Tax measures of law number 7394

In detail

Key tax changes are as follows:

Tax hike for companies in the financial services sector

The corporate tax rate for financial sector companies (such as banks, financial leasing companies, electronic payment and money institutions, asset management companies, capital market institutions, insurance companies, private pension companies) is increased to 25%.

Turkey’s standard corporate tax rate is 20%. This was temporarily increased to 25% in 2021 and 23% in 2022. The 25% tax rate for financial sector companies will apply from 2022.

Exclusion of capital replenishment funds from the corporate income tax base

Article 6 of the Corporate Tax Law, which defines the taxable base for corporate income tax, has been amended to add a provision related to funds transferred by shareholders to replenish negative equity balances as part of the capital adequacy rules imposed under Article 376 of the Turkish Commercial Code. According to this provision, such funds are excluded in the determination of taxable corporate income.

Tax exemption in relation to income generated by mutual fund investors

The new law broadens the scope of the income tax exemption for corporations that invest in mutual funds. Previously, the tax exemption was available only for dividends from mutual funds. Now, income earned from returning mutual fund units to the founder (redemption) as well as income recorded in the investor’s statutory books as a result of the year-end valuation of these funds are also exempt from corporate income tax. 

Non-deductible advertising expenses

Advertising expenses of taxpayers (individual or corporate) who receive advertising services from those who have been banned from providing advertising services under social media law number 5156 are non-deductible in the determination of the income tax base.

Reinforcement of the VAT incentive in manufacturing and tourism

The refund opportunity regulated under Temporary Article 37 of the VAT Law regarding input VAT incurred on construction expenditures made in the scope of an investment incentive certificate in the manufacturing industry is replaced with a VAT exemption mechanism. In addition, the scope of the incentive has been extended to apply to taxpayers in the tourism sector as well. 

Accordingly, delivery of goods and services in relation to construction work performed under investment incentive certificates in the manufacturing industry and the tourism sector are exempt from VAT until 31 December 2025.

VAT exemption applicable to the purchase of real estate by non-residents

Article 13 of the VAT Law provides for a VAT exemption for the purchase of buildings (constructed as residences or workplaces) by non-residents, subject to certain conditions. Previously, if a building purchased and benefitting from the concerned VAT exemption was sold within one year, the nonresident was responsible for paying the VAT (together with late interest) prior to the registration of the sale at the title deed registry. The new law increases this one-year holding period to three years.

Amendments to the Tax Procedural Code

The maximum period of imprisonment set out under Article 359 of the Tax Procedural Code regulating penalties for tax fraud has been increased to 8 years from 5 years. In addition, amendments have been introduced making the reduction of penalties possible during the period of the investigation of acts falling within the scope of Article 359.