Ministry of Finance

Istanbul Provincial Directorate of Revenue Administration

Directorate of Income Tax and Corporate Tax Group

Date: 24.09.2024
No: E-62030549-125[10-2024]-
Subject: Taxation of income obtained from engineering services provided to foreign-resident institutions

Upon reviewing your private letter ruling request form, it has been understood that, as stated in your articles of association published in the Trade Registry Gazette, your Company provides all kinds of engineering and technological services, including thermodynamic, thermal, and fluid mechanics analysis, both domestically and internationally. It has been noted that you provided engineering services to … GmbH Co. KG located in Stuttgart, Germany, and that you issued invoices exempt from VAT for the services provided to projects abroad. You have requested a ruling on whether 80% of the income derived from this service provided abroad can be considered as a deduction in determining your corporate tax base under the provisions of Article 10, paragraph 1, subparagraph (ğ) of the Corporate Tax Law.

In the first paragraph of Article 3 of the Corporate Tax Law No. 5520, it is stated that institutions listed in Article 1 of the Law, whose legal or business center is located in Türkiye, will be taxed on all the income they obtain both within and outside Türkiye. Furthermore, it is stipulated in Article 6 of the same Law that corporate tax will be calculated based on the net corporate income obtained by the taxpayers during an accounting period, and the provisions of the Income Tax Law regarding commercial income will apply in determining net corporate income.

In the first paragraph of Article 10 titled “Other deductions” of the same Law, deductions that can be made from corporate income, provided that they are additionally indicated on the corporate tax return, are included. In subparagraph (ğ) of the first paragraph of the mentioned article, it states: “Income obtained by service businesses that provide architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, data analysis, and services provided under the permission and supervision of the relevant ministry in the fields determined by the Ministry of Finance, exclusively benefiting persons not resident in Türkiye and entities whose workplaces, legal and business centers are located abroad, provided that 80% of this income is transferred to Türkiye by the deadline for submitting the corporate tax return related to the period in which the income was earned (with the amendment made by Article 59 of Law No. 7491; effective for income and gains obtained from 1/1/2023 onwards on 28/12/2023).

To benefit from this deduction, it is essential that the invoice or similar document is issued in the name of the customer abroad.

The article contains the provision regarding this matter.

Regarding the subject, explanations are provided in the section titled “10.5. Services provided to foreign resident individuals and institutions from Türkiye” of the Corporate Tax General Communiqué Serial No. 1, including:

• In the section titled “10.5.2.1. The main activity subjects written in the articles of association of companies that can benefit from the deduction,” it states: “The main activities written in the articles of association of the relevant companies must include services such as architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, data analysis, vocational training, education, and health services. These services may be provided either as a single service or multiple services as long as they are included in the articles of association.”
• In the section titled “10.5.2.2. The service must be exclusively rendered for a foreign resident individual and/or institution from Türkiye,” it states: “Architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, data analysis, and vocational training services determined by the Ministry of Finance with the opinion of relevant ministries must be provided to individuals not residing in Türkiye and entities with legal and business centers abroad; education or health services must also be provided to individuals not residing in Türkiye.

The above-mentioned services must be actually rendered, and services such as assistance, consultancy, and mediation provided in these fields cannot be considered within this scope.”

• In the section titled “10.5.2.3. The invoice must be issued in the name of a foreign resident individual and/or institution,” it states: “The invoice to be issued regarding the services must be issued in the name of a foreign resident individual and/or institution.”
• In the section titled “10.5.2.4. Services rendered from Türkiye, benefiting from architecture, engineering, design, software, medical reporting, bookkeeping, call center, product testing, certification, data storage, data processing, and data analysis,” it states: “It is required that the service rendered is benefited abroad, and the service provided for foreign resident individuals and/or institutions must not be related to their activities in Türkiye.”

On the other hand, upon examining our system records, it has been understood that your area of activity has been “721901-Other Research and Experimental Development Activities Related to Natural Sciences (Including Agricultural Research)” since 23/05/2023.

Moreover, in the section titled “1. Subject of the Agreement” of the “Cooperation Agreement” dated 14/06/2023 included in the private letter ruling request form, it is stated that “… Türkiye operates in the energy market and follows energy projects.” In the section titled “2. Scope of Services,” it is noted that “… All intermediate and final results must be completed in a manner that fully complies with … Türkiye principles.” Furthermore, it is stated that “The Cooperation Partner will have the right to include the CV in proposals prepared for projects outside Türkiye; that is, this CV will be shared with … GmbH & Co KG, Stuttgart. For projects in Türkiye, an evaluation will be made based on the situation.” In the section titled “5. Warranty,” it is stated that “… The warranty period will start upon the commencement of services provided under the agreement by … Türkiye and will end 12 months after the acceptance of services.” In the section titled “8. Payment Terms,” it is stated that the invoice will be issued in the name of … Türkiye, and in the section titled “9. Project Results, Inventions,” it is stated that “All results and documents arising during the performance of this agreement will belong to … Türkiye, and … Türkiye will have exclusive rights over them. Project results will be submitted to … Türkiye in the current valid … Türkiye standard software formats (typically MS Office 365 and Adobe Acrobat) and in printed form, depending on the relevant task.” It is also stated that “… Türkiye will be informed about inventions made during the performance of services under the agreement by the Cooperation Partner and/or staff. … Türkiye will benefit from these if desired, and the Cooperation Partner will transfer all rights to … Türkiye. The expenses for benefiting from these inventions will be covered by … Türkiye.”

