Minimum Corporate Tax, Additional Tax on E-Commerce, 5-Year Carryforward Limit for Deductible VAT, and Other Developments

The omnibus tax bill, the details of which we had previously shared, has been approved and entered into force upon publication in the Official Gazette on August 2. This Law numbered 7524 introduces a series of new taxes and practices.

- Minimum Corporate Tax. The corporate income tax payable by companies shall not be less than 10% of the sum of their profit plus non-deductible expenses (KKEG). In calculating this 10%, prior-year losses cannot be taken into account, and certain deductions cannot be subtracted. The purpose of this law is to collect tax from companies that generate a profit in the current period but do not pay tax due to prior-year losses and deductions. Technopark earnings exemptions, free zone earnings exemptions, R&D deductions, and certain exemptions under investment incentive applications will be outside this scope. For example, if a profit has been generated within the scope of a project in a company operating in a Technopark, this profit will be taken into account as a deduction in the 10% calculation. The application will start in 2025. We will await secondary legislation for details regarding this regulation.

- Carrying forward carried-over VAT will be limited to 5 years. Previously, there was no time limit for offsetting non-deductible carried-over VAT. With the new regulation, non-deductible VAT can be carried forward for a maximum of 5 years. VAT that cannot be carried forward within 5 years will be transferred to a special account. As a result of a tax audit, the carried-over VAT may be recorded as an expense; otherwise, it can be written off from the records as a non-deductible expense (KKEG). The application will start in 2030. This regulation appears to be one of the most controversial articles of the law.

- Carried-over VAT belonging to merged, acquired, or demerged enterprises cannot be subject to deduction. A tax audit will be required to utilize the carried-over VAT. It will no longer be easy to sell or transfer companies with high carried-over VAT balances for this purpose.

- A tax exemption has been introduced for shares to be granted free of charge by startups to their employees (up to a certain amount). Prior to the law, the market values of shares granted had to be determined and evaluated as wage income. Under the new regulation, companies possessing the status of a technology enterprise based on criteria to be determined by the Ministry of Industry and Technology will enjoy a full income tax exemption on the portion of the market value of shares granted free of charge to employees—which are considered wage income—up to the amount of one year's gross salary in that year as of the grant date. The excess portion will be subject to tax as before. In the event that these employees sell these shares, a portion of the exempted taxes will be qualified as wage income on the sale date and collected from the company. The company will pay these taxes without penalties, but with default interest. These periods and the tax to be paid are as follows:

Up to 3 Years … 100% of the Exempted Tax

4 – 6 Years … 75% of the Exempted Tax

7 – 12 Years … 25% of the Exempted Tax

Its applicability seems difficult.

- Tax on e-commerce is coming. When sales are made through marketplaces such as Trendyol, Hepsiburada, and Amazon, the marketplace will withhold a portion of the sales amount and pay it to the tax office. For example, for a company making a sale of 100 TRY including VAT on Trendyol, Trendyol will pay 97 TRY to the selling company and pay the remaining 3 TRY to the tax office on behalf of this company. The withholding rate has not been determined yet; the President has been authorized. We will await secondary legislation for details regarding the sectors, fields of activity, and withholding rate to be covered.

- Tax audits will increase for individuals and companies whose revenues are tracked daily (self-employed taxpayers and commercial enterprises). By comparing the declared tax base with the average annual revenue determined based on audit results, if the difference exceeds 20%, these taxpayers will be asked for an explanation. Its applicability seems difficult. It will require the employment of a large number of audit personnel.

- The corporate tax exemption in free zones was previously applied when goods and services produced in the zone were sold to Turkey or abroad. Sales made to Turkey have now been removed from this exemption. To fall within the scope of the corporate tax exemption, goods and services produced in the zone must be sold abroad.

- A global minimum corporate tax has been introduced for large multinational companies. The minimum corporate tax rate will be 15% for multinational companies whose annual consolidated revenues worldwide exceed the Turkish Lira equivalent of 750 million Euros. The application starts in 2025.

- The principal tax amount has been excluded from conciliation. In practice, the principal tax amount was already not subject to conciliation, but in some major tax controversies brought to public attention, the principal tax amount could be reduced or zeroed out through the authority of the President or the Ministry of Finance.

- Special irregularity penalties have been increased. For example, the special irregularity penalty for capital companies has been raised from 1,100 TRY to 20,000 TRY, and the penalty for failing to issue an invoice has been increased from 3,400 TRY to 100,000 TRY in case of multiple detections.

- The tax loss penalty will be applied with a 50% increase for unregistered earnings obtained without a taxpayer registration. While the tax loss penalty will be applied at 1-fold for those within this scope, it will be applied at 4.5-fold for tax evasion offenses.

- Precious metals such as gold, silver, and platinum will be valued at exchange rate, and in the absence of an exchange rate, the cost basis will be taken as the basis.

- Transactions requiring a “No Debt” certificate have been expanded. Payments to be made upon court rulings and payment or enforcement orders of enforcement offices have been included among the transactions requiring a “No Debt” certificate.

- The withholding tax was zero for FX-protected accounts converted from foreign currency and gold; however, starting August 1, 2024, a 7.5% withholding tax will be applied to accounts with a maturity of up to 6 months, and 5% to those with a maturity of up to 1 year. Meanwhile, the corporate tax exemption for FX-protected deposits (covering both interest income and exchange rate difference income) ended as of June 30, 2024.

- The corporate tax exemption on real estate income of investment funds and partnerships has been abolished. To benefit from the Corporate Tax exemption, they must distribute 50% of the income derived from real estates by the end of the 2nd month following the corporate tax return.

- Services provided at ports for vehicles used in activities such as tourism, entertainment, sports, and amateur fishing, as well as private boats and yachts, have been excluded from the scope of VAT exemption.

- The departure fee abroad has been increased to 500 TRY.

- A VAT exemption has been introduced until December 31, 2025, for deliveries made to foreign state institutions and organizations due to the earthquake.

- The corporate tax rate has been increased to 30% for build-operate-transfer projects.

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In Brief

- A 0.25% increase has been made in the SSI premium. Effective from September, there will an increase in short-term insurance premiums. With this increase in the employer's share, the monthly cost of an individual receiving the minimum wage will increase by 50 TRY.

- There was a 5% SSI premium incentive for retirees under the EYT (Retirement Age Strikers) regulation who continued to work in the same workplace. Since retirees carry a higher SSI burden compared regular employees, this premium incentive had been introduced. This premium discount has been abolished.

- Those with an SSI debt exceeding 5,000 TRY will not be able to participate in public tenders after October 1, 2024. The application will be effective as of October 1.

- Severance pay ceilings have been redefined. Effective from July 1, 2024, the severance pay ceiling became 41,828.42 TRY.

- Domestic and international daily allowance amounts exempt from income tax have been redefined. Effective from July 1, 2024, the domestic daily allowance rate for companies utilizing the per diem method became 480 TRY. Foreign currency amounts remained unchanged.

- The lowest retirement pension has been increased to 12,500 TRY.