Türkiye passes bill to raise income taxes

In a significant legislative development, the Parliament has approved a new bill (No. 7456) that brings forth substantial alterations in corporate tax rates and economic policies. The revisions outlined in the bill encompass a range of key modifications:

1. Corporate Tax Rate Adjustments: Commencing in the year 2023, there will be a noteworthy increase in the corporate tax rate, rising from the preceding 20 percent to the revised rate of 25 percent. Notably, financial institutions, including banks and leasing companies, will experience a more substantial alteration, with their tax rate elevating to 30 percent from the prior 25 percent. These changes will take effect from the 3rd provisional tax period starting on October 1, 2023.
2. Motor Vehicles Tax (MTV) Implementation: A significant update within the new legislation involves the introduction of a one-time supplementary tax, termed the Motor Vehicles Tax (MTV), exclusively applicable to vehicle owners. This supplementary tax will equate the existing motor vehicle tax, essentially doubling the tax burden for vehicle owners in the year 2023.
3. Alteration in Value Added Tax (VAT) Regulations: The legal revisions further extend to the realm of value added tax. The bill revokes the VAT exemption previously granted on real estate sales. However, it’s important to note that for immovable properties acquired prior to the publication date of the law, the exemption will persist as long as the conditions specified in Article 17/4-r of the VAT Law are satisfied.
4. Revised Corporate Tax Exemptions for Property Sales: Notable changes also affect the corporate tax exemptions relating to property sales. The new legislation discontinues the corporate tax exemption for immovable property sales. For properties obtained before the law’s publication, the tax exemption will be reduced to 25 percent, a departure from the prior 50 percent.
5. Changes in Corporate Tax Exemptions for Investments: The bill additionally abolishes the corporate tax exemption previously granted for gains arising from investment funds and partnerships, excluding venture capital funds and partnerships.
6. Modification in Tax-Free Division of Properties: Effective from January 1, 2024, properties will no longer be eligible for tax-free division, representing a significant change in taxation policy.
7. Encouragement of Exports through Tax Reductions: As a move to stimulate export activities, the legislation proposes a noteworthy reduction of 5 percentage points in the corporate tax rate applied to export earnings. This incentive is designed to foster economic growth through increased export activities.

These legislative adjustments showcase a comprehensive effort to reshape the corporate tax landscape and foster economic growth by promoting exports, albeit coupled with certain adjustments in taxation policies that will impact various sectors of the economy. As these changes come into effect, businesses and individuals alike will need to adapt to the evolving tax environment.