On September 27, Turkish Finance Minister Naci Ağbal
announced a comprehensive package including tax increases in a
meeting held for the medium-term programme of 2018-2020. Draft
legislation including the tax issues that have already been
sent to the Turkish Grand National Assembly for the enactment
One of the notable changes includes increasing the corporate
tax rate on companies operating in the field of financial
services (e.g. commercial banks, insurance companies).
Accordingly, corporate income taxes of such companies will
increase from 20% to 22%. However, no changes will be
applicable for other corporate income taxpayers.
Another important amendment is that a 1% withholding tax
will be applicable on the retained earnings of corporate
taxpayers. Thus, a 1% withholding tax will be payable even if
the retained earnings are not allocated by corporate
Currently, an exemption of 75% is applicable for the
disposal of company assets if they are held by the corporate
taxpayers for more than two years. In the draft law, it is
expected that the rate of the tax exemption will be decreased
from 75% to 50% in case the companies dispose of their estates
that are retained for more than two years.
Turkish individual income tax rates are based on a
progressive tax schedule. Through the draft legislation, tax
rates for the third tax bracket of the income tax schedule
(including wages) will be increased from 27% to 30%. This
clearly indicates that the tax burden of individual income
taxpayers will be higher in 2017 as the amendments in the
Individual Income Tax Law will be retroactively applicable from
January 1 2017. However, this change will be applied for wages
as of January 1 2018.
A considerable increase is expected for the motor vehicles
tax. Within the framework of tax overhaul, the motor vehicle
tax for passenger cars would be increased by 40%. However, due
to public reaction to this increase, we expect increase in the
motor vehicles tax will be lesser than 40%.
Besides, as of January 1 2018, a new motor vehicle tax
variable will be introduced to the tax calculation. The value
of newly purchased passenger cars will be determinative as the
motor vehicle tax is computed. There will be an increase from
10% to 20% in the taxable amount as the car's value falls.
The draft legislation also contains a VAT new mechanism for
the electronic services provided to individual buyers in Turkey
by non-resident taxpayers. Under the current legislation, VAT
registration is not permitted without a corporate income tax
registration. However, new legislation allows non-resident
taxpayers providing electronic services to Turkish individual
residents register only for VAT purposes. Such service
providers will be responsible to collect and pay VAT on their
electronic services, accordingly.
Some of the other expected tax provisions also include:
- Withholding tax rate over lottery winnings
will be increased from 10% to 20%; and
- A special consumption tax for rolling
papers used by tobacco production will be applied.
As a final remark, it is obvious that new taxes are on the
table for Turkish corporate and individual taxpayers.
Burçin Gözlüklü (firstname.lastname@example.org)
and Ramazan Biçer (email@example.com)
Tel: +90 216 504 20 66 and +90 216 504 20 66