It has been stated in the “Supplementary Agreement” dated 09/07/2024 in the section titled “1. Scope of Services” that “This supplementary agreement is intended to clarify the scope specified in the main agreement. The scope items specified below are valid from 15.06.2023. Engineering, analysis, calculations; Thermodynamics (thermal-mass energy balance, etc.), Thermal and heat transfer (heat transfer surfaces, heat exchangers, etc.), Combustion (boiler, waste heat boiler, etc.), Fluid mechanics analysis (turbomachinery fans, pumps, turbines, etc.), all kinds of engineering technology analysis, preparation of flow diagrams, preparation of layout and assembly plans, preparation of specifications and data sheets, concept and configuration studies, as well as field studies and supervision services will be provided.”

It has been observed that the mentioned agreement was signed by the Turkish branch of the foreign company and that invoices were issued in the name of the foreign-based company.

Based on the provisions and explanations above, provided that the engineering services rendered to individuals not residing in Türkiye and to entities whose workplaces, legal, and business centers are located abroad are actually provided, and all other conditions mentioned above are met, it is possible for 80% of the income obtained from these services to be considered as a deduction in determining your corporate tax base.

However, if the engineering services provided to foreign resident individuals or institutions are not benefited abroad and the service is related to the activities of these individuals and/or institutions in Türkiye, it is understood that the income obtained from these services will not be evaluated within the scope of subparagraph (ğ) of the first paragraph of Article 10 of the Corporate Tax Law.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

Date: 24.09.2024
Number: E-62030549-125[5-1/e-2024]

Subject: Whether tax exemption can be utilized for the amounts paid for expropriated real estate.

Upon examining your private ruling request form registered in the subject, it has been understood that an administrative decision was made regarding the expropriation of the land registered in your company’s assets as of 01/06/2008, which was expropriated by the Housing Development Administration on 30/01/2018, a lawsuit was filed concerning this expropriation decision, and the administrative court decided to reject the case. It was noted that the registration of the mentioned land was completed at the land registry on behalf of the Ministry of Environment, Urbanization, and Climate Change on 28/02/2024, and an invoice was issued on 25/03/2024. You have requested an opinion regarding whether you can benefit from the 50% exemption on capital gains from real estate sales as per Article 5, Paragraph 1(e) of the Corporate Tax Law due to the expropriation decision made on 30/01/2018 regarding the land registered in your company’s assets. Below is the opinion of our Revenue Office.

According to Article 5, Paragraph 1(e) of the Corporate Tax Law before the amendment made by Law No. 7456 dated 14/07/2023, it is stipulated that 75% of the capital gains from the sale of shares in subsidiaries held by companies for at least two full years, as well as 50% of the capital gains from the sale of real estate held in their assets for the same period, are exempt. This exemption will apply in the period when the sale is made, and the part of the sale proceeds benefiting from the exemption must be kept in a special fund account until the end of the fifth year following the year of sale. Furthermore, it is stipulated that the sale price must be collected by the end of the second calendar year following the year of sale, and any unpaid taxes due to the exemption on the sale proceeds during this period will be deemed as lost.

In addition, Article 22 of Law No. 7456, which was enacted on 06/02/2023 and includes provisions related to the economic losses caused by the earthquakes, states in the Temporary Article 16 added to the Corporate Tax Law that:

“The provisions of Article 5, Paragraph 1(e) of this Law, prior to the amendments made by this article, shall apply to real estate located in the assets of institutions before this article comes into force. However, the 50% rate stated in Paragraph 1(e) of Article 5 of this Law shall be applied as 25% for capital gains from real estate sales made after this article comes into force.”

Furthermore, in Section 5.6.2.4.1 of the Corporate Tax General Communiqué No. 1, titled “Transfer, Conveyance, Exchange, and Expropriation of Real Estate and Shares Without Monetary Consideration,” it is stated that in order for the exemption to apply, real estate and shares must be sold, and a profit must be generated from this transaction, leading to an improvement in the financial structure of the selling company. Therefore, transactions such as transfers and exchanges without monetary consideration do not fall within the scope of the exemption. However, since expropriation transactions will enhance the financing opportunities of companies, they should be evaluated within the framework of exemption application. As the sale price must be collected by the end of the second calendar year following the year of sale and no specific determination has been made regarding expropriation transactions, disputes regarding the sale price in expropriation transactions must be resolved within the two-year collection period stated in the article. If an additional amount is received, 75% of it must be transferred to the fund account for real estate sales made as of 5/12/2017, and 50% of it during this period, so that it is possible to benefit from the exemption during the period in which the dispute is resolved.

Based on the above provisions and explanations, even though the expropriation decision regarding the land registered in the company’s assets was made on 30/01/2018, the registration date for the sale at the land registry (28/02/2024) must be considered. Thus, provided that the other conditions stated in Article 5, Paragraph 1(e) of the Corporate Tax Law are also met, it is possible for the 25% portion of the capital gains you obtained from this sale to be exempt from corporate income tax.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

17. Liquidation

17.1. Liquidation Period

For any reason, the period of liquidation will be valid instead of the accounting period for the taxation of institutions that enter liquidation.

