To support and improve the investment environment in Turkey, Parliament passed legislation reducing certain types of taxes and associated administrative costs for a variety of transactions. The omnibus legislation, Law No. 6728 on “Amending Certain Laws for the Improvement of the Investment Environment in Turkey” (Yatırım Ortamının İyileştirilmesi Amacıyla Bazı Kanunlarda Değişiklik Yapılmasına Dair Kanun) (the “Omnibus Law”), came into force on August 9, 2016. The Omnibus Law amended various aspects of other legislation in relation to stamp tax, charges, transfer pricing, bank checks, corporations and deferral of bankruptcy. Below is a summary of some of the most important amendments that are expected to have a positive impact on the business and investment environment in Turkey.
Amendments to the Stamp Tax Law No. 488 and the Law on Charges No. 492
The Omnibus Law aims to lighten the financial burden imposed upon parties to a transaction by extending the list of documents exempt from stamp tax and by giving authority to the Council of Ministers to decrease the proportional stamp tax rates.
- Stamp Tax Law No. 488 which levied a proportional stamp tax rate (0.948 percent on agreements, for example) on each original copy of a document is amended to levy tax on only one original copy, thus greatly reducing costs.[1]
- Contractual sanction clauses, such as deposits, break fees and penalty clauses are no longer subject to stamp tax unless executed as a standalone agreement.
- Documents executed for share transfers and incorporation of entities are no longer subject to stamp tax.
- If the value in an agreement subject to a capped amount of stamp tax[2] is amended without changing any other provision, the increased amount is not subject to stamp tax. Previously, the increased amount was subject to stamp tax.
- The assignment of receivables arising from loans extended by banks and foreign or international financial institutions is exempted from stamp tax. This complements the already existing stamp tax exemption for the loan transaction itself, the security package provided therefor and the repayment of the loan.
- For certain documents drawn up within the scope of capital markets and banking legislation, the Council of Ministers is authorized to decrease the applicable stamp tax to as low as 0 percent.
- Documents drawn up in relation to services provided by fully tax-liable companies for renovation or construction projects under a PPP model are exempt from stamp tax. As no differentiation is made between different PPP models, the Build-Operate-Transfer and Build-Lease-Transfer models, which are the two most common types of PPP projects, fall under the scope of this exemption.
- Lease certificate payments, assignment, transfer, sale or lease of any underlying asset in a lease certificate (sukuk) and documents drafted for the margin trading, short sales, lending and borrowing of capital markets instruments are exempt from stamp tax.
- Certain export and foreign exchange generating transactions are exempt from stamp tax.
Similar amendments were made to the Law on Charges, which regulates different categories of charges including judicial charges, notary charges and title deed charges. Certain export and foreign exchange generating transactions, as well as PPP projects now also benefit from an exemption from such charges.
Amendments to the Corporate Income Tax Law No. 5520
Transfer pricing rules are outlined under the Corporate Tax Law and have been in effect in Turkey since 2007. The Omnibus Law made changes to existing legislation and brought it in line with generally accepted international transfer pricing practices.
- The definition of “related party” has been amended to exclude minimal shareholdings. A shareholding, voting right or dividend right of at least 10 percent is required to establish a related party transaction. The same rule applies if, although there is no direct or indirect shareholding between the parties, voting or dividend rights of at least 10 percent are granted through some other means (e.g., by a contract).
- A taxpayer may retroactively apply a transfer pricing method that is mutually agreed with the Ministry of Finance to prior taxation periods as long as those periods are not barred by a statute of limitations. Thus the taxpayer may eliminate transfer pricing risk stemming from previous tax debts.
Amendments to the Check Law
The Omnibus Law, by amending the Check Law No. 5941 and Turkish Commercial Code No. 6102, introduces a secure check barcode mechanism, increases sanctions against issuers of dishonored checks and expands the oversight obligations of banks.
- Checks issued in checkbooks after December 31, 2016 must be imprinted with a serial number and QR code providing information about the drawer’s identification, legal entity, authorized signatories of the drawer (if applicable) and whether the drawer had any invalid checks in the past five years.
- The information contained in the QR code may be shared with any third party without the consent of the drawer or bearer.
- Banks issuing checkbooks on behalf of legal entities must register the directors and authorized signatories of each legal entity with the Banks Association of Turkey’s Risk Center. The center also maintains the information contained in the QR code.
- Sanctions for issuing bad checks increased. In addition to facing prohibitions on issuing checks in the future and opening another checking account, the drawer will be subject to legal proceedings and may also face judicial fines equal to or greater than the value of the bad check plus delay interest and litigation expenses. Subsequent failure to pay the judicial fine may result in imprisonment for up to five years.
- As a further penalty, individuals prohibited from issuing checks may not be appointed to the management of a limited liability company (limited şirket) or joint stock company (anonim şirket).
- The lawsuit initiated against the issuer of a dishonored check will be dropped and the drawer’s check prohibition (and the prohibition to become a director) will be cancelled if the drawer pays the dishonored check’s amount, accrued interest and/or litigation and/or enforcement expenses.
Further Amendments to the Commercial Code
Amendments to the Commercial Code aim to loosen the formal requirements for the incorporation or conversion of companies thus reducing associated costs.
- Notarization of the articles of association at the incorporation stage of a joint stock or limited liability company will no longer be necessary if the founder, or their duly appointed proxies, execute the articles before an officer of the relevant trade registry.
- It is no longer mandatory to present a founders’ declaration to the trade registry for the establishment of a company.
- The term that a company in liquidation must wait after payment of outstanding debts to creditors, the return of the share capital to the shareholders and third call to creditors before distributing remaining assets among the shareholders is reduced from one year to six months.
Amendments to the Enforcement and Bankruptcy Law No. 2004
The Omnibus Law amends the rules applicable to the “deferral of bankruptcy” in the wake of an increased abuse of the process. Companies facing bankruptcy may request a deferral of bankruptcy proceedings by presenting a recovery plan to a commercial court. After granting the deferral, the court would suspend the enforcement and execution of the company’s debts for an initial period of one year and appoint a guardian (kayyım) to oversee the management of the company. The Omnibus Law amends the Enforcement and Bankruptcy Law to restrict recourse in this measure as follows:
- To prevent “forum shopping”, deferral applications must now be made to the court in the jurisdiction where the registered office of the company has been situated for at least one year.
- A deferral application must now include not only a recovery plan, but also supplementary documents attesting to the feasibility of the plan, a list of creditors, as well as the most recent financial statements submitted to tax authorities.
- Initially, a deferral period of one year, which may be extended for one additional year, is granted. Previously, courts were able to grant an extension for three years.
- At least one year must pass after termination of a deferral of bankruptcy process before a company may apply for another deferral.
- Creditors may object to a deferral request within two weeks of its publication in the Trade Registry Gazette.
- The court may declare a company bankrupt and terminate the deferral period if, based on the reports of the guardian, the recovery of the company is deemed infeasible.
[1] There are two types of stamp tax: fixed amount stamp tax and proportional amount stamp tax. If the relevant document includes a monetary value, the stamp tax is levied as a percentage of such value, ranging from 0.189 percent to 0.948 percent (proportional amount stamp tax). If the relevant document does not include a monetary value or is a certain type of document, a fixed amount stamp tax applies (which is generally not a significant amount).
[2] The Stamp Tax Law provides for a capped amount, over which no stamp tax may be collected. The capped amount for 2016 was 1,797,117 Turkish Lira (approximately US$501,000) and is 1,865,947 Turkish Lira (approximately US$521,000) for 2017.
