Turkey’s new tax measures

Tax bulletin - 2019/14

In brief

Law number 7194, which brings three new taxes—digital services tax, accommodation tax and property tax on high value residences—was published in the official gazette on 7 December. Other tax measures included in this law include an increase of the top personal income tax rate to 40%, a broadening of the scope of individuals who are required to file an income tax return, limitations on deductible car expenses and the introduction of a new mechanism to resolve disputes between taxpayers and the tax authority.

In detail

1.Personal income tax

Major provisions concerning personal income tax are as follows.

1.1. New income brackets and tax rate

The progressive tax system moves from four brackets, with a top personal income tax rate of 35%, to five brackets, with a top rate of 40% which will kick in for earnings over TRY 500,000. This change means that the income tax rate for individuals who earn more than TRY 500,000 a year will increase by 5 points. The income brackets and tax rates under the new law are as follows.

For salary income

15%: Taxable income up to TRY 18,000

20%: Income over TRY 18,000 and up to TRY 40,000

27%: Income over TRY 40,000 and up to TRY 148,000

35%: Income over TRY 148,000 and up to TRY 500,000

40%: Income over TRY 500,000

For income other than salary

15%: Taxable income up to TRY 18,000

20%: Income over TRY 18,000 and up to TRY 40,000

27%: Income over TRY 40,000 and up to TRY 98,000

35%: Income over TRY 98,000 and up to TRY 500,000

40%: Income over TRY 500,000

For salaries, the implementation of the new tariff will start in 2020. A transition rule provides that salaries will continue to be taxed under the old tariff until the end of 2019. For earnings other than salaries, however, the new tariff will apply retrospectively from 1 January 2019.

1.2. Employees: requirement to file an annual income tax return

Salaries are taxed at the source through a withholding mechanism run by employers. If the employee has a single employer, under current rules he/she is not required to file an annual income tax return regardless of how much salary he/she receives. A filing requirement arises only when the employee has salaries from multiple employers and the salary received from the second (and any additional) employer exceeds a certain threshold (TRY 40,000 in 2019).

Beginning in 2020, the tax-at-source system will continue to apply, however those who receive more than TRY 500,000 a year will be required to file an annual income tax return, even if they have only one employer. Taxes withheld at the source will be credited against the tax liability on the annual tax return. By filing an annual income tax return, the employee will be able to benefit from the expense deductions (school fees, health expenditures etc.) granted under Article 89 of the Income Tax Law.

1.3. Employees: transportation fringe benefit

All benefits that an employee receives from an employer, irrespective of whether they are cash or in-kind, are added to the taxable salary of the employee and are taxed as such. An exception to this rule is employerprovided transportation. Until the new law was enacted, this exemption applied only when employers themselves provided the transportation (i.e. shuttle offered by the employer).

The new law now expands the scope of the exemption to include a provision for public transportation tickets, provided that they do not exceed a TRY 10 daily limit. This provision enters into force on 1 January 2020. As in the prior law, the exemption is not available where the employer makes a cash payment to the employee to cover her/his transportation costs.

1.4. Football players: requirement to file annual income tax return

Under current practice, football players do not file annual income tax returns, and the salaries they receive are taxed at the source through withholding at rates varying between 5% and 15%.

Starting from 1 January 2020, the withholding tax rate on salaries paid to football players in the top league is increased from 15% to 20%. The tax rates for players in the lower leagues are unchanged. More importantly, no matter which league they play in, those who earn a salary of more than TRY 500,000 per year will be required to file an annual income tax return. With this amendment the tax liability of football players earning more than TRY 500,000 a year will be equal to the liability of other taxpayers. In other words, their earnings, previously taxed at 15%, will now be subject to a tax rate of 40%.

A transition rule preserves the application of the old rule (no filing requirement, the salaries are taxed at source at 15%) if the player’s salary is being paid under a contract signed before 1 November 2019.

1.5. Self-employment (professional services) earnings: repeal of income tax exemption

According to Article 18 of the Income Tax Law, income earned by authors, translators, sculptors, calligraphers, painters, composers, computer programmers, inventors and their legal successors on poems, novels, articles, scientific research and analysis, computer software, interviews, caricatures, photographs, movies, video, radio and television scripts, and plays, and their broadcast via newspaper, magazine, computer and internet, radio, television, and video, and sales of books, CDs, pictures, photos, musical notes, invention patents, and the handling over or rental of rights, is exempt from income tax. Such income is taxed at source at 17% and until the new law was enacted there was no filing requirement regardless of the amount of the income.