Liquidation begins on the date the general assembly decision regarding the institution’s entry into liquidation is registered and ends on the date the liquidation decision is registered.

The period from the start date until the end of the same calendar year, as well as each subsequent calendar year and the period when the liquidation ends, will be considered an independent liquidation period from the beginning of the relevant calendar year until the end date of the liquidation.

If the liquidation ends within the same calendar year, the liquidation period will start on the date the institution enters liquidation and continue until the date the liquidation is completed.

Example 1:

Case of Liquidation Concluding in the Same Year:

Institution’s entry into liquidation date: 18/1/2006

Date of liquidation completion: 12/12/2006

Liquidation period: 18/1/2006 – 12/12/2006

Example 2:

Case of Liquidation Continuing for More Than a Year:

Institution’s entry into liquidation date: 15/4/2006

Date of liquidation completion: 4/6/2008

I. Liquidation period: 15/4/2006 – 31/12/2006

II. Liquidation period: 1/1/2007 – 31/12/2007

III. Liquidation period: 1/1/2008 – 4/6/2008

17.1.1. Correction in Case of Liquidation Resulting in Loss

If the liquidation concludes with a loss, the liquidation results will be corrected in accordance with previous liquidation periods, and taxes overpaid in previous periods will be refunded to the taxpayer. If a tax base is declared at the end of the final liquidation, corrections for previous liquidation periods will not be made.

Changes in the tax rate occurring during the liquidation process will not necessitate the correction of the transactions. Corrections will only be made if the last liquidation period results in a loss.

Example 3:

In an institution that entered liquidation on 3/6/2006 and completed liquidation on 15/4/2009, the period between 3/6/2006 – 31/12/2006 constitutes the first liquidation period, the years 2007 and 2008 constitute the second and third liquidation periods, and the period between 1/1/2009 – 15/4/2009 constitutes the fourth and final liquidation period.

The institution declared;

I. Profit in the first liquidation period: 20,000 TL

II. Profit in the second liquidation period: 150,000 TL

III. Loss in the third liquidation period: 50,000 TL

Loss in the final liquidation period: 25,000 TL

According to these declarations, corporate tax of 34,000 TL was paid in the first two periods (4,000 + 30,000 =).

However, according to the final and definitive result of the liquidation, the profit is; [(20,000 + 150,000) – (50,000 + 25,000) =] 95,000 TL. The corporate tax to be paid on this base will be 19,000 TL.

In this case, 15,000 TL (34,000 – 19,000) will be refunded to the institution.

17.1.2. Statute of Limitations in Liquidation

In liquidations lasting more than a year, the statute of limitations for assessment starts from the year following the period in which the liquidation concludes.

Example 4:

If an institution entered liquidation on 11/2/2002 and the liquidation was concluded on 4/6/2006, the statute of limitations will begin on 1/1/2007, and assessments can be made until 31/12/2011 for the liquidation periods covering 11/2/2002 – 4/6/2006.

17.2. Withdrawal from Liquidation

If the institution withdraws from liquidation, the provisions regarding liquidation will not be applied to it. In this case, the decision to withdraw from liquidation will be effective from the beginning of the liquidation period in which this decision is made, and the tax returns submitted up to the date of this decision will replace the normal operational tax returns.

The obligations related to provisional taxes of the institution that has withdrawn from liquidation will also begin from the start of the provisional taxation period that includes the date of the decision to withdraw from liquidation.

Example 5:

Institution’s entry into liquidation date: 14/2/2006

Date of withdrawal from liquidation: 15/4/2008

I. Liquidation period: 14/2/2006 – 31/12/2006

II. Liquidation period: 1/1/2007 – 31/12/2007

Normal declaration period: 1/1/2008 – 31/12/2008

As can be understood from the example, the year in which the decision to withdraw from liquidation is made will transition to the normal declaration period at the beginning of the year, and the provisional tax obligation will commence from the beginning of the three-month provisional tax period that includes the date of the withdrawal decision (15/4/2008) starting from 1/4/2008.

17.3. Liquidation Tax Returns

If the liquidation begins and ends within the same calendar year, the liquidation tax return will be submitted to the tax office where the institution is registered within thirty days from the date of liquidation completion.

In cases where the entry into liquidation and the completion of liquidation occur in different calendar years, the liquidation tax return for each liquidation period will be submitted by the liquidation officer to the tax office where the taxpayer is registered until the evening of the twenty-fifth day of the fourth month following the month in which the liquidation period ends. The liquidation tax return for the period when the liquidation ends will also be submitted to the tax office where the institution is registered within thirty days from the date of liquidation completion.

Example 6:

Institution’s entry into liquidation date: 4/6/2006

Date of liquidation completion: 15/4/2008

Deadline for filing returns for the short period (1/1/2006 – 3/6/2006): 1-25/10/2006

Deadline for filing returns for the first liquidation period (4/6/2006 – 31/12/2006): 1-25/4/2007

Deadline for filing returns for the second liquidation period (1/1/2007 – 31/12/2007): 1-25/4/2008

Deadline for filing returns for the third liquidation period (1/1/2008 – 15/4/2008): 15/5/2008

Along with the returns to be submitted, a detailed list of the money and other values distributed to shareholders based on the balance sheet and income statement will also be attached.

17.4. Liquidation Profit

The tax base for institutions in liquidation is the liquidation profit. Liquidation profit is the positive difference between the asset value at the end of the liquidation period and the asset value at the beginning of the liquidation period.

