The Law No. 7394 introduces amendments to: (i) the Tax Procedure Law numbered 213[1] (the “Tax Procedure Law”); (ii) the Income Tax Law numbered 193[2] (the “Income Tax Law”); (iii) the Value Added Tax Law numbered 3065[3] (the “VAT Law”); and (iv) the Corporate Tax Law numbered 5520[4] (the “Corporate Tax Law”).

Amendments to the Tax Procedure Law

Documents are deemed to be signed, sealed and approved by tax offices if such are signed, sealed and approved by the Turkish Revenue Administration in an electronic environment.

The prison sentences for tax evasion in Article 359 of the Tax Procedure Law have been increased from 5 years to 8 years and from 3 years to 5 years, respectively.

However, prison sentences may be reduced if the tax is paid with delay interest and fines during the investigation and prosecution phases.

Furthermore, if tax evasion offences are committed more than once within one calendar year or a taxation period, then the sentence imposed on multiple offences will be increased by one quarter to three quarters of the relevant prison sentence.

Amendments to the Income Tax Law

1. Expenses for Advertisement of Institutions which are subject to an Advertisement Ban

Any expenses for advertisement of institutions banned from advertising activities pursuant to the Additional Article 4 of the Law on the Regulation of Broadcasts via the Internet and the Prevention of Crimes committed through such Broadcasts numbered 5651 are no longer evaluated as expenses and such expenses are henceforth regarded as non-tax-deductible expenses for income tax purposes.

2. Certain Doctors henceforth regarded as Self-Employed for Tax Purposes

Article 66 of the Income Tax Law in its amended form now dictates that doctors who are employed by contract at private health institutions or health institutions and organisations belonging to university foundations as well as persons who are medical experts shall henceforth be regarded as self-employed and taxed accordingly. This effectively means that the tax burden of such doctors and medical experts increases. 

Amendments to the VAT Law

1. Disposal of Immovable Property by Non-Residents

Pursuant to Article 13 (i) of the VAT Law, sales of immovable property to non-residents are exempt from VAT provided that VAT is levied on any subsequent sale of such immovable property and the money paid for such immovable property is brought to Turkey in foreign currency. The uncollected VAT amount was to be paid by the seller with default interest in case the relevant immovable property was disposed of within 1 year. Henceforth, however, this period was extended from 1 year to 3 years as of 1 May 2022. Hence, in case of a sale of such immovable property within 3 years, the uncollected VAT is to be paid with default interest to the tax office.

2. VAT Exemption on Construction Works with Investment Incentive Certificates

As of 1 May, any construction works (including the delivery of goods and the performance of services) benefitting from an investment incentive certificate for manufacturing and tourism are exempt from VAT until 31 December 2025.

3. VAT Exemption for Engineering Services regarding Electric Motor Vehicles with Investment Incentive Certificates

As of 1 May, any engineering services provided to taxpayers that develop and manufacture electric motor vehicles as a result of R&D activities in Turkey within the scope of an investment incentive certificate are exempt from VAT until 31 December 2023.

Amendments to the Corporate Tax Law

1. Equity Contributions by Shareholders within the Scope of Article 376 of the Turkish Commercial Code

If shareholders inject equity into companies that have lost equity or are in technical insolvency in accordance with Article 376 of the Turkish Commercial Code No. 6102, any equity so injected will not be taken into account for corporate income purposes. Accordingly, such equity will not be taxable.

2. Expenses for Advertisement of Institutions which are subject to an Advertisement Ban

Any expenses for advertisement of institutions banned from advertising activities pursuant to the Additional Article 4 of the Law on the Regulation of Broadcasts via the Internet and the Prevention of Crimes committed through such Broadcasts numbered 5651 are no longer evaluated as expenses and such expenses are henceforth regarded as non-tax-deductible expenses for corporate tax purposes

3. Corporate Tax Rate Applicable to Banks and Certain Companies

The corporate tax rate of 25% applies to any income generated by banks, corporate entities within the scope of the Law on Financial Leasing, Factoring, Finance, and Savings Finance Companies numbered 6361, electronic payment and money institutions, authorised currency institutions, asset management companies, capital market institutions, insurers / reinsurers, and pension funds. The previous rate was 23% for 2022 and 20% for 2023, respectively.

The amendment will become effective, starting from 1 July 2022 when provisional tax declarations are to be submitted (i.e. the second provisional tax period) and be valid for any revenue generated for the corporate income tax period as of 1 January 2022.

4. Exclusion of Infrastructure Real Estate Investment Companies’ Income from the Exemption

Any income of infrastructure real estate investment entities is excluded from the corporate tax exemption as is also the case for any income of real estate investment trusts.

The amendment will become effective for the tax period of 2023.

5. Investment Fund Participation Share Exemption

Any income from the following activities is to be exempt from corporate tax:

1. Income arising from the return of participation shares of venture capital investment funds with full tax liability in accordance with the Corporate Tax Law;


2. Income arising from the return of participation shares of other investment funds with full tax liability except for any income from investment funds that have assets in foreign currency and gold and other precious metals and capital market instruments;


3. 75% of any profit arising from the sale of investment fund participation shares listed in paragraphs (a) and (b) above provided that such is retained by such funds for at least two full tax years; and


4. Any capital gain due to a valuation undertaken of participation shares listed in paragraphs (a) and (b) above in accordance with Article 279 of the Tax Procedure Law.

Conclusion

To conclude:

• Prison sentences for tax evasion offences were and remorse sentencing introduced;


• The corporate tax rate has further been increased, targeting in particular earnings in financial sector from 2022;


• The scope of certain tax exemptions has been widened and in other cases, certain tax exemptions have been narrowed.

It is difficult to see how in the current climate these changes will increase investments.