The new law repeals the income tax exemption for situations where the income exceeds certain thresholds (500,000 TRY in 2019). Starting from 2020 individuals exceeding the threshold are required to report their whole income and pay income tax by filing an annual tax return.

2. Corporate income tax

Beginning in 2020 the following limitations will apply to the tax deductions taxpayers are allowed to claim for cars used in business activity:

  • One of the limitations is the TRY 5,500 cap on the monthly payment for rent that is tax deductible. If the rent is above the cap, the excess portion will be non-deductible for tax purposes. Under the current practice, a company which uses rental cars for its business activity may deduct the full rent.
  • In the case of purchased cars, the law limits the cost that can be used to calculate the tax-deductible depreciation expense. The maximum car value that can be used to calculate the tax-deductible depreciation expense (irrespective of the actual amount incurred for acquisition) is TRY 135,000 for purchases in 2020 (TRY 250,000 if acquisition taxes such as special consumption tax and value added tax are capitalized to the cost of the car).
  • Another limitation for purchased cars is the TRY 115,000 cap on the deduction for the special consumption tax and value added tax paid upon purchase.
  • The law also brings a 70% limitation for tax deductible expenses for the maintenance and use of a car. The remaining 30% will be treated as a non-deductible expense for tax purposes.

In addition to corporate taxpayers and individuals deriving commercial income, the tax-deductibility limitations will apply also to individuals carrying out independent professional services.

3. Digital services tax

The law establishes a new tax liability, namely digital services tax, which will apply to revenue resulting from the supply of certain digital services that are characterised by user value creation.

The new tax is intended to have a narrow target, only applying to big businesses with global revenue of over EUR 750 million and local revenue of TRY 20 million. It will be applied at a rate of 7.5% and will tax the value generated by Turkish users. The new tax will start to apply from 1 March 2020. For more details, you can see our bulletin on digital services tax.

4. Accommodation tax

The law establishes a new tax of 2% on accommodation services rendered by hotels, motels, holiday resorts, guesthouses and the like. The accommodation tax will start to apply from 1 April 2020, and the tax rate is temporarily reduced to 1% during the nine-month period before the end of 2020.

Hoteliers are required to show the accommodation tax as a separate line on their sales invoices. It is specifically directed that the accommodation tax will not be included in the base subject to value added tax. The reporting and payment of the tax to the tax office will be made by hoteliers through e-filings on a monthly basis.

5. Tax on high-value residences

Also beginning in 2020, an additional property tax will be imposed for residential houses located in Turkey with a value of over TRY 5 million.

The tax rates vary depending on the value of the residence:

Tax rate Residence value
0.3%: Between TRY 5.000.000 up to TRY 7.500.000
0.6%: Between TRY 7.500.000 up to TRY 10.000.000
1% : Value over TRY 10.000.000

The taxable base is property’s value for real estate tax purposes, or the valuation made by the General Directorate of Land Registry and Cadastre, whichever is higher. The taxpayers are required to make selfdeclaration by an annual filing which should be made in February every year. The tax is payable in two instalments in February and August.

6. Exchange tax

The new law increases the banking and insurance transactions tax (so-called “BSMV”) from 0.1% to 0.2% for foreign currency sales, and also authorizes the president to increase the rate by up to ten times. This measure entered into force on 7 December 2019.

7. Other measures

The new law:

  • institutes a new dispute resolution mechanism which enables taxpayers to settle with the tax authority after commencing court proceedings,
  • extends the time limits granted to taxpayers to provide explanations and file correction returns upon receipt of an invitation from the tax office for explanation (up to 30 days from 15),
  • redetermines the discount rates available for tax penalties,
  • relaxes the “timely payment” condition in determining taxpayer eligibility for compliant taxpayer credit,
  • clarifies the withholding tax treatment of attorney fees imposed on to a losing party.

Contact us

Ebru Türkçelik

Ebru Türkçelik

Tax Services, Director, PwC Turkey

Tel: +90 212 326 6454

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