Numara : 15
Tarih : 11.12.2019

TAX NEWS

NO: 2019/15

Subject: The Law No. 7194 on Digital Service Tax and the Amendment of Certain Laws and Law Decree No. 375 has been promulgated.

The Law No. 7194 on Digital Service Tax and the Amendment of Certain Laws and Law Decree No. 375 has been promulgated in the Official Gazette dated December 7, 2019.

As you may recall, the said Law was accepted by the General Assembly of the Turkish Republic on 21/11/2019 and enacted with the law number 7193; however, was not approved by the President of Turkey and was sent back to the General Assembly to make some amendments on the Electricity Market Law. Therewith the new law was entered into force after being revised and published in the Official Gazette dated 7 December following the approval of the President.

Amendments to the tax laws within the scope of the Law no. 7194 are summarized as follows:

1. Digital Services Tax Bill

Through the Articles from 1 up to 7 of this Law, “Digital Services Tax” is introduced. Accordingly, providers of digital services such as advertisement services, in-app sales (games, music, videos, etc.), paid services through social media and websites who act as intermediaries for sales of goods and services are obliged to pay digital services tax. Digital services tax rate is %7,5 and digital services tax is calculated over revenue generated due to above mentioned services. Taxpayers of the tax are digital service providers. All service providers are subject to the tax regardless of their residency in Turkey. The amendment will enter into effect as of 01.03.2020 For more information, please see our previous tax bulletin no. 2019/12. 2. Amendment of the income tax rates New income tax rate of 40% is included in the Article 103 of the Turkish Income Tax Law through the Article 17 of Law No. 7194 Accordingly, the tax burden of the groups earning up to TL 500.000 by maintaining the first four brackets of the current rate has not been changed; however, earnings exceeding TL 500.000 will be subject to 40% income tax.

2. Amendment of the income tax rates

New income tax rate of 40% is included in the Article 103 of the Turkish Income Tax Law through the Article 17 of Law No. 7194

Accordingly, the tax burden of the groups earning up to TL 500.000 by maintaining the first four brackets of the current rate has not been changed; however, earnings exceeding TL 500.000 will be subject to 40% income tax.

 Current Rates

 

New Rates

First TL 18.000

15%

First TL 18.000

15%

From 18.000 to TL 40.000

20%

From TL 18.000 to TL 40.000

20%

From TL 40.000 to TL 98.000 (for employment income from TL 40.000 to TL 148.000)

27%

From TL 40.000 to TL 98.000 (for employment income from TL 40.000 to TL 148.000)

27%

Over TL 98.000 (for Employment income from TL 148.000)

35%

From TL 98.000 to TL 500.000 (for employment income from TL 148.000 to TL 500.000

35%

 

Over TL 500.000

40%

3. Submission of annual income tax return for the wages
 
With the article 15 of this Law, subparagraph (b) of paragraph (1) of the first paragraph of the 86th article of the Income Tax Law has been amended. Accordingly, all individuals will be asked to file annual income tax return by the end of March of the following year;

  • Where their employment income is more than the amount in the fourth tax bracket (i.e. TL 500.000) (This amount will be subject to increase in the following years with the revaluation rate of the previous year),
  • Where the sum of the employment income of the individuals would be more than the amount in the second tax bracket (i.e. TL 40.000 for 2019) from more than one employer.

This change will be effecting the employment income derived after 01.01.2020.

4. Exemption from income tax for certain amount of transportation

Through an amendment on the Article 23 of the Income Tax Law with Article 11 of this Law, fees up to TL 10 daily provided for public transport card, ticket or payments for transportation purposes are exempt from income tax.

The amendment will enter into effect as of 01.01.2020.

5. Restrictions on car expenditures

Some restrictions and limitations are announced with regard to the car expenses through the Article 13 and 14 of this Law. There will be certain limitations for company cars to be deemed as deductible expenses:

  • For rented company cars, up to TL 5.500 per month,
  • For purchased company cars, up to TL 115.000 for consumption tax and VAT,
  • Up to maximum of %70 of the expenses (i.e. maintenance, fuel, insurance, toll fees, etc.) related to rented or purchased vehicle,
  • TL 135.000 (Excluding consumption tax and VAT) would be taken into account for depreciation calculation of the company cars,
  • TL 250.000 (Where the consumption tax and VAT are added into the purchase cost) would be taken into account for depreciation calculation of the company cars or second hand cars.

The restrictions will be effective for accounting periods beginning after 01.01.2020.

6. Reducing the conditions for benefiting from tax reduction for tax compliant taxpayers

As per the current practice, one of the necessary conditions for benefiting from the tax deduction provided to taxpayers is to submit all tax returns to the tax offices of the Ministry of Finance within the period and to pay the taxes accrued on these declarations.

With the amendment made in Article 18 of this Law, conditions for benefiting from the regulation that provides tax deduction to taxpayers in repeated Article 121 of the Income Tax Law are reduced.

With this article, three important arrangements have been made to ease the taxpayers in terms of benefiting from tax-compliant taxpayer practice:

Tax returns are limited with the following: annual income tax and corporate tax returns, advance tax returns, withholding tax returns, salary withholding and social security returns, value added tax returns and special consumption tax returns.

For instance, gift and inheritance tax returns and stamp tax returns are excluded.

The payment deadline for the taxes accrued on these declarations is also extended to the period of filing the income and corporate tax returns. For this reason, since the non-payment of the taxes accrued on the timely declarations will not be considered as a violation, the provision of incomplete payments has also been removed from the text of the article.

In the case of offsetting payments, missing payments made up to 10% of the amount requested to be paid off on the basis of subsequent determinations shall not prevent the benefit of the discount.

