The Turkish Parliament approved the new Corporate Income Tax Act No. 5520 on 13 June 2006. One of the basic features of the Act is the reduction of the corporate income tax rate to 20% from 30%. The Act has now been sent to the President for approval.
Income withholding tax rates on interest and capital gains to be reduced
The income withholding tax rates applied from 1 January 2006 on interest and capital gains derived from the disposal of securities (shares and bonds) and other capital market instruments are planned to be reduced. The Ministry of Finance has declared that the 15% withholding tax rate applied on gains derived by non-resident individuals and companies will be reduced to 0%. According to the press release, such income of residents will be subject to a 10% withholding tax.
The Ministry also declared that the above reduction will be carried out before 1 July 2006. The rate structure will be as follows:
For non-resident individuals and companies, a 0% withholding tax rate will be applied to:
|-||interest on Turkish government bonds and debentures;|
|-||capital gains derived from the disposal of Turkish government bonds and debentures; and|
|-||capital gains derived from the disposal of securities (shares and bonds) and other capital market instruments.|
For resident individuals and companies, the withholding tax rate for the above income will be 10%.
For both residents and non-residents, the 15% income withholding tax rate on interest on deposit accounts and income from repo transactions concerning Turkish government bonds and debentures will not be changed.
Withholding tax rates on non-resident companies
Under the new Corporate Income Tax Act No. 5520 (CTA), published in the Official Gazette of 21 June 2006, the general withholding tax rate applied to Turkish-source income derived by non-residents is fixed at 15%. The Council of Ministers is authorized to reduce the rate to zero, or increase it to 30% for different items of income. Previously, the general withholding rate was 25% which was reduced by the Council of Ministers to 0% or 25%, depending of the type of income. Although the new 15% general rate is applicable from 1 January 2006, a provisional article of the CTA provides that until the Council of Ministers uses its above-mentioned authority, the rates fixed under the previous decrees of the Council of Ministers continue to apply, except that they may not exceed 15%.
Accordingly, the following items of income derived by non-resident companies are subject to a 15% rate from 1 January 2006 till the date on which the Council of Ministers sets the new rates:
|-||royalties (previously, 22%);|
|-||the proceeds from the sale of copyrights, patents and other intangible rights (previously, 25%);|
|-||fees for professional services (previously, 22%); and|
|-||rental payments for immovable and movable property (previously, 22%).|
The withholding rates on other types of income, such as dividends and branch profits (10%) or financial leasing (1%) do not change since those rates are lower than the 15% limit.
As the effective date of the above provisions is 1 January 2006, any excess tax withheld between 1 January 2006 and 21 June 2006 will be refunded.