Recent Regulatory Developments - November 2022 (Addendum)

Draft Income Tax General Communiqué No. 322 Published (Pending Approval)

Additional explanations have been provided regarding the daily TRY 51 meal allowance exemption. Provided that it is documented on the payroll and paid in proportion to the actual days worked, the daily meal allowance of TRY 51 will not be subject to income tax and social security (SSI) premiums. Any amount paid in excess of this limit will be subject to both income tax and SSI. No supporting invoices or receipts will be required in exchange for the meal allowance. Payments can continue to be made via pre-existing meal cards, and the portion of these payments amounting to TRY 51 per day (excluding VAT) will remain exempt from income tax and SSI.

Payments made to employees up to TRY 1,000 per month as support for electricity, natural gas, and similar heating expenses will be exempt from income tax (subject to SSI premiums). To qualify for this exemption:

- The payments must be made between November 9, 2022, and June 30, 2023 (inclusive),

- The payments must correspond directly to electricity, natural gas, and other heating expenses,

- The amount must not exceed TRY 1,000 per month,

- The payment must be made in addition to the employee's current salary,

- The payment must not be designated under titles such as regular salary, overtime, bonus, premium, or social assistance, but must be specifically itemized on the payroll under a title such as "Electricity, Natural Gas, etc."

Any amount exceeding TRY 1,000 will be subject to income tax. Employees are not required to submit any invoice or documentation for this payment.

Revaluation Rate Determined at 122.93%

In 2023, numerous taxes, penalties, and fees will increase by 122.93%. This will further escalate inflation expectations for 2023. Taking this rate into account, employees will likely demand higher wages, and businesses are expected to raise their sales prices further.

Special Consumption Tax (SCT) Tax Base for Vehicles Revised

The adjustment has affected passenger vehicles with a sales price below TRY 600,000. For example, a vehicle previously priced at TRY 450,000 has dropped to TRY 375,000, representing a price reduction between 5% and 11%. However, the market reflection of this amendment may not have reached the desired level, as it remains quite challenging to find vehicles at reduced prices following the SCT revision.

Collateral Requirement for Motor Vehicle Traders

The Ministry of Treasury and Finance has been authorized to demand collateral of up to TRY 30 million from taxpayers engaged in the trade of motor vehicles subject to SCT, in order to guarantee the collection of emerging tax liabilities.

Interest on KYK Student Debts and Covid-19 Administrative Fines

Collection General Communiqués Serial Nos. 15 and 16 were published on November 25, 2022. Accordingly:

- Accrued interest on Higher Education Credit and Hostels Institution (KYK) student loan debts is being waived,

- Unpaid administrative fines imposed and served within the scope of Covid-19 measures are being revoked.

Tax Advantage for the Istanbul Financial Center

50% of the corporate income earned by entities operating within the Istanbul Financial Center from brokering the purchase and sale of goods under transit trade may be deducted from Corporate Income Tax.

Turkish Lira Obligation for Exports to the TRNC

Effective from December 5, 2022, Turkish Lira must be used for export declarations and the corresponding collections made within the scope of trade with the Turkish Republic of Northern Cyprus (TRNC).

Important Reminders:

- Severance pay must be paid in a lump sum. It cannot be paid in installments unless the employee provides explicit written consent.

- Costs of occupational health and safety (OHS) trainings cannot be passed on to employees. Furthermore, the time spent in training is counted as working hours.

- The legal period to object to an invoice is 8 days. If no objection is raised regarding the content within this period, the content is deemed to have been accepted.

- Companies utilizing incentives of TRY 1,000,000 or more in their 2021 Corporate Tax returns within the scope of Technoparks and R&D Centers are required to invest 2% of this incentive amount by the end of December in:

* Startups operating in business incubation centers,

* Venture Capital Investment Trusts (VCIT), or

* Venture Capital Investment Funds (VCIF).

- In Technoparks and R&D Centers, the mandatory on-site working requirement is 25% (remote working allowance is 75%).

- The deadline for the second installment payment of Real Estate Tax is November 30.

- A monthly late payment interest rate of 2.5% is applied to unpaid public receivables.

- 40% of export proceeds must be surrendered and converted into Turkish Lira.

- Numerous regulations regarding e-commerce will enter into force on January 1, 2023; proper preparation is advised.

- Residential rent increases remain capped at 25%.

- Inflation accounting is scheduled for implementation in 2023. It appears that implementation will continue into 2024 as well.

- If companies pass bank salary promotions directly and entirely to their employees, these promotions will not be subject to income tax; otherwise, they will be considered taxable salary and must be subject to income tax withholding.