1. Recent Tax Changes1.1. Value Added Tax (VAT)
According to Article 28 of VAT Law No. 3065, the VAT rate for taxable transactions is 10%. However, the President has the authority to increase or decrease this rate within certain limits. Based on this authority, the Turkish President had earlier increased the VAT rates to be applied to the delivery of goods and services, and the following rates had been set:
- Deliveries and services not included in the lists appended to the decree were subject to 18% (the general rate)
- Delivery and services included in list (II) appended to the decree were subject to 8% (a reduced rate)
- Delivery and services included in list (I) appended to the decree were subject to 1% (a reduced rate).
In the Official Gazette dated 7 July 2023 containing Presidential Decree No. 7346, the overall rate has now been increased from 18% to 20%, and the reduced rate of 8% has been increased to 10%.
Furthermore, certain goods such as soap, shampoo, detergent, disinfectants, wet wipes, toilet paper, paper towels, tissue paper, and napkins, are now subject to a VAT rate of 20% (previously 8%).
This came into effect on Monday, 10 July 2023, and taxpayers have to adapt their systems to the new VAT rates accordingly. Under Turkish Tax Procedure Law No. 213, an invoice can be issued within 7 days after a taxable event occurs. This means that it is possible in practice to apply the former VAT rates until 16 July in the case a taxable event has already occurred but the invoice has not been issued.1.2. Banking and Insurance Transactions Tax (BSMV)
According to Article 33 of Fee Tax Law No. 6802, the rate of banking and insurance transactions tax (BSMV) is 15%. In foreign exchange transactions, the rate is two thousandths of the base.
The President is authorized to change the tax rate specified in this article and exercised this authority under Presidential Decree No. 7345. In this context, the rate of BSMV to be paid on consumer loans was increased to 15%.
This increase entered into force on the publication date of the Decree (7 July 2023) and will be applicable to consumer loans to be extended as of the date of publication.
The purpose of this increase is to limit consumer loans and accordingly domestic demand as a measure to fight the high inflation which Türkiye has been experiencing in the last year. This change has also increased the cost of obtaining loans from commercial banks and will have an impact on demand for loans by Turkish residents.1.3. Withholding Tax Increase on Share Buy-Back Transactions
According to Income Tax Law No. 193 Article 94 paragraph 4, if full liability capital companies acquire their own stocks and do not dispose of them within a certain period, a special tax is applied when these shares are disposed of at a loss or canceled with a capital reduction.
The President is authorized to reduce this rate to zero or to re-determine it by increasing it by up to 100%. The withholding tax rate for this tax was previously 0%. Under Presidential Decree No. 7343, the rate on the amounts considered as distributed dividends on the shares of full-fledged taxpayer companies has been increased to 15%. The decree entered into force on the date of its publication, to be implemented regarding shares acquired from the date of its publication, 7 July 2023.
Accordingly, a withholding rate of 0% for amounts considered as distributed dividends in respect of treasury shares acquired by full-fledged companies whose shares are traded on the Borsa Istanbul will continue; however, with respect to shares to be acquired by other companies, a withholding tax of 15% will be applied for amounts considered as distributed dividends from 7 July 2023.