On 12 March 2023 a new corporate tax law on tax amnesty and tax debt restructuring, Law No. 7440 has entered into force in Turkey. In accordance with the new corporate tax law, Turkish taxpayers can restructure their outstanding tax payables, finalise their tax disputes under ongoing tax audit or tax litigation phases, insure their tax risks by voluntary tax base increase and adjust their accounting records without facing any penalty or interest. With the new corporate tax law, most of the corporate taxpayers in Turkey are subject to an additional one-time tax, the so-called earthquake tax. The rate of this new supplementary tax is 10% which will be applied on the total of the exemptions and the deductions on their corporate tax returns of fiscal year 2022, and on the tax bases which are subject to reduced corporate income tax rates. The deadline for benefiting from the provisions of the new corporate tax law is 31 May 2023.
Restructuring of the outstanding tax debts
The new corporate tax law allows taxpayers in Turkey to restructure their outstanding tax debts (also other public receivables like taxes, customs taxes, social security insurance premiums, various administrative fines, and associated interests) and pay in instalments (up to 48 months) only the tax itself without its accrued penalties as the penalties are deleted. The interests on the unpaid taxes are not deleted, however they are restructured with a reduced rate (Producer Price Index) which is in the favour of the taxpayers. If the full amount of the restructured debts is paid at once (without any instalments), then only 10% of the restructured interest is paid since 90% of the interest is deleted in such a case. Taxpayers can make their applications for restructuring their tax debts which have already been accrued as of 12 March 2023.
Finalising tax disputes under tax audit and tax litigation phase
According to the provisions of the new corporate tax law, taxpayers in Turkey can finalise their tax disputes with the tax authority which are in tax audit or tax litigation phases by paying the reduced amount of the taxes claimed by the tax authority, together with the cancellation of the penalties and restructured interests.
In order to finalise tax litigation process, the stage of the lawsuit is important since there are different provisions of the law that regulates how to finalise the lawsuits depending on their stages. Taxpayers who benefit from these provisions must withdraw their court appeals latest by 31 May 2023, and waive the right to sue the tax assessments.
In addition, if the taxpayer settles with the tax authority for their tax liabilities – which might come out from the ongoing tax audits as of 12 March 2023 – by paying 50% of the taxes which are claimed in the tax audit process, the taxpayer does not pay any penalty or interest as the penalties are renounced and the interests will be applied with a reduced rate (according to the Producer Price Index).
Voluntary tax base increase according to the new corporate tax law
According to the new corporate tax law, taxpayers in Turkey can close their past fiscal years 2018, 2019, 2020, 2021 and 2022 to any possible tax audit by increasing their past years’ tax bases. When the taxpayers increase their tax bases, they will not be subject to any tax audit in the future for the related years and for the type of the tax that they voluntarily increase their tax bases provided that the taxpayers pay the related additional taxes on their increased tax bases. Taxpayers can increase their corporate income tax, VAT and some withholding tax (withholding taxes on salary income, self-employment income, rent income, dividend income, long term construction works etc.) bases and can close these tax types and related periods into a possible tax audit in the future. The voluntary tax base increase is a Turkish tax institution that can be considered as a type of tax insurance for taxpayers for eliminating their tax risks. However, it is also worth to state that corporate taxpayers, who increase their corporate income tax bases voluntarily for the past years, will not be able to carry forward 50% of their tax losses. It is important that for fiscal year 2022, 100% of the losses cannot be carried forward, and taxpayers will not be able to be refunded for the excess amount of prepaid corporate income tax which they have paid via their preliminary corporate income tax returns during fiscal year 2022.
Correction of some accounting records
With the Law No. 7440, it is possible for taxpayers in Turkey to correct some of the accounting records given below by paying the advantageous amounts mentioned in the new corporate tax law. Taxpayers can correct their below records by:
- Booking the fair market value records of the commodities, machinery, equipment, and fixtures which are not included in the books, although they actually and physically exist. (The VAT rate that is reduced by the half of the normal rate will be applied)
- Removing from the records the commodities, machinery, equipment, and fixtures that are present in the book records although they do not actually exist (This process can be managed by issuing invoices)
- Correcting the petit cash account(3% tax is paid on the petit cash balance)
- Correcting the shareholder’s receivable account(3% tax is paid on the shareholder’s receivable balance)
Additional tax on deductions and exemptions
The new corporate tax law levies a new tax for corporate taxpayers which is calculated by applying 10% to the deductions and exemptions on the corporate income tax return of fiscal year 2022, and on the tax bases which are subject to reduced corporate income tax rate. This additional tax, the so-called earthquake tax has to be paid in two instalments: the deadline of the first instalment was 30 April 2023, the second has to be paid by 31 August 2023.
If you would like to know more about the new corporate tax law or other tax regulations in Turkey, please visit the homepage of WTS Taurus, the new member firm of WTS Global for Turkey.