Tax Base Increase and Correction of Cash/Shareholder Current Accounts

Deadline May 31, 2023

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We provided detailed information on the subject on January 31 and March 19. If you wish to apply for the tax base increase and the cash/shareholder current account correction, Wednesday, May 10, 2023 kindly requested that you inform us by the evening. Due to the importance and complexity of the matter, interested parties may request a detailed meeting.

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Our fees for tax base increase and Cash/Shareholder tax returns

- Corporate Income Tax / Personal Income Tax base increase … 1,500 TRY + VAT

- VAT base increase … 2,000 TRY + VAT

- Withholding tax base increase … 2,000 TRY + VAT

- Cash/shareholder current account correction … 1,000 TRY + VAT

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Tax Base and Tax Increase

A regulation awaited by many businesses

Application is not mandatory, it is optional

Application for tax base increase can be made even during a tax audit or litigation stage

If this right is utilized, no tax audits will be conducted for the tax type and period benefited. Audits may still be conducted for tax types and periods not benefited from

Available for the last 5 years: For the years 2018, 2019, 2020, 2021, and 2022

You can benefit from the tax base increase for 3 main tax types: Corporate Income Tax, VAT, and withholding tax (muhtasar)

Different rates and amounts apply for each period and each tax category; additionally, there are minimum amounts for corporate and personal income tax base increases, and you cannot make payments lower than these amounts

Application deadline is May 31, 2023

There is a 10% discount for lump-sum payments, while installments will be subject to an additional coefficient adjustment

Timely payment of the tax is crucial. If not paid on time, you cannot benefit from the tax audit protection, and you may also have to pay the accrued tax with a default interest penalty. Furthermore, you may be prioritized for a tax audit

Calculated tax cannot be recorded as an expense (Non-Deductible Expenses - KKEG)

You can also make a tax base increase if you generated income prior to having a tax liability

Unfortunately, applications cannot be made by amending past period returns and submitting through the amended return

If there is a prior year loss in the period benefited from, you lose half of this loss (for the year 2022, the entire loss is lost)

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Corporate and Personal Income Tax

The amount payable for corporate and personal income tax is 20% of the increased tax base

If the return for the applied period was filed and paid on time, the applicable tax rate is 15%

If the company declared a loss in the relevant period, 50% of the financial loss cannot be utilized (for the year 2022, the entire loss)

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2022 Tax Base Increase

- The minimum increase amount for 2022 is 500,000 TRY and the tax base increase rate is 25%

- It cannot be less than 122.93% in excess of the 2021 Corporate Income Tax base

- It cannot be less than 40% in excess of the 2022 Advance Tax base

- In the event that the 3rd Advance Tax return has not been filed, the rates of 40% will be applied as 100% and 300%

- All losses pertaining to 2022 cannot be offset against the profits of subsequent years starting from 2023

- For income or corporate tax payers who apply for a tax base increase for 2022, advance taxes that cannot be offset from the taxes calculated on their annual returns for this year will not be refunded

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For Limited Liability and Joint Stock Companies

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Sole Proprietorship - Balance Sheet basis and self-employment earnings

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VAT

Calculated by multiplying the calculated VAT of the relevant year by the tax base rate of that year. It varies by year and ranges between 2% and 3%

Paid VAT cannot be subject to deductions

In some cases, in order to make a VAT base increase, it is also necessary to apply for a Corporate Income Tax base increase

There is no tax base increase regulation for VAT-2 payments

Based on the “annual” total of calculated VAT

3 percent for the year 2018

3 percent for the year 2019

2.5 percent for the year 2020

2 percent for the year 2021

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Withholding Tax

There are different rates for different withholding items (payroll withholding, rent withholding, self-employment withholding, expense voucher withholding, etc.). It can range from 2% to 6%

Applications can be made separately for different withholding items

Based on the “annual” total of payroll withholding

6 percent for the year 2018

5 percent for the year 2019

4 percent for the year 2020

3 percent for the year 2021

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If one or more of the following situations apply to you, you may consider applying for Tax Base and Tax Increase

- The company has been incurring losses for a long time

- Having deductible VAT carried forward for a long time

- High balances in Cash and shareholder current accounts

- Profit margin being low compared to sector and regional averages

- High amounts of Non-Deductible Expenses (KKEG) and deduction amounts in the tax return

- Personal expenses or external invoices unrelated to the company present in the records

- Salary payments made off-the-books

- Having off-the-books income and expenses

- Difficulty in accessing accounting documents of the last 5 years, potential tax audits taking too long and consuming a lot of time

- Earning income in past periods without having a tax liability

- Another point to consider: If a large number of companies benefit from the Tax Base and Tax Increase, the likelihood of auditing for companies that do not utilize this practice increases

Participating in the Tax Base and Tax Increase does not create a negative impression in the eyes of the tax administration. On the contrary, the tax administration encourages firms to participate in the Tax Base and Tax Increase. Participating in the Tax Base and Tax Increase does not mean that you have excessive tax risks. You can think of it as insuring your tax risks for a certain fee. Many foreign-capitalized companies also apply for Tax Base and Tax Increase to avoid tax audits. Furthermore, the tax administration may direct its auditing staff toward companies that do not opt for the Tax Base and Tax Increase

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Correction of Business Records

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Correction of cash / receivables from shareholders accounts that exist in records but not physically

Fictitious balances appearing in the records as of December 31, 2022, can be written off

3% of the amount will be paid within the tax return filing period

The written-off amount and the paid tax will be recorded as Non-Deductible Expenses (KKEG) and cannot be accepted as an expense

Eliminating amounts up to 250 kTRY through calculating attendance fees (wages) rather than a cash amnesty carries a lower cost.

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Correction of inventory / fixtures that exist physically in the business but not in the records

The inventory list will be reported to the Tax Office (by April 30, 2023)

50% of the VAT calculated over the fair market value will be paid within the tax return filing period

The VAT paid for fixtures will be treated as Non-Deductible Expenses (KKEG), whereas the VAT paid for inventory will be deductible

The equivalent of the increased amount for inventory can be transferred to the shareholder account and distributed to shareholders tax-free

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Correction of inventory / fixtures that exist in the records but not physically

Invoices will be issued for these items

Payment will be made in 3 installments

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