In calculating the liquidation profit;

– Any payments made to partners or owners as advances or in other forms during the liquidation will be added to the asset value at the end of the liquidation,

– Payments made by partners or owners in addition to the existing capital and gains and revenues obtained during liquidation that have been exempted from tax will also be added to the asset value at the beginning of the liquidation period.

Moreover, the values of economic assets distributed, sold, transferred, or returned to the institution owner in return for their shares will be determined based on the provisions of the Corporate Tax Law regarding concealed profit distribution through transfer pricing, as of the day of distribution, sale, transfer, or return.

Additionally, while calculating the liquidation profit, the provisions of the Law regarding deductible expenses, loss offsets, other deductions, and non-acceptable deductions will also be taken into account.

Economic public institutions and businesses of associations or foundations without any provisions regarding liquidation processes in their special laws will terminate their tax liability upon cessation of operations, as in the case of sole proprietorships. In such businesses, liquidation will be completed either by selling existing economic assets or withdrawing them by invoicing to the institution, association, or foundation to which they are affiliated. In this context, the corporate tax returns of taxpayers who cease operations will be submitted within the period specified in Article 14 of the Corporate Tax Law.

17.5. Asset Value

The asset value at the beginning and end of the liquidation period is the equity seen in the balance sheet of the institution at the beginning and end of the liquidation period. In liquidations lasting more than a year, the asset value at the beginning of the following liquidation periods is the asset value seen in the last balance sheet of the previous period.

All kinds of provisions and undistributed profits not specified below are included in this capital:

– Any kind of amortizations and provisions allocated according to tax laws and technical provisions of insurance companies,

– The portion of profits to be distributed to individuals who are neither shareholders nor owners.

17.6. Liability of Liquidation Officers

Liquidation officers cannot make payments to creditors written in the fourth paragraph of Article 206 of the Law without setting aside a provision in accordance with Article 207 of the Enforcement and Bankruptcy Law for accrued taxes and taxes calculated according to the liquidation tax return.

In case the provisions specified above are not set aside and if the debts are not paid, the liquidators will be personally responsible for this tax liability.

Source: VAT Law General Application Communiqué
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

The exemption for real estate purchased before July 14, 2023, and sold after that date has been reduced from 50% to 25%, and the exemption for real estate purchased after this date has been completely removed according to Law No. 7456, published in the Official Gazette on July 15, 2023.

In terms of Corporate Tax:
Law No. 7456 has amended the provisions of the Corporate Tax Law (CTL) regarding the exemption from corporate tax for gains from the sale of real estate. The term “real estate” has been removed from Article 5/1-e of the CTL, completely eliminating the exemption for sales of real estate purchased after July 15, 2023. However, for properties purchased before July 14, 2023, a transitional rule has been introduced, allowing the continuation of the exemption, though the exemption rate has been reduced from 50% to 25%.

In terms of Value Added Tax (VAT):
Law No. 7456 also amended the VAT Law by removing the term “real estate” from Article 17/4-r. As a result, the VAT exemption for real estate acquired after July 15, 2023, has been removed, and the sale of such real estate will now be subject to VAT. A transitional rule was introduced to ensure the continuation of the exemption for properties purchased before this date.

To benefit from these exemptions, certain conditions must be met, including holding the sales gain in a special fund account for five years and collecting the sale price by the second calendar year following the sale. Failure to comply with these conditions will result in penalties for unpaid taxes.

Source: Istanbul Chamber of Certified Public Accountants
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

Revenue Administration

Tekirdağ Tax Office

VAT and Special Consumption Tax Department

Date: 25.12.2023

Number: E-25253958-130[11-2021-74]-96115

Subject: The situation of the tax laws regarding the fire of exported goods in the customs warehouse and the subsequent transactions

Upon reviewing your special request form, it is noted that:

• Your company is engaged in low-voltage cable manufacturing.
• 60% of your company’s sales are exports.
• An invoice was issued to a foreign company for export on a specified date, and a customs exit declaration was opened. Due to a fire in the customs warehouse where the goods were stored, the exported goods were burned, leading to the cancellation of the customs exit declaration.
• According to the agreement with the foreign company, the delivery terms were set as factory delivery (EXW), and the responsibility for the burned goods lies with the foreign company. The payment for the goods has been made by the foreign company, and they are responsible for the insurance processes for the burned goods.

It is requested to clarify whether the sales should be classified as exports or domestic sales, given that the goods did not leave the customs area and the payment was made by the buyer. Additionally, it needs to be determined whether the burned goods should be recorded as expenses and the incoming payment as income for tax purposes, as well as the application of value-added tax (VAT) regarding these transactions.

Regarding Corporate Tax:

According to Article 6 of the Corporate Tax Law No. 5520, corporate tax is calculated on the net corporate income obtained by taxpayers during an accounting period, applying the provisions of the Income Tax Law concerning commercial income.

Article 37 states that income from all commercial and industrial activities is considered commercial income, while Article 38 describes how to calculate commercial income based on the positive difference between the equity values at the beginning and end of the period.

As the responsibility for the burned goods lies with the foreign company, and ownership has passed to them, the sales revenue should be included in the taxable income of the relevant period. The cost of the burned goods can also be considered in determining your corporate income. Additionally, if the insurance compensation is paid to your company, it should be considered as income for the period it is accrued, and if paid to the foreign company after collection, it should be recorded as an expense for the period of payment.

