegal,IvoryCostandSomalia)havebeensignedbutnotyetineffectand8newtreaty(Palestinian,Gabon,Gambia,Uganda,Kenya,HongKong,BurundiandChad)havebeeninitialedbutnotyetineffect.PleaserefertoAppendix13.4wherethetableforthetreatycountriesandrelevantprovisionsaresummarized.
Inadditiontothedoubletaxtreaties,TurkeyhasstartedtosignExchangeofInformationTreatieswiththejurisdictions,socalledastaxheavens,withinthescopeofmeasuresfortheprevention/controlofcapitalmovementsandtaxavoidance.Inthisview,Turkeyhassignedexchangeofinformationtreatieswith5countries(Jersey,Gibraltar,IsleofMan,GuernseyandBermuda)inadditiontotheongoingnegotiationswith5countries(Barbados,Panama,CaymanIslands,BritishVirginIslandsandBahamas).
Tax Treaties Signed but not yet in ForceTurkey has signed tax treaties with the below list of Countriesand these treaties will be in effect following the approval of theParliamentsofbothCountries.
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Country Date of Signature
Philippines* 18.03.2009
Palestinian** 15.11.2012
Gabon** 03.09.2015
Gambia** 11.02.2014
Uganda** 14.07.2016
Kenya** 19.07.2016
HongKong** 18.07.2016
Burundi** 19.12.2016
IvoryCoast*** 29.02.2016
Chad** 10.04.2015
Senegal*** 14.11.2015
Somalia*** 03.06.2016
(*) After signature, Treaty has been ratified by Turkey and Philippines, and would be in effect from 1 January following the year of completion of process by the contracting states.
(**) Treaty has been initialed only.
(***) Treaty has been signed only and would be in effect following the completion of ratification process in both countries.
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13. Appendices13.1 Appendix I: Chart of Principal Turkish Taxes
CorporateincometaxAdvancecorporateincometaxIndividualincometax
IncreaseinnetworthNettaxableincome
20%20%
15-35%(allsourceof
incomeincludingsalaryincome)
ValueAddedTax–VAT•General•Certainproductsandservices•Certainproductsandservices
Salesvalue18%8%1%
Banking&InsuranceTransactionTax•General•Interbankdeposittransactions•Repos•Moneymarkettransactionsbetweenbanksandbrokers
•SaleofGovernmentbondsandT-bills•Saleofforeigncurrency
5%1%1%1%
1%0%
StampDuty(Wherethestampdutiesarepayable,theamountofthestampdutypayableoneachdocumentislimitedtoTRY1.865.946,80fortheyear2017.)
Valuespecifiedinthedocuments
generallyat0,948%(0,189%forrentalcontracts,0,759%
forsalaries
GiftandInheritanceTax Value 1–30%
CustomsDuties Value Various
Transferofrealestate SalesValue 2%,eachbuyerandseller
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SpecialConsumptionTax•Petroleumproducts•Vehicles
•Alcoholicbeverages&tobaccoproducts
•Certainluxurygoods
Perliter,kg,etc.ValueandenginesizeValue,retailsalepricefortobaccoproductsValue
Specific0,5to160%
25%-65,25%(*)
andspecific
3%-6,7%-20%-25%
SpecialCommunicationTax• Mobiletelecommunicationservices• Radio&Televisionbroadcastingservices
throughsatelliteorcable• Wired,non-wiredandmobileinternet
serviceprovidingfacility• Othertelecommunicationservices
Service fee25%15%
5%
15%
Lotterytaxes(NationalLottery,horseracing,Toto,lotto,etc.)
Various Specificandadvalorematat5%-7%-10%
MotorVehicleTax Model,engine,weight
Certainamountsrevisedeachyear
MajorMunicipal&LocalTaxes:RealEstateTaxes *Buildings*Lands
EntertainmentTax
CommunicationTax
Electricity&GasConsumptionTax
SanitationTax
TaxValuePertariff,grossprofitFeeSalesValuePerflatandbusinesspremises
0,1-0,4%0,1-0,6%
Specific(TRY5–100)and
advaloremat5–50%
5–15%
1-5%
Certainamountsrevisedeachyear
(*)Onlythepercentagetaxrateisappliedprovidedthatnotbeinglessthanthetaxcalculatedbyusingtheminimumlump-sumtaxamounts.
