Amendments made in Investment Incentive Legislation through Laws numbered 7103 and 7104
EY Türkiye Vergi Bölümü Şirket Ortağı ve Teşvik Hizmetleri Lideri
3 significant amendments have been made in investment incentive system through Laws numbered 7103 and 7104, which are publicly known as “Bag Bill”. This article covers the arrangements, which are made through aforementioned Laws and related to investment incentive legislation.
1. Valuation of foreign currency, which is transferred from abroad and invested as capital
Foreign currency fluctuations in our country may constitute a significant burden in terms of exchange differences, emerging due to foreign currency, which is transferred to newly established and not actually operating companies in return for capital. In this scope, the following arrangement has introduced several special provisions with respect to valuation of foreign currency, which is transferred as capital and paid for newly established investment companies and it is aimed to eliminate corporate tax burden on foreign investors, consisting of merely foreign currency evaluation, for companies, which have not been engaged yet, thanks to aforementioned arrangement.
Article 208/A, including new arrangements towards valuation of foreign currency, invested as capital through being transferred from overseas, has been added just after article 280 of Tax Procedure Law, which is titled as “Foreign Currencies”, through article 11 of Law numbered 7103.
Accordingly, exchange differences, emerging due to the portion, utilized in scope of investment incentive certificate, within related period, in terms of foreign currencies, invested as capital through being transferred from overseas until the end of accounting period following the accounting period, in which they have engaged the business, for resident taxpayer stock companies, which shall make investments in scope of investment incentive certificate, may be recognized in a special fund account under liabilities. In this case, positive exchange differences shall be recorded as receivables while negative exchange differences shall be recorded as payables under such account.
Portion of such foreign currency, which is invested as capital and not utilized under any circumstances until the end of the accounting period following the accounting period, in which the business is engaged, shall be valued with their carrying (book) values until the end of taxation periods, belonging to such accounting periods in accordance with article 280 of TPL.
The aforementioned implementation aims to eliminate corporate tax payments of taxpayers, which shall make investment, based on exchange difference, emerging due to depreciation of TL before the related foreign currency, utilized in the investment, until the date, on which the investment is made. By this means, it shall be avoided to pay taxes and go under a financial burden based on fictive income with respect to newly established companies.
Taxpayers are required to make an application to obtain investment incentive certificate until the end of the third month following the registration date at trade registry and receive aforementioned certificate until the end of accounting period following the accounting period, in which the business is engaged, in order to benefit from the provision of related article. Related foreign currencies shall be valued in accordance with article 280 of TPL as of the first following taxation period provided that the application is not made within the specific application period and as of the end of accounting period following the accounting period, in which the business is engaged, provided that investment incentive certificate is not obtained.
2. Depreciation implementation on certain newly purchased machinery and equipment
Depreciation rates and periods, which shall be applied on certain newly acquired machinery and equipment until the end of 2019 calendar year, shall be calculated through considering half of useful life periods, determined and announced by Ministry of Finance in accordance with article 315 