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Turkey Publishes Tax Reform Law Including Digital Services Tax and Other Changes — Orbitax Tax News & Alerts

Turkey's Revenue Administration has announced the publication of Law No. 7194 in the 7 December 2019 edition of the Official Gazette, which includes several tax reform measures. Some of the key measures are summarized as follows:

Digital Services Tax

A new digital services tax (DST) is introduced that applies for the following:

  • All kinds of digital advertising services, including advertising control and performance measurement services, data transmission and management of users, and technical services for advertising;
  • The digital sale of any audio, visual or digital content, including computer programs, applications, music, video, games, in-game applications, and the digital services to listen, view, play, etc., such content; and
  • Services that allow users to interact with each other digitally, including services that facilitate the sale of goods or services among users.

Further, any proceeds from intermediation services provided digitally for the above services are subject to the digital service tax. Certain services are exempt, including services subject to treasury duty, services subject to communication tax, and certain services covered by the Banking Law, and the sale of products to certain R&D and design centers.

Suppliers meeting a EUR 750 million annual revenue threshold with digital sales of at least TRY 20 million in Turkey are subject to the DST. If a supplier is part of a group, group revenue and sales are considered. The president is also authorized to adjust the thresholds to zero or up to triple the amounts specified for each digital service type together or separately.

The standard DST rate is 7.5%, although the president is authorized to reduce the rate to 1% or double the rate for each service type. The tax base is the gross revenue derived from the supply of digital services, with no deductions. If revenue is calculated in a foreign currency, it should be converted into Turkish lira using the valid Central Bank exchange rate at the time of receipt of the proceeds.

The standard tax period for DST is monthly, although the Ministry of Finance is authorized to prescribe a quarterly period for a taxpayer depending on the type of service and/or operating volume. Returns for DST are due by the end of the month following the tax period. DST paid may be deducted for income and corporate tax purposes.

The DST applies from the third month following the publication of the Law No. 7194 (i.e., 1 March 2020).

Accommodations Tax

A new accommodations tax is introduced that applies on income from accommodation services, including hotels, motels, hostels, guesthouses, campsites, etc., as well as services provided in such accommodation, such as eating, drinking, recreation, use of pools/sports facilities, and similar.

The accommodation tax rate is 2% on the consideration paid for the services, excluding VAT. However, the rate is reduced to 1% until 31 December 2020. Further, certain accommodation services, including those provided to students in dormitories, hostels, and camps, and those provided to diplomatic missions that are exempt under international agreement. The tax period is monthly, with the tax due by the 26th of the following month.

The accommodations tax applies from 1 April 2020.

Individual Income Tax

The individual income tax brackets and rates for employment income are amended as follows:

  • up to TRY 18,000 - 15%
  • over TRY 18,000 up to 40,000 - 20%
  • over TRY 40,000 up to 148,000 - 27%
  • over TRY 148,000 up to 500,000 - 35%
  • over TRY 500,000 - 40%

For other non-employment income, the number of brackets and rates are the same, but the 35% bracket threshold is TRY 98,000 as follows:

  • up to TRY 18,000 - 15%
  • over TRY 18,000 up to 40,000 - 20%
  • over TRY 40,000 - up to 98,000 - 27%
  • over TRY 98,000 up to 500,000 - 35%
  • over TRY 500,000 - 40%

The article containing the new brackets/rates (Article 17) is effective for income obtained from 1 January 2019, although it is separately provided that employment income obtained between 1 January and 31 December 2019 remains subject to the brackets/rates prior to amendment.

Valuable Housing Tax

A progressive valuable housing (residence) tax is introduced on the value of residences situated in Turkey exceeding TRY 5 million:

  • over TRY 5 million to 7.5 million - 0.3%
  • over TRY 7.5 million to 10 million - 0.6%
  • over TRY 10 million - 1.0%

Certain exemptions apply, including for residences owned by general and special budgeted administrations, municipalities, and universities, persons with only one residence and no income (except pensions), residences used for diplomatic missions (subject to reciprocity), and new residences owned by construction businesses.

The valuable housing tax applies from 1 April 2020.