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13.2 Appendix II: Chart of Withholding Tax
Description Tax Base
Non Resident Company
(*) (%)
Non Resident Individual (***)(%)
Resident Company
(**)(%)
Resident Individual(***)(%)
Technical/ProfessionalServices-General
Grossbillings 20 20 na 20
Constructionprojectslastingmorethanacalendaryear
Progressbillings 3 3 3 3
Salaries•TurkishPayroll
Grosslesssocialsecuritycontributions
- 15-35 na 15-35
Rentals/Royalties Gross 20 20 n.a 20
FinancialLeases Gross 1 n.a n.a n.a
Dividends Gross 15(****) 15 n.a 15
BranchprofitsNetprofitslesscorporatetaxes
15 na na 20
Interestonloans Gross 0(*****)1/5/10 - - -
Salesproceeds:•ofcopyrightsandpatents
•ofotherintangiblerights
Grossbilling20
20
20
-
na
na
17
-
*IntheArticle30ofCorporateTaxLaw,withholdingtaxrateappliedtocertainpaymentstonon-residentcompaniesissetas15%.Ontheotherhand,theCouncilofMinistersisauthorizedtoreducewithholdingtaxratetozeroortoincreaseitto30%.
**IntheArticle15ofCorporateTaxLaw,withholdingtaxrateappliedtocertainpaymentstoresidentcompaniesissetas15%.Ontheotherhand,theCouncilofMinistersisauthorizedtoreducewithholdingtaxratetozeroortoincreaseitto20%.
***Withholdingtaxratesapplicabletoresidentandnon-residentindividualsarebasedontheCouncilofMinistersDecreesnumbered2013/4962,2013/4552,2012/3141,2011/1854,2009/14593-4,2006/11449,2006/10731and2003/6577.
****Exceptthosewhoarereceivingdividendsviaafixedbusinessplaceorapermanentrepresentative.
*****Zeroratewithholdingtaxisavailabledependingonstatusoftheforeignlender(i.e.banksandfinancialinstitutions).1%interestonsubordinatedloanfacilitiestotheTurkishbanksbeingsubjecttotheprovisionsofthesupplementarycapitalincomplianttotheTurkishBankingLawandinterestonloansreceivedbybanksandothercorporationsbywayofsecuritizationbasedonacashfloworanassetportfoliofromabroad.5%withholdingtaxisappliedforinterestoninstallmentsorcreditforthepurchaseofimportedgoods.10%withholdingtaxisavailableonotherloansandtransactionsthatarenotwithintheabovementionedloans.
InvestmentinTurkey-135
13.3 Appendix III: Computation of Taxes on the Year-end Profits
Thecorporateincometaxwillbecalculatedinitssimplestformasfollows:
Explanation Calculations
Bookprofitsadjustedfortaxpurposes 100
Corporationtaxat20% 20
Availablefordistribution 80
Thefollowingtaxcomputationmaybemoreapplicableinmostofthecases.
Operatingprofits 500
Dividendsfromaresidentcompany 250
Totalbookprofits 750
Disallowableexpenses 100
“Nodividendpolicy”isassumed.Computationofcorporationtaxwouldbeasfollows:
Bookprofits 750
Disallowableexpenses 100
Taxadjustedprofits 850
Exemptincome 250
• Dividends 250
Taxableprofits 600
Corporatetaxbase 600
Corporatetaxat20% 120
Totaltaxes 120
Availablefordistribution 630
136-InvestmentinTurkey
Dividenddistributionandlegalreserverequirements
DividenddistributionpaidfromaTurkishcompanytoanotherTurkishcompanyisexemptedfromwithholdingtax(withoutanyfurthercondition).DividendsreceivedbyaholdingcompanyinTurkeyfromanotherTurkishsubsidiaryareexemptfromcorporateincometax(withoutanyfurtherconditions).DividenddistributionfromaTurkishcompanytoaTurkishindividualoranon-residentshareholder(whetherindividualorcorporate)issubjecttowithholdingtax15%.Therateofdividendwithholdingtaxappliedforanon-residentshareholdermaybereducediftheshareholderislocatedinajurisdictionhavingafavorabledoubletaxtreatywithTurkey.Profitsretainedinthecompanyarenotsubjecttowithholdingtaxunlessdeclaredasdividendtoshareholders.
