The Law on the Restructuring of Certain Receivables and Amendments to Certain Laws No. 7256 (“Law No.7256”) published in the Official Gazette No. 31307 on November 17, 2020 introduced several amendments to the tax legislation.
As per the Law No. 7256, the main amendments made relating to tax legislation are summarized below:
- Withholding tax application was introduced for share buyback transactions to be conducted by full liable corporate taxpayers on some conditions.
- The corporate tax rate will be applied at a 2 point discounted rate for the institutions at least 20% of whose shares are offered to the public to be traded in Borsa Istanbul Equity Market for the first time, for 5 accounting periods starting from the fiscal period during which their shares are offered to the public for the first time.
- The Wealth Amnesty is entered into force.
- Procedures and principles regarding restructuring of the specified public receivables are regulated.
A brief summary of the important amendments are provided below for your information.
1. New Taxation Rules for Share Buybacks
As per the Law No.7256; withholding tax at the rate of 15% is envisaged for the below mentioned conditions:
- If the acquired shares were redeemed via capital decrease, withholding tax will be applied over the difference between the purchase price and the nominal value of the shares (to be withheld on the registration date of the capital decrease)
- If the acquires shares are disposed with a value lower than the purchase price, withholding tax will be applied over the difference between the acquisition and disposal price (to be withheld on the disposal date)
- If the acquired shares are not disposed within two years starting from the date of purchase or not redeemed by decreasing the capital, withholding tax will be applied over the difference between the purchase price and the nominal value of the shares (to be withheld on the termination date of the 2 years period)
Additionally, the President of the Republic is granted authorization to reduce the withholding rate to zero or to increase it up to one fold, individually or together, depending on whether (a) the company’s shares are traded in Borsa Istanbul, (b) the ratio of the traded shares in the total shares, (c) the repurchases shares are among the shares traded in Borsa Istanbul, (d) whether they are repurchased from the fully liable companies and the total amount of the annual sales revenue and other income of the fully liable capital company.
2. Wealth Amnesty
Assets Within the Scope of the Wealth Amnesty
Assets accepted to be within the scope of the Wealth Amnesty are as follows:
- Money, gold, foreign exchange, securities and other capital market instruments held abroad
- Money, gold, foreign exchange, securities, other capital market instruments and immovables held in Turkey but not recorded in the legal books of income and corporate income taxpayers.
Declaration, Notification Time and Bringing Assets to Turkey
Following conditions must be met in order to benefit from the advantages within the scope of Wealth Amnesty:
- Reporting assets which are in scope of Wealth Amnesty and located abroad to the bank or institution in Turkey until the date of 30.06.2021,
- Assets within the scope of Wealth Amnesty and located abroad have to be brought into Turkey within three months from the date of notification or must be transferred to an account opened in a bank or intermediary institutions in Turkey.
- Declaration of assets located in Turkey to tax offices until 30.06.2021.
Advantages of Wealth Amnesty
No tax assessment or tax audit will be conducted on the above mentioned assets repatriated through the Wealth Amnesty.
3. Corporate Tax Rate Discount for Some Institutions Whose Shares Are Offered to the Public for the First Time
The amendment to Article 32 of the Corporate Tax Code No. 5520 decreased by two points the corporate tax rate applied to the corporate income of companies with at least 20% of shares offered to the public through the Borsa Istanbul Stock Exchange for five accounting periods starting from the shares’ public offering date. However, banks, leasing companies, factoring companies, financing companies, payment and electronic money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions insurance and reinsurance companies and pension companies cannot benefit from the discount.
4. Restructuring Public Receivables (Tax Debts)
Receivables Within the Scope of Restructuring Regulations
The scope of restructuring includes overdue debts to many institutions and organizations, especially tax and insurance premium debts. Debts at the stage of tax inspection, settlement and litigation are not within the scope of restructuring.
Receivables Cancelled Upon Restructuring
The collection of accessory receivables such as fines, interest, delay increase, default interest based on the primary debts will be cancelled provided that all originals of tax, insurance and other debt are paid in time and in a manner specified in the law. Instead of these amounts, the amount to be calculated according to the monthly rate of change of the domestic producer price index (D-PPI) until the publication date of the law must be paid. On the condition that this amount is paid, interest, default interest and default surcharge are deleted. A certain percentage of the fines that do not depend on the original receivable are deleted.
Payment of the Restructured Debts
The structured debt can be paid in 6, 9, 12 or 18 month installments. In the installment payment option, the amount of debt to be paid is increased by coefficients. In case all calculated amounts are paid within the first two installments payment period, the coefficient is not applied. If an advance payment is made within the first two installments, a discount is made on the amounts to be calculated based on the D-PPI monthly change rates.
In order to benefit from the restructuring, the application must be made by the end of this year and the first installment must be paid until 31.01.2021 for tax debts and 28.02.2021 for insurance debts.
