Law No. 7524 "On Amendments to the Tax Code and Certain Other Laws" Now in Effect

TAX NEWS 

NO: 2024/4

Subject: Law No. 7524 "On Amendments to the Tax Code and Certain Other Laws” Now in Effect

Law No. 7524, titled "On Amendments to the Tax Code and Certain Other Laws," was published in the Official Gazette on August 2, 2024, and has come into force.

The regulations introduced by this Law can be summarized as follows:

• Introduction of domestic minimum corporate income tax
• Introduction of local and global minimum top-up tax
• Introducing at least 50% dividend distribution from real estated gains conditionto the Corporate Tax Exemption in Investment Funds and Partnerships
• Imposition of 30% corporate income tax on profits from build-operate-transfer projects
• Determination of real income of persons engaged in commercial or professional activities
• Tax exemption for share certificates provided to employees by technopreneurship companies
• Use of stock market value as a valuation measure in the valuation procedure of precious metals transactions
• Authorization of the President to include certain payments within scope of withholding tax
• Introducing reporting requirements for service providers and intermediaries in the Internet and other digital environments, including e-commerce
• Increase of special irregularity penalties             
• Exclusion of the tax principal from the scope of tax reconciliation
• Elimination of differences in the application of VAT and special consumption tax in favor of importers in the case of import and domestic supply of certain goods
• Permission to transfer the carried forward VAT and the right to refund to the new company regardless of the statute of limitations through tax inspection, , in merger, acquisition and division transactions.
• Removal of VAT that cannot be deducted for a period of five years from the deduction account and transfer to a special account and consideration as an expense
• Determination of tax inspection as the main procedure for VAT refunds
• Limitation of profit exemption for companies operating in free trade zones to export revenues
• Setting the fee for leaving the country at TL 500
• Change in the practice of appeals and cassations in tax lawsuits

Domestic Minimum Corporate Tax

With Article 36 of this Law, Article 32/C, titled “Domestic Minimum Corporate Tax,” which has been added to the Corporate Tax Law following Article 32/B, introduces the concept of domestic minimum corporate tax.

This provision stipulates that the corporate tax calculated under Articles 32 and 32/A cannot be less than 10% of the corporate profit before the application of any discounts and exemptions.

According to the new regulation, when calculating the minimum corporate tax, the following exemptions and reductions will be deducted from the minimum corporate tax base:

• Participation Earnings (K.V.K. Art. 5/1-a)
• Emission Premium Earnings (K.V.K. Art. 5/1-ç)
• Investment Fund and Partnership Portfolio Management Earnings (K.V.K. Art. 5/1-d) (excluding earnings from owned real estate)
• Return Exemption in Cooperatives (K.V.K. Art. 5/1-i)
• Exemption on Earnings from Sell-Lease-Repurchase Transactions (K.V.K. Art. 5/1-j)
• Exemption on Earnings from Sell-Lease-Repurchase Transactions (K.V.K. Art. 5/1-k)
• Earnings from Free Zones
• Earnings from Technology Development Zones
• Earnings from the Operation and Transfer of Ships Registered in the Turkish International Ship Registry
• R&D and Design Discount
• Amounts Set Aside as Venture Capital Fund (K.V.K. Art. 10/1-g)
• Protected Workplace Discount (K.V.K. Art. 10/1-h)

The amount for calculating the minimum corporate tax will be derived by adding expenses not legally accepted to the commercial balance sheet profit or loss and then deducting the exemptions and discounts specified in the article.

The formula for determining the domestic minimum corporate tax is:

Domestic Minimum Corporate Tax = (Commercial Profit + Non-Deductible Expenses - Deductible Discounts and Exemptions) × 10%

Additionally, the following reductions may also be deducted from the corporate tax due as a result of the minimum corporate tax calculation:

• A two-point reduction on the corporate tax for institutions whose shares are publicly offered for the first time on Borsa Ýstanbul at a rate of at least 20% for five accounting periods.
• A five-point reduction on the corporate tax for institutions that exclusively earn their income from export activities.
• Any unpaid tax resulting from a one-point reduction on the corporate tax for institutions holding an industrial registry certificate and engaged solely in production activities.
• The corporate tax not paid due to the reduced corporate tax application under Article 32/A of the Corporate Tax Law, limited to the investment contribution amounts under incentive certificates received from the Ministry of Industry and Technology before the effective date of this article.

The article does not specify whether previous year losses can be deducted when calculating the minimum corporate tax base. It is anticipated that further clarification will be provided by the Ministry of Treasury and Finance.

This regulation will come into effect upon publication and will apply to earnings obtained in the 2025 fiscal year and subsequent periods, as well as to institutions with special accounting periods beginning in calendar year 2025 and thereafter.

Implementation of Global Minimum Tax

Considering the different country practices along with the Model Rules and Guidelines published by the OECD, a new Part 5 titled “Local and Global Minimum Complementary Corporate Tax and Provisions” has been added to the Corporate Tax Law.

Multinational enterprises with annual consolidated revenues exceeding 750 million Euros equivalent in Turkish Lira are required to pay a minimum tax of 15%. If the effective corporate tax rate of the covered companies falls below 15%, a "top-up tax" will be imposed to make up the difference.

The provisions to be implemented by this regulation are summarized as follows:

• The profits of subsidiaries of multinational enterprise groups, whose annual consolidated revenue in the consolidated financial statements of the ultimate parent entity exceeds 750 million Euros equivalent in Turkish Lira in at least two of the four accounting periods preceding the reporting period, are subject to local and global minimum complementary corporate tax.
• In cases where the accounting period differs from 12 months, the consolidated revenue for the period will be adjusted to a yearly amount, which will be considered for determining the revenue limit.
• The tax burden for multinational enterprise groups will be calculated separately on a country-by-country basis for each accounting period.
• For calculating the country-specific tax burden of the multinational enterprise group, the adjusted covered taxes of the subsidiaries in that country for a specific accounting period will be taken into account.
• The profit or loss of a subsidiary for the relevant accounting period will be determined by making specific adjustments to the financial accounting net profit or loss.
• The country-specific tax burden for each accounting period of a multinational enterprise group is determined by dividing the total adjusted covered taxes of the subsidiaries in that country by the total country-specific profit of the subsidiaries in that country. The difference between the minimum corporate tax rate and the country-specific tax burden rate is the global minimum complementary corporate tax rate (top-up tax). If the country-specific tax burden exceeds the minimum corporate tax rate, the global minimum complementary corporate tax will not be calculated.
• The global minimum complementary corporate tax (top-up tax) is calculated based on the global minimum complementary corporate tax base. The global minimum complementary corporate tax base is determined by subtracting 5% of the annual gross wages of the employees and 5% of the net book value of tangible fixed assets of the subsidiaries in that country from the total net country-specific profit.
• For the 2024 accounting period, 7.8% of the net book value of tangible fixed assets and 9.8% of the gross wages of the employees of the subsidiaries will be considered. These rates will be reduced by 0.2% over the following four accounting periods, and from the 2029 accounting period onwards, the rates will be reduced by 0.8% for gross wages and 0.4% for tangible fixed assets for each accounting period.
• The global minimum complementary corporate tax (top-up tax) will be determined based on the income inclusion principle and the principle of under taxed payments.
• Under the income inclusion principle, the taxpayer for the global minimum complementary corporate tax (top-up tax) includes the ultimate parent entity, intermediate parent entities, or partially owned parent entities of multinational enterprise groups with respect to the subsidiaries and other entities established in other countries.
• The taxation period for the global minimum complementary corporate tax (top-up tax) is the accounting period. For those with an accounting period other than calendar year the taxation period is their designated accounting period.
• The accounting period is the taxation period on which the consolidated financial statements of the ultimate parent entity are based.
• The global minimum complementary corporate tax (top-up tax) is assessed based on the taxpayers' declarations.
• The calculated tax must be declared and paid by the end of the fifteenth month following the close of the accounting period (eighteenth month for the 2024 accounting period). If the annual average revenue of the multinational enterprise group's country-specific base is less than 10 million Euros equivalent in Turkish Lira and the annual average profit is less than 1 million Euros equivalent in Turkish Lira, the global minimum complementary corporate tax (top-up tax) of the subsidiaries in that country may be considered as zero for the relevant accounting period.
• The local minimum complementary corporate tax is applicable to subsidiaries and partnerships of multinational enterprise groups established in Turkey.
• The taxation period for the local minimum complementary corporate tax is the accounting period. For those with an accounting period other than calendar year the taxation period is their designated accounting period.
• The local minimum complementary corporate tax will be assessed based on the taxpayers' declarations.
• The calculated tax must be declared and paid by the end of the twelfth month following the close of the accounting period. 

The regulation is applicable to the 2024 and subsequent years’ income of those that are to be taxed under the income inclusion rule. It is applicable to the income of the taxable period commencing in 2024 and subsequent periods for those with an accounting period other than calendar year.

It is applicable to the 2025 and subsequent years’ income of those that are to be taxed according to the under-taxed payments rule. It is applicable to the income of the taxable period commencing in 2025 and subsequent periods for those with a designated accounting period other than calendar year.

Introducing at least 50% dividend distribution from real estated gains conditionto the Corporate Tax Exemption in Investment Funds and Partnerships

As is well known, under Article 5, paragraph 1(d) of the Corporate Tax Law, the earnings of funds or partnerships listed in this provision are exempt from corporate tax, provided that they are established in Turkey.

With the recent amendment introduced by this Law, all funds and partnerships, including Real Estate Investment Trusts (REITs) and Real Estate Investment Funds (REIFs), will be eligible for the exemption if they distribute at least 50% of their earnings derived from real estate assets, including those classified as commercial goods, to their shareholders as dividends. This distribution must occur by the end of the second month following the month in which the corporate tax return for the relevant accounting period is due.

Introduction of tax withholding in e-commerce

With the amendment made by this Law, under the "Law on the Regulation of Electronic Commerce" (Law No. 6563), intermediary service providers and electronic commerce service providers are required to withhold tax on payments made to service providers and electronic commerce providers.

The specifics of this regulation will be determined by a forthcoming Communiqué.

Corporate tax rate of 30% on earnings from build-operate-transfer projects

With the amendment introduced by this Law, the corporate tax rate has been set at 30% -up from 25%- for earnings derived from institutions operating under the Build-Operate-Transfer (BOT) model as specified in Law No. 3996, and from projects conducted under the public-private partnership (PPP) model as outlined in Law No. 6428. This regulation applies not only to earnings directly related to these projects but also to all operating income of these institutions.

The new tax rate will take effect from the date of its publication and will apply to earnings generated in 2025 and subsequent taxation periods. It will also be applicable to earnings from special accounting periods beginning in the calendar year 2025 and in future taxation periods for institutions following the special accounting period.

Fee exemption for benefits provided by techno-initiative companies through share certificates

Under agreements with employees, employees may be granted the right to purchase shares of their employer or affiliated companies either free of charge or at a discounted rate, provided they meet certain conditions, such as working for the employer for a specified period or achieving certain performance criteria.

According to the new regulation introduced by this Law, the portion of the fair value of share certificates issued to employees free of charge or at a discount by techno-initiative companies, which is recognized as remuneration and does not exceed the equivalent of one year's gross wage, is exempt from income tax.

Permission to transfer the carried forward VAT and the right to refund to the new company through tax inspection, regardless of the statute of limitations, in merger, acquisition and division transactions

With the amendment made by this Law, it is regulated that the deduction of the value added tax amount that could not be deducted by the taxpayers who have ceased their activities, divided, or dissolved can be made in the transferee company according to the result of the tax inspection.

VAT amounts that cannot be deducted within a five-year period shall be removed from the carryforward VAT Account and transferred to a special account, where they will be recognized as an expense

Under current VAT regulations, if VAT incurred on purchases of goods and services cannot be deducted in the relevant period, it may be carried forward to subsequent periods without a time limit for its deduction.

According to the new regulation introduced by this Law, VAT amounts carried forward for five calendar years or more shall be removed from the Discount VAT Accounts and transferred to a special account. These amounts will then be recognized as an expense in the calculation of income or corporate tax, based on the findings of a tax inspection conducted at the taxpayer’s request.

This regulation will come into effect on January 1, 2030.

Determination of the Main Procedure in VAT Refunds as Tax Inspection

With the amendment made by this Law, the main procedure in VAT refunds is determined as tax inspection.

The regulation will enter into force at the beginning of the month following the publication of the law.

Limitation of the Earnings Exemption Provided to Enterprises Operating in Free Zones to Export Revenues

All profits derived from production activities in free zones are exempt from corporate tax, regardless of whether the products are sold domestically or abroad.

Under the regulation introduced by this Law, it is regulated that only the earnings derived from the sales abroad (exports) of the products manufactured by the institutions operating in free zones will be exempt, and the exemption granted to the earnings derived from domestic sales will be abolished.

Yours sincerely,

Deloitte Turkey

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