Considerthefollowingexample,withassumptionthatthepaidincapitalofthecompanyisTRY100.000andafulldividendpolicyisadopted.
Explanation Calculations
Bookprofit 100,000
Corporateincometaxat20% 20,000
Availablefordistribution 80,000
Firstlegalreserves(5%ofnetprofits,cappedat20%ofpaidincapital)
4,000
1stlevelgrossdividends(5%ofpaidincapital) 5,000
Availableforsecondarydividends 71,000
Secondarylegalreserves(1/11ofavailableforsecondarydividends)
6,455
2ndlevelgrossdividend 64,545
Grossdividends(firstandsecondarydividends) 69,545
Withholdingtaxesondividendsat15% 10,432
Netdividends 59,113
InvestmentinTurkey-137
13.4 Appendix IV: Turkish Withholding Taxes by Treaty Countries
1 Austria2 Ireland3 SouthKorea4 Jordan5 Tunisia6 Romania7 Netherlands8 Pakistan9 UnitedKingdom10 Finland11 T.R.N.Cyprus12 France13 Sweden14 Belgium15 Denmark16 Italy17 Japan18 U.ArabEmirates19 Hungary20 Kazakhstan21 Macedonia22 Albania23 Algeria24 Mongolia25 China26 India27 Malaysia28 Egypt29 Poland30 Turkmenistan31 Azerbaijan32 Bulgaria33 Uzbekistan34 UnitedStates35 Ukraine36 Israel37 Belarus38 Russia39 Kuwait40 Slovakia41 Indonesia
5/155/10/1515/2010/1512/1515
15/2010/1515/205/1515/2015/2015/2015/2015/2015
10/155/10/1210/15
105/105/1512101015
10/155/1510/15
1012
10/1510
15/2010/15
1010/15
10105/1010/15
Country Dividend(%)
BranchProfit(%)
Interest(%)
Royalty(%)
55---157.5
10/15155/15157.515157.515
10/155/10/12
10105512101015105151012101015101015101010
10/15
10/1510/1510/15
101010
10/151015
5/10/15151515151515
10/151010101010101010
10/1515101010101010
15/1010101010101010
10101012101010101010101010101010101010101010101010151010101010101010/510101010101010
138-InvestmentinTurkey
Country Dividend(%)
BranchProfit(%)
Interest(%)
Royalty(%)
42 Lithuania43 Croatia44 Moldova45 Singapore46 Kyrgyzstan47 Tajikistan48 Sudan49 CzechRepublic50 Bangladesh51 Latvia52 Spain53 Slovenia54 Greece55 Syria56 Estonia57 Thailand58 Luxembourg59 Iran60 SaudiArabia61 Lebanon62 Morocco63 Rep.ofSouthAfrica64 Portugal65 SerbiaMontenegro66 Ethiopia67 Bahrain68 Qatar69 BosniaHerzegovina70 Canada71 NewZealand72 Norway73 Oman74 Georgia75 Yemen76 Germany77 Switzerland78 Brazil79 Australia80 Malta81 Mexico82 Kosovo
1010
10/1510/15
1010101010105/1510151010
10/155/10/2015/205/1010/157/1010/155/155/1510
10/1510/155/1515/205/155/1510/15
10105/155/1510/155/1510/155/155/15
1010
10/15101010101010105/1510151010
10/1510155/1010710551015
10/155/1515/205/155101010-
5/15105/151055
101010
7.5/10101010101010
10/1510121010
10/1510/15
1010101010
10/15101010101015
10/155/10/15
101010105/10151010
10/1510
10/510101010101010105/10101010
15/1010/5151010101010101010101010101010101010101010
10/1510101010
InvestmentinTurkey-139
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