Regarding Value-Added Tax (VAT):

According to the VAT Law No. 3065:

• Deliveries and services performed in Turkey in the context of commercial, industrial, agricultural activities, and professional services are subject to VAT.
• Article 11(a) states that export deliveries are exempt from VAT.
• For a delivery to be considered an export, it must leave the customs territory of Turkey.

Given that the goods were not removed from the customs area and were burned in the customs warehouse, they cannot be considered export deliveries. Therefore, VAT should be calculated based on the invoice issued by your company and reported in the relevant period’s VAT return.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

Revenue Administration

Istanbul Tax Office

Income Tax and VAT-Excise Tax Group Directorate

Date: 02.05.2024

Number: -39044742-130[Special Ruling]-….

Subject: Taxation of Loans Received from Foreign Firms

In the special ruling request form, it is asked whether a tax deduction should be made on the interest amounts paid for a loan received from a foreign firm that does not have a partnership with your company, whether these payments are subject to value-added tax (VAT), and whether the loan agreement to be signed between your company and the foreign firm is subject to stamp duty.

REGARDING CORPORATE TAX LAW

Article 3, paragraph 2 of the Corporate Tax Law No. 5520 stipulates that institutions whose legal and business centers are not both located in Turkey will be taxed on the income they earn in Turkey on a limited taxpayer basis. Paragraph 3 of the same article lists the types of income and returns that constitute corporate income for limited taxpayers.

Article 30, paragraph 1 of the same law states that a 15% tax deduction will be made by those who pay or accrue the income and returns of limited taxpayers in Turkey, including advances. Paragraph (ç) of the same article provides for tax deductions on movable capital returns, excluding those listed in Article 75, paragraph 2 of the Income Tax Law.

According to paragraph 8 of the mentioned article and the authority granted to the Council of Ministers, the 2009/14593 Decision of the Council of Ministers specifies the rates of tax deductions on various types of interest income. Subparagraph (a) of this decision sets the tax deduction rate at 0% for interest paid on loans from foreign states, international institutions, or foreign banks authorized to provide credit. Subparagraph (ç) specifies a 10% tax deduction rate for other interest payments.

Article 75, subparagraph 6 of the Income Tax Law No. 193 states that all types of interest income, regardless of their source, including interest on non-secured, preferential, pledged, and promissory note receivables, as well as interest paid on debts borrowed by public legal entities, are considered as movable capital income.

According to the Capital Movements General Communiqué, Article 32, paragraph 2, the term “foreign credit institutions” refers to institutions authorized to provide financial resources under the legislation of their residing country and whose primary activities include lending. Article 23, paragraph 3 specifies that if a Turkish bank intermediates in a loan from abroad, the bank may require the borrower to prove that the lending institution is authorized to provide credit according to the legislation of the relevant country.

Reviewing the prospectus of the firm that provides the loan to your company, it is understood that the firm is a credit-giving institution under the relevant country’s legislation. In case of any doubt about the nature of the credit institution, proof that the institution is authorized to provide credit under the relevant country’s legislation may be requested. According to these rules and explanations, the interest paid to the foreign firm will be subject to a 0% tax deduction.

REGARDING VALUE-ADDED TAX LAW

Article 1/1 of the VAT Law No. 3065 stipulates that deliveries and services within the scope of commercial, industrial, agricultural activities, and free professions in Turkey are subject to VAT.

Article 17/4-e provides exemptions from VAT for transactions under the banking and insurance transactions tax and insurance intermediary services, and for credit guarantee operations of institutions specified in Article 4, paragraphs 1 and (p) of Law No. 5520.

The VAT General Implementation Communiqué, in section II/F-4.5 titled “Banking and Banking Transactions,” states that all transactions by banks and insurance companies, except those conducted under the Financial Leasing Law, are within the scope of VAT. Additionally, foreign credit transactions are similar to domestic banking services that are not subject to VAT, and thus, VAT is not applied to foreign credit transactions.

Therefore, since the firm is authorized to provide credit under the relevant country’s legislation, its credit transactions with your company will not be subject to VAT.

REGARDING STAMP TAX LAW

According to Article 1 of the Stamp Tax Law No. 488, stamp tax is imposed on documents listed in Table (1) annexed to the Law. The taxation of these documents is determined based on the nature, content, and parties of each document.

Since signed copies related to the specific case in the special ruling request form are not included, an assessment regarding stamp tax could not be made.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

1. Exporting Companies: A 1 percentage point reduction in the corporate tax rate applies to the income earned exclusively from export activities.
2. Production Companies: A 1 percentage point reduction is also available for income earned exclusively from production activities, provided the company has a valid industrial registration certificate and is actively engaged in production. However, this reduction does not apply to the portion of production income related to export.
3. Conditions and Scope: Companies must meet specific conditions to benefit from this reduction, including having a valid industrial registration certificate for production activities. Export and production-related incomes must be exclusively collected through a bank account in Turkey. The reduction applies only after other applicable discounts.
4. Application Period: The reduction is applicable from January 1, 2022, for companies using the calendar year as their accounting period. Companies with special accounting periods determined by the Ministry of Treasury and Finance can apply the reduction from the start of their special period.
5. Examples: Various examples illustrate how the 1 percentage point reduction is applied to export income, considering different scenarios involving other types of income and tax adjustments.

