Below is a summarized analysis, which includes details from law firm Baker & McKenzie, of the following reforms designed to create additional opportunities for economic and commercial growth in Turkey.
1. Corporate Tax Incentives
2. Pension Plan Auto-Enrollment to Boost Domestic Savings
3. Establishment of Turkish Sovereign Wealth Fund
4. Overhaul of Banking and Finance Laws
5. Opening Markets for New Human Tissue and Cell Products
6. Relief to Creditors of Intuitions Affected by State of Emergency
What’s next? Turkey’s draft patent law to strengthen intellectual property, production reform package, and investment-exporting incentive package are all under consideration and may be passed before the end of 2016.
Corporate Tax Incentives
On August 9, Turkey passed a series of reforms to incentivize investments and streamline bureaucracy to remove barriers to robust economic activity. The most significant changes include incentives for service exports, incentives for regional management centers, transfer pricing regulations, exemption for industrial property rights, incentives for energy savings projects, and exemptions on the stamp tax in certain cases.
Corporate Tax Amnesty
The Turkish Parliament approved a tax amnesty law to reduce the private sector’s debt burden and to help resolve tax disputes swiftly. Tax amnesty will be offered to taxpayers who agree to pay the first half of their original tax amount. The new law will also offer corporate taxpayers the opportunity to increase their annual tax base in exchange for tax inspection waivers.
Legal entities in Turkey can bring money, gold, foreign currency, securities, and other capital market instruments from abroad on or before December 31, 2016 with no corporate income tax or related tax audits. The Ministry of Finance can provide further details to companies regarding tax amnesty.
Regional Management Centers
Companies with regional management centers operating under a permit granted by the Ministry of Economy will be exempt from paying corporate taxes. Salaries of employees working in these offices are exempt from income tax.
Property Tax Exemptions
Property taxes will be waived for up to 5 years on lands used for investments. Contracts of investments made within the scope of an investment incentive certificate are exempt from stamp duty.
Also, buildings constructed within the scope of such certificates and the lands with regard to these investments within the term of the certificate are exempt from real estate tax. Renovation or reconstruction of a building or facility within the same scheme is also exempt from fees paid to municipalities.
The Stamp Tax will no longer apply to subsequent copies of official documents. In addition to bank loans and international institutions that are exempt from the stamp tax, the new law will also apply to transfer of loans, thereby reducing uncertainty on the law’s applicability.
Work Permits for Foreigners
New regulations on international labor laws allow for flexible and temporary working schemes for foreign nationals, including residence permits for highly-skilled individuals and their families (what has been referred to as, the “turquoise card”). Work permits are exempt for members of the board of joint stock companies who do not reside in Turkey, shareholders of companies who do not hold managerial positions, and cross-border service providers with limited access to Turkey.
Transfer Pricing Rules
Transfer pricing laws for multinational enterprises have been amended to align with OECD guidelines. The new law allows for the ability to deduct value-added tax (VAT) paid during imports or through a reverse charge mechanism for related party transactions in which it is considered that disguised profit distribution is made through transfer pricing.
Companies can reach a settlement on transfer pricing method with the Ministry of Finance may apply this method to previous taxation periods and make a correction on tax returns for previous fiscal periods.
Turkey will streamline its bureaucracy to enable exporters to deal only with the Ministry of Customs and Trade.
Energy Saving Incentives
Expenses for heat insulation and energy saving investments may be directly deducted from the tax base. In addition, the physical contracts and related transactions of such projects are exempt from stamp duty and fees.
Pension Plan Auto-Enrollment to Boost Domestic Savings
After a decade of extensive discussions, Turkey will implement the auto-enrollment of employees to pension plans effective January 1, 2017. This flexible program, which includes an opt-out option for employees, also offers a 25% government contribution and favorable taxation. As a country characterized by low savings rate that has not kept up with the pace of Turkey’s economic growth, the private pension auto-enrollment will play a crucial role in increasing savings and capital markets depth, narrowing the gap between savings and investments.
Employers in Turkey must ensure that they fulfill and comply with these new statutory responsibilities by January 1, 2017.
Turkey Establishes Sovereign Wealth Fund
The Turkish Government passed legislation on August 26 to create a Turkish Sovereign Wealth Fund financed by excess and idle funds to be used for infrastructure investments such as the Eurasia Tunnel, İzmir-Istanbul Highway, airports, toll roads, railroads, bridges, ports, among other projects. The fund is intended to diversify the financial instruments, and increase the depth of capital markets. The new law establishes the Turkish Sovereign Wealth Fund and the Turkish Sovereign Wealth Fund Management Joint Stock Company, its asset management company.
The Management Company is a private entity that has approximately $17M in share capital, all owned by the Turkish Privatization Administration. The Management Company is authorized to engage in all securities trading, money market transactions, real estate transactions, to find and arrange project finance and domestic and international markets, and engage in international partnerships with other countries and companies.
The Sovereign Fund is expected to create its own resources in the future; however, for now it will either use the excess public funds or seek financing abroad. Analysts speculate that one of the Sovereign Fund’s biggest resources will be the unemployment fund and government contributions to the private pension system, set to begin January 1.
Turkey Overhauls Banking and Finance Laws
In an effort to make doing business in Turkey easier and boost both domestic and international private investments, Turkey has overhauled the relevant laws governing banking and finance, including the Commercial Code, the Electronic Signature Law and the Check Law, allowing bank letters of guarantee to be provided easier and checks to be used as a safer payment tool.
The law aims to increase the pace and reliability of banking transactions in Turkey. Turkish banks can now issue letters of guarantee, a widely used security measure in Turkey, faster and with less red tape. Due to common use of checks and an increasing amount of dishonored checks, this law aims to create a rapid credit verification system while increasing penalties for bounced checks.
Turkey Opens Market to New Human Tissue and Cell Products; Urges License Applications
The Turkish Medicines and Medical Devices Agency (TITCK) announced that license applications for human tissue and cell products must be completed by December 15, 2016. These details follow the March 31 announcement to open Turkey’s market to newly developed human tissue and cell products for both patients and clinicians.
Pre-registrations for such products on the Medical Devices and Drugs Databank (TITUBB) will be invalid if the license applications are not completed by this date. Additional instructions for license applications can be found on TITCK’s website.
Relief to Creditors of Institutions Affectedby the State of Emergency
On August 17, there were was an Executive Order issued to outline new measures for regulations of certain institutions and organizations that have been closed or acquired through previous executive orders, and the process and procedure for collecting on the debts of such institutions.
These directives aim to satisfy creditors and resolve any uncertainty about the management of these institutions' assets. The Ministry of Finance is responsible for the management and operation of the organizations taken over through previous executive orders. The Ministry has the authority to determine the debts and obligations of these organizations and will decide whether or not to make payments to their creditors.
• For outstanding payments, companies can apply to the Ministry of Finance or the General Directorate of Foundations within 60 days following August 17, 2016, or if the institution is closed after the date, within 60 days following its closure.
• Submit satisfactory books, records and documents displaying the claimed debt or obligation to the Ministry of Finance or the General Directorate of Foundations.
This report is prepared by US- Turkey Business Council of U.S. Chamber of Commerce .