On March 8 2017, the Law No. 6824 on the Restructuring of Certain Receivables and Amending Certain Laws and Law Decrees (“Law“) was published in the Official Gazette No. 30001 and entered into force. The Law, which amends both the Income Tax and VAT Laws, introduces a new income tax reduction for eligible taxpayers and a VAT exemption for certain real property sales.
What the Law says
- New tax reduction reward for compliant taxpayers
In an attempt to encourage taxpayer compliance, the Law provides that eligible income taxpayers who conduct commercial, agricultural and self-employment activities, and corporate income taxpayers ̶ excluding those operating in the finance and banking sectors, insurance, reinsurance and retirement companies and retirement investment funds ̶ can benefit from a 5% income/corporate income tax reduction on their annual income/corporate income tax returns. The maximum deduction amount is TRY 1 million. If the calculated deduction amount is higher than the tax to be paid, the remaining amount can be offset from the taxpayers’ accrued declared taxes within one year following the submission date of the annual income/corporate income tax return. To qualify, taxpayers must meet the following conditions:
- The tax returns for the years in which the tax reduction will be calculated, and the two preceding years, should be declared within the statutory period. In addition, the related due taxes must be paid within the statutory period. Tax returns declared for correction or voluntary disclosure purposes, although declared after the statutory period, are still considered to meet this condition.
- The taxpayer should not be subject to any tax assessment for the year in which the tax reduction will be calculated and for the two preceding years. If the tax assessment is completely cancelled through a definite court decision, or within the scope of reconciliation or correction provisions of the Tax Procedure Code, it is still considered to meet this condition.
- The taxpayer should not have any overdue tax debts, including tax penalties, exceeding TRY 1,000 as of the submission date of the annual income/corporate income tax return from which the tax reduction will be calculated.
- The taxpayer should not commit any fraudulent acts under Article 359 of the Tax Procedure Code for the year in which the tax reduction will be calculated and for the four preceding years.
This new tax reduction is applicable for annual income/corporate income tax returns submitted after January 2018.
2. New VAT exemption for certain real estate sales
In an effort to increase foreign currency inflow into Turkey and invigorate the construction sector, the Law introduces a full VAT exemption for certain real property sales. According to the Law, the VAT exemption will be applicable only upon the first delivery of residential or business real estate properties to the below persons if the real estate properties are paid for in foreign currency:
- Turkish citizens who live abroad for more than six years on a work or residency permit, excluding those who are affiliated with official Turkish government departments and establishments, or with undertakings and organizations of which the business head office is situated in Turkey and reside abroad due to their work in the said departments, establishments, organizations and undertakings
- Foreign individuals who do not reside in Turkey
- Non-resident legal entities that do not have their legal or business centers within Turkey and do not generate income in Turkey through a workplace or permanent representative.
Eligible taxpayers who would like to benefit from these tax reliefs should be aware of this new development.