Translation:

32.1.2. Reduction of Corporate Tax Rate by 1 Percentage Point for Exporting and Production Companies

Corporate Tax Law General Implementation Communiqué

32.1.2.1. Legal Regulation

Article 15 of Law No. 7351 added paragraphs seven, eight, and nine to Article 32 of the Corporate Tax Law:

“(7) For institutions engaged in export, the corporate tax rate is reduced by 1 percentage point for income earned exclusively from exports.

(8) For institutions holding an industrial registration certificate and actively engaged in production, the corporate tax rate is reduced by 1 percentage point for income earned exclusively from production activities. The income related to exports from production activities will not receive an additional reduction under paragraph seven.

(9) The reduced rates in paragraphs seven and eight are applied after other applicable reductions have been applied to the corporate tax rate.”

32.1.2.2. Scope and Beneficiaries

Corporate tax payers can apply a 1 percentage point reduction to the corporate tax rate on income earned from both export and production activities.

Income from exports for exporting institutions and income from production for institutions holding an industrial registration certificate can benefit from this 1 percentage point reduction.

32.1.2.3. Conditions for Applying the Reduced Corporate Tax Rate

• For exporting institutions, a 1 percentage point reduction is applicable to income earned from export activities only.
• For production institutions, the 1 percentage point reduction applies to income earned from production activities only, provided they:
  • Hold an industrial registration certificate, and
  • Actively engage in production.

Institutions that either do not hold an industrial registration certificate despite engaging in production or hold a certificate but do not engage in production will not benefit from the provisions of paragraph eight of Article 32.

32.1.2.4. Period for Applying the Reduction

Taxpayers using the calendar year as their accounting period can benefit from the 1 percentage point reduction on income from production and export activities starting from January 1, 2022, provided they meet the conditions outlined in the communiqué. Taxpayers with special accounting periods set by the Ministry of Treasury and Finance can apply the reduction from the beginning of their special period.

32.1.2.5. Application of the 1 Percentage Point Reduction to Export Income

Exporting institutions can apply the 1 percentage point reduction to the applicable corporate tax rate on income from both goods and services exports. This includes services provided to foreign clients and revenue from international roaming services provided in Turkey.

If a taxpayer has income from export as well as other activities, the reduction applies only to the portion of income from export, with the reduction being determined by the ratio of export income to the commercial balance profit. The reduction cannot exceed the total income from export or the net corporate profit.

Examples: Various examples demonstrate the application of the 1 percentage point reduction to different scenarios of income from export and production activities.

32.1.2. Application of a 1 Percentage Point Reduction in the Corporate Tax Rate for Exporting and Production Companies General Implementation Communiqué on the Corporate Tax Law

32.1.2.1. Legal Regulation

With Article 15 of Law No. 7351, the 7th, 8th, and 9th paragraphs were added to Article 32 of the Corporate Tax Law:

“(7) The corporate tax rate for the profits exclusively derived from export activities of exporting companies will be applied with a 1 percentage point reduction.

(8) The corporate tax rate for profits exclusively derived from production activities of companies holding an industrial registration certificate and engaged in actual production will be applied with a 1 percentage point reduction. For the portion of these profits related to export, the reduction stated in the 7th paragraph will not be applied additionally.

(9) The reduced rates in the 7th and 8th paragraphs will be applied to the corporate tax rate after other reductions within the scope of this article have been applied.”

32.1.2.2. Scope and Beneficiaries

Corporate tax taxpayers will be able to apply a 1 percentage point reduction to the corporate tax rate for profits derived from both export and production activities.

Profits exclusively derived from export activities for exporting companies and profits exclusively derived from production activities for companies with an industrial registration certificate will be subject to the 1 percentage point reduction.

32.1.2.3. Conditions for Applying the 1 Percentage Point Reduction in Corporate Tax Rate

• For exporting companies, it will be sufficient to engage in export activities to apply the 1 percentage point reduction on profits derived from export.
• For companies engaged in production activities, to apply the 1 percentage point reduction on profits derived from production, the following conditions must be met:
  • Possess an industrial registration certificate, and
  • Be engaged in actual production activity.

Therefore, companies that have an industrial registration certificate but are not engaged in actual production activity or companies engaged in production activity but do not have an industrial registration certificate will not benefit from the provision in the 8th paragraph of Article 32 of the Law.

32.1.2.4. Period of Application for the Reduction

Taxpayers using the calendar year as their accounting period will be able to benefit from this 1 percentage point reduction for profits derived from production and export activities starting from January 1, 2022, provided they meet the conditions specified in the Communiqué.

On the other hand, taxpayers for whom the calendar year does not align with the nature of their activities and who have been assigned a special accounting period by the Ministry of Treasury and Finance will be able to apply the 1 percentage point reduction from the beginning of their special accounting period starting in the 2022 calendar year. For example, a company using the special accounting period from April 1 to March 31, and holding an industrial registration certificate, will not benefit from the 1 percentage point reduction for the period from April 1, 2021, to March 31, 2022, but will start benefiting from April 1, 2022, to March 31, 2023.