The amendment will enter into effect as of 01.01.2020.

7. Restriction on exemption about royalty

As it is known, the income of self-employed (author, translator, computer programmer, novel, article, etc.) specified in Article 18 of the Income Tax Law are exempt from income tax. However pursuant to Article 94/2-a of the Income Tax Law, 17% withholding tax is applied in the form of final tax payments made for self-employment.

Those who obtain royalties in excess of the amount in the 4th income bracket (TL 500.000) of the income tax rate will not be able to benefit from the exemption set forth in Article 18 of the Income Tax Law and need to submit a tax return for all of their income.

The amendment will enter into effect as of 01.01.2020.

8. Withdrawal of exemption about the salary paid to referees managing sports competitions

The exemption of income tax applied to the salaries paid to the referees conducting sports competitions has been abolished through the Article 12 of this Law. With the arrangement, the salary paid to the referees who manage the amateur sports competitions (except those working in the top leagues of basketball and volleyball sports) will be exempted.

The amendment will enter into effect as of 01.01.2020.

9. Salary withholding taxes paid for the professional athletes

Through the Article 21 of this Law, the amendment made to Article 72 of the Income Tax Law and the temporary Article 72 of the Income Tax Law is conducted. Based on this change, the income tax withholding rates to be applied for the salaries paid to athletes, will be applicable till 31/12/2023 and the rate of withholding tax paid to the athletes in the top leagues in the sports branches subject to league procedure and withholding tax from the payments counted as salary is determined as 20% (Previously tax rate was 15%).

New regulation would not apply to the salary payments made under the contracts of athletes that have been validated before 01.11.2019.

The amendment will enter into effect as of 01.01.2020.

10. Income tax return for the professional athletes

Professional athletes would be liable to report their salary through annual income tax return in case their salary exceeds the fourth bracket of the income tax law (TL 500.000).  In the current practice, salary withholding taxes applied by the sports clubs are the final taxes.

The amendment will enter into effect as of 01.01.2020.

11. Due date for tax explanation or tax filing

Due date for tax explanation or tax filing as a result of a tax office invitation is prolonged from 15 days to 30 days through the Article 25 of this Law.

The amendment will enter into effect as of 01.01.2020.

12. Reduction about the tax penalties

As known, 50% of penalty reduction (first time of tax loss) and 1/3 (subsequent penalties) of penalty reduction is applied as discount under the current practice.

According to the new regulation, the discount rate is determined as 50% regardless of whether the tax loss penalties are committed for the first time or not, provided that payment is made within the periods specified in the related article.

The amendment has entered into effect as of 07.12.2019.

13. Waiving of legal remedy

A new article has been added to the Tax Procedure Law titled as “waiving of legal remedy” in order to resolve the tax disputes between the taxpayer and the administration.

This regulation allows taxpayers to waive legal remedy and reach a settlement with the administration after the decision of court of first instance. On the other hands, the decision of the State Council on annulment is not within the scope of this article.

According to the decision of the first instance court, this regulation is applicable as shown in the table below, in cases where the case is concluded in favor of the administration or the taxpayer.

Amounts accrued in this way shall be paid within 1 month from the date of accrual. According to this article, 20% of the tax and penalty amount will be deducted provided that 80% of the tax and / or tax penalties accrued is paid with the delay interest to be calculated.

The amount to be paid in the table is accepted as 100 TL.

Revoked by the First Instance Court

Approved by the First Instance Court

 
 

Subject

Payment

Reduced payment

Payment

Reduced payment

 

Tax Loss

60

48

100

100

 

Tax loss penalty

0

0

75

60

 

Non-actionable tax loss or the tax loss penalty due to the participation in smuggling

25

20

75

60

 

Irregularity Penalty and/or Special Irregularity Penalty

25

20

75

60

 

The amendment will enter into effect as of 01.01.2020.

14. Accommodation Tax

Through the Article 9 of this Law “Accommodation Tax” is introduced in the Expense Taxes Law.

Accommodation Service providers such as hotels, motels, holiday villages, apart hotels, camping etc. are taxpayers of this tax. Accommodation services and other services provided with Accommodation services (e.g. dining, activity, leisure services, pool, fitness, spa, thermal area usage services) are subject to Accommodation tax.

Accommodation tax base will be the total amount of above mentioned services provided (VAT excluded). Accommodation tax rate will be applied as 1% until 31.12.2020 and the rate will be applied as 2% after 31.12.2020. The tax amount will be shown on the invoice raised by Accommodation facilities. No discounts will be made over this tax base and the tax amount will not be included in VAT base.

The Accommodation tax return will be submitted on monthly basis the tax return will be submitted and paid to the Tax Office until 26th of the following month.

The amendment will enter into effect as of 01.04.2020.

15. Expense Taxes

Through the Article 8 of this Law, the ratio of bank and insurance transactions tax (BITT) to foreign exchange transactions has been increased from 0,1% to 0,2%. (This is a tax applied during Exchange transactions i.e. purchase of foreign currency with TL). These amounts are withheld by banks. Furthermore, the President is authorized to increase this rate up to 10 times.

16. Valuable Housing Tax

Through the Articles from 30 up to 37 of this Law, “valuable housing tax” is introduced in Real Estate Tax Law.
 
Accordingly, valuable housing tax will be calculated in accordance with the value of residential properties as shown below;

  • Properties valued between TL 5.000.000 and TL 7.500.000 (3 per thousand),
  • Properties valued between TL 7,500,001 and TL 10,000,000 (6 per thousand),
  • Properties with value exceeding TL 10,000.001 (10 per thousand).

The amendment has entered into effect as of 07.12.2019.


Yours sincerely,

Deloitte Turkey

 

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