New Comprehensive Tax Law Enacted: Key Changes Explained
Introduction:
On July 15, 2023, the Official Gazette published the Law No. 7456 titled “Law on the Establishment of Additional Motor Vehicle Tax for the Compensation of Economic Losses Caused by Earthquakes Occurred on 2/6/2023 and Amendments to Certain Laws and Decree Law No. 375.” The law, originally consisting of 15 articles, underwent amendments in the Grand National Assembly of Turkey’s Planning and Budget Commission, resulting in a total of 31 articles and two temporary articles, before being enacted and published in the Official Gazette on the same day.
This article provides a comprehensive overview of the key changes brought about by the New Comprehensive Tax Law, highlighting significant amendments to tax regulations.
- Corporate Tax Rate Increase and Incentive for Export Gains: The law raises the corporate tax rate by 5 percentage points to 25% for most companies. However, for specific entities like banks, companies under Law No. 6361, electronic payment institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance, and reinsurance companies, as well as pension companies, the tax rate is increased to 30%.
Additionally, companies exclusively engaged in exports will benefit from a 5 percentage point reduction in the corporate tax rate, allowing them to pay taxes at a lower rate of 15%.
Effective from October 1, 2023, this amendment applies to income earned in the tax years 2023 and beyond, while companies operating on a special accounting period will apply it to income earned in the special accounting period that starts in the calendar year 2023 and beyond.
- Removal of Exemptions for Real Estate Sales: The law eliminates the 50% tax exemption for gains arising from the sale of real estate assets held for a minimum of two years by corporations. This change, effective from July 15, 2023, means that such gains will be subject to full corporate tax.
Furthermore, the Value Added Tax (VAT) exemption for the transfer and delivery of real estate assets held for a minimum of two years by corporations has also been revoked.
- Removal of Exemption for Income from Other Investment Funds: Apart from the changes mentioned above, the law removes the exemption granted to income derived from other investment funds for corporations. However, this change is applicable only to investment fund participation shares and venture capital investment trust shares, excluding the exemption granted to income from venture capital investment funds. This amendment took effect from July 15, 2023, for investment fund participation shares acquired on or after this date.
- Introduction of Additional Motor Vehicle Tax: Starting from July 15, 2023, vehicles registered until this date and those to be first registered until December 31, 2023, will be subject to an additional motor vehicle tax. The amount of this tax will be equal to the motor vehicle tax due for the year 2023.
For vehicles already registered until July 15, 2023, the additional motor vehicle tax will be payable in two equal installments, with the first installment due by the end of August and the second by the end of November 2023. For vehicles to be registered from July 15, 2023, to December 31, 2023, the additional motor vehicle tax will be paid in a single lump sum together with the regular motor vehicle tax.
Exceptions to this tax are granted for vehicles affected by the earthquakes that occurred in Kahramanmaraş on 2/6/2023. Vehicles registered to the owners of buildings that were severely damaged or destroyed in the earthquake, as well as vehicles belonging to individuals who lost their close relatives in the earthquake, will be exempted from the additional motor vehicle tax.
- Empowering the President to Adjust Tax Amounts: The law grants the President the authority to increase the fixed tax amounts listed in Schedule (I) of the Excise Tax Law up to five times the highest amount specified in the schedule or decrease them by half. Additionally, the President is authorized to determine different tax amounts for certain goods based on their type, characteristics, place of use, or the method of importation. This change came into effect on July 15, 2023.
- Authority to Double the Recovery Contribution Fee: The law gives the President the power to increase the recycling participation fees listed in the Law No. 2872 by up to two times their current amount or decrease them by half. This change also became effective on July 15, 2023.
- VAT Exemption for Construction of Donated Houses in Earthquake Zones: Until December 31, 2024, the construction services and supplies provided by public professional organizations to construct houses donated to earthquake victims within the framework of a protocol signed with the Disaster and Emergency Management Presidency are exempt from VAT.
For transactions eligible for VAT credit, any uncredited VAT will be refunded upon request of the taxpayer. The exemption took effect from July 15, 2023.
- Minimum Wage Support: To support employment and reduce labor costs for employers, a temporary article (Article 96) has been added to Law No. 5510, Social Insurance and General Health Insurance Law. According to this article, between July and December 2023, employers will receive daily TL 16.66 or monthly TL 500 as a support for each employee, offsetting it against the social insurance premium they are obliged to pay.
Conclusion: The enactment of the New Comprehensive Tax Law brings significant changes to Turkey’s tax regulations. These amendments aim to increase tax revenues, boost export-oriented businesses, encourage domestic investment, and provide support for earthquake victims, while also ensuring economic stability and growth. Businesses and individuals should familiarize themselves with these changes to comply with the updated tax regulations and take advantage of any applicable benefits or exemptions.