32.1.2.5. Application of a 1 Percentage Point Reduction in Corporate Tax Rate for Profits from Export Activities

Exporting companies can apply a 1 percentage point reduction on the corporate tax rate for profits exclusively derived from both goods and services exports. Service exports include services rendered to foreign customers and enjoyed abroad. Additionally, earnings from roaming services provided in Turkey for foreign customers, under mutual agreements, will also qualify for the 1 percentage point reduction.

If taxpayers have profits from other activities besides export activities, the portion of profit subject to the 1 percentage point reduction will be determined by the ratio of export profits to the commercial balance profit.

Moreover, the profit amount eligible for the 1 percentage point reduction cannot exceed the export profits or the taxable corporate profit for the relevant period.

Therefore, if the export profit exceeds the commercial balance profit, the 1 percentage point reduction will be applied to the entire export profit, provided it does not exceed the taxable corporate profit.

Additionally, profits from goods exported without entering Turkey and sales in free zones or duty-free stores will also qualify for the 1 percentage point reduction.

Reduced Rate Application Calculation:

Profit x (Export Profit / Commercial Balance Profit)

Example 1: (B) Inc., which exports figs purchased from producers in Aydın, earned a profit of 900,000 TL from this export in 2022. The 1 percentage point reduction can be applied to this profit as the company does not benefit from any other deductions or exemptions.

Example 2: (C) Inc., engaged in wholesale and retail trade, has the following information for 2022:

Commercial balance profit: 2,000,000 TL

• Profit from export activities: 1,200,000 TL
• Other profits (not subject to the 1 percentage point reduction): 800,000 TL

Taxable Profit: 2,000,000 TL

The reduced rate application calculation for (C) Inc. will be:

Reduced rate application profit:

2,000,000 TL x (1,200,000 / 2,000,000) = 2,000,000 TL x 60% = 1,200,000 TL

Thus, (C) Inc. will apply a 22% corporate tax rate to the 1,200,000 TL portion of the 2,000,000 TL taxable profit and the general rate to the remaining 800,000 TL.

Example 3: (Ç) Inc., engaged in export activities, earned a profit of 600,000 TL from exports in 2022, while other activities resulted in a loss. (Ç) Inc.’s information for 2022 is:

Commercial balance profit: 500,000 TL

• Profit from export activities: 600,000 TL
• Other loss: 100,000 TL

Taxable Profit: 800,000 TL

(Ç) Inc. will apply the 1 percentage point reduction to the entire export profit of 600,000 TL, as it does not exceed the taxable corporate profit of 500,000 TL.

Example 4: (D) Inc., which earned a profit of 1,000,000 TL from exports in 2022, has a taxable profit of 200,000 TL due to past year losses. The company’s information is:

Commercial balance profit: 950,000 TL

• Profit from export activities: 1,000,000 TL
• Other loss: 50,000 TL
• Past year losses: 750,000 TL

Taxable Profit: 200,000 TL

(D) Inc. will apply the 1 percentage point reduction to the portion of the export profit up to the taxable corporate profit of 200,000 TL.

Example 5: (E) Inc., which operates in telecommunications in Turkey, provides roaming services for foreign users. For 2022, (E) Inc.’s information is:

Commercial balance profit: 50,000,000 TL

• Profit from export activities (roaming services): 5,000,000 TL
• Other profits (not subject to the 1 percentage point reduction): 45,000,000 TL

Taxable Profit: 40,000,000 TL

The reduced rate application calculation for (E) Inc. will be:

Reduced rate application profit:

40,000,000 TL x (5,000,000 / 50,000,000) = 40,000,000 TL x 10% = 4,000,000 TL

Thus, (E) Inc. will apply a 22% corporate tax rate to the 4,000,000 TL portion of the 40,000,000 TL taxable profit and the general rate to the remaining 36,000,000 TL.

Source: Istanbul Chamber of Certified Public Accountants
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

Date: 13.05.2024
Subject: Whether the premiums received from banks for foreign currency protected deposit accounts are exempt from corporate tax according to KVK (Corporate Tax Law)

Your inquiry and the attached application indicate that you are a taxpayer with the Tax Office, and you have a foreign currency protected deposit account in Euros and US Dollars, established as per the Central Bank’s Communiqué No. 2022/27, effective from 30.09.2022. You have received premiums from banks for this account and seek our opinion on whether these premiums are subject to taxation, specifically whether they are exempt from corporate tax.

According to Article 14 of the Corporate Tax Law No. 5520, institutions are exempt from corporate tax on the following types of income:

1. Foreign exchange gains due to period-end revaluation of foreign currencies in the balance sheets of institutions as of 31/12/2021, if converted to Turkish lira and deposited in at least three-month Turkish lira deposit accounts.
2. Foreign exchange gains and interest, profit shares, and other income earned from Turkish lira deposits converted from foreign currency accounts up to the date of the fourth temporary tax period declaration.

For balances as of 31/3/2022, the President has the authority to extend this exemption until 30/6/2024 for foreign currencies in the institutions’ balance sheets, which can be applied separately or together.

These exemptions will also apply to renewed accounts until 30/6/2024. The provision excludes the third paragraph of Article 5 of the Law for foreign currencies converted to Turkish lira deposit accounts and gold accounts.

Accordingly, if your foreign currencies in the balance sheets on the specified dates are converted into foreign currency protected deposit accounts, you can benefit from the exemption. Additionally, premiums received by your company, considered as deposit interest, can also be exempt from corporate tax.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

1. Whether the dues collected from members and any in-kind or cash donations should be included in the cooperative’s taxable income and if VAT should be applied to these dues.
2. Whether VAT should be calculated for dues collected and whether invoices should be issued for these transactions.
3. Whether e-production receipts are required for purchases of goat milk from non-registered local producers.
4. How to record in-kind donations in the cooperative’s books and records.

Corporate Tax Law Perspective:

• According to Article 1(b) and Article 4(k) of the Corporate Tax Law, cooperatives’ profits are subject to corporate tax, and the dues collected from members and in-kind donations should be considered in determining taxable corporate profits.
• Detailed guidelines are provided in the 1st series of the Corporate Tax General Communiqué, specifying that dues and donations should be included in taxable income.

Value Added Tax (VAT) Law Perspective:

• Article 1 of the VAT Law indicates that transactions in Turkey related to commercial, industrial, agricultural activities, and professional services are subject to VAT.
• Article 20/1 and 20/2 specify that the tax base is the consideration for goods and services, while Article 24/c includes various income types like interest and commissions in the tax base.
• According to Circular No. 60, membership dues are not subject to VAT if they are not in exchange for goods or services. However, dues that are part of commercial transactions and constitute a source of corporate income are subject to VAT.
• Donations and aid that are not in exchange for goods or services are not subject to VAT, but in-kind donations from VAT payers are subject to VAT.

Tax Procedure Law Perspective:

• According to Articles 227, 229, 231, and 232 of the Tax Procedure Law, issuing invoices and receipts is required for commercial transactions and expenditures.
• Provisions related to the valuation of economic assets and the application of the Turkish Commercial Code to cooperatives are also outlined.

Requirements for Electronic Receipts:

• The implementation of electronic receipts (e-Müstahsil) is required for transactions with non-registered local producers if the cooperative is subject to e-invoicing regulations.

In summary, the cooperative must comply with corporate tax and VAT regulations concerning membership dues and donations, issue invoices or receipts as appropriate, and adhere to specific rules for transactions with local producers.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

Date: May 17, 2024

Subject: Whether Withholding Tax Should be Applied on Payments for Sales Consulting Services Obtained from the UK

Upon reviewing your inquiry forms, it is understood that your company purchases services from a firm based in the UK for activities such as identifying trade fairs to attend, determining product colors and quality, customer referrals, and sales consulting. These services are invoiced by the foreign company, and you are seeking guidance on whether corporate tax and value-added tax (VAT) withholding should be applied to these payments.

CORPORATE TAX LAW

According to Article 3, Paragraph 2 of the Corporate Tax Law No. 5520, institutions without legal and business centers in Turkey are taxed only on the income obtained within Turkey. Paragraph 3 of this article lists the types of income and earnings that constitute corporate income for limited taxpayers.

Article 30 of the same Law provides that institutions subject to limited taxation must withhold corporate tax on the income and earnings listed in the article, including advances, paid or accrued by those who pay or accrue these amounts. Article 30, Paragraph (b) stipulates that withholding tax is applicable to professional income. The withholding tax rates are set by the Council of Ministers Decision No. 2009/14593, which specifies 5% for income from petroleum exploration and 20% for other professional income.

DOUBLE TAXATION AVOIDANCE AGREEMENTS

Article 14 of the Double Taxation Avoidance Agreement between Turkey and the United Kingdom, effective from January 1, 1989, states:

1. Income from professional or similar activities by an enterprise of one Contracting State is only taxable in that State. However, if these activities are performed in the other Contracting State and:
   • The enterprise has a place of business in that other State, or
   • The activities exceed 183 days in any continuous 12-month period, then the income may also be taxed in the other State.
2. “Professional activities” include independent scientific, literary, artistic, educational, and teaching activities, as well as independent activities of doctors, lawyers, engineers, architects, dentists, accountants, and other professions requiring specialized knowledge and skill.

Since the sales consulting service provided by the UK-based company constitutes professional income, it should be assessed under Article 14. Accordingly, the UK has the sole right to tax income from professional activities performed outside Turkey. If the activities occur in Turkey for more than 183 days or if the UK enterprise has a place of business in Turkey, then Turkey also has the right to tax under its domestic laws.

Thus, Turkey does not have the right to tax the income earned by the foreign company from services performed abroad, and no withholding will be applied to the service fees.

VALUE-ADDED TAX LAW

According to Law No. 3065 on VAT:

• Article 1/1 stipulates that deliveries and services within the scope of commercial, industrial, agricultural, and professional activities in Turkey are subject to VAT.
• Article 4 specifies that services include operations such as making, processing, creating, manufacturing, repairing, cleaning, maintaining, preparing, evaluating, renting, or undertaking not to do something, excluding deliveries and imports of goods.
• Article 6/b states that performing services in Turkey or benefiting from the services in Turkey indicates that the operations are considered to be conducted in Turkey.
• Article 9/1 allows the Ministry of Treasury and Finance to hold those involved in taxable transactions responsible for VAT payment if they do not have a residence, workplace, legal center, or business center in Turkey.

The VAT General Application Communiqué and Circular No. 60 provide regulations on VAT withholding for transactions performed by those without a residence, workplace, legal center, or business center in Turkey.

Accordingly, since the consulting services for the overseas trade fairs are obtained and utilized abroad, they are not subject to VAT in Turkey, and there is no need for VAT reporting by your company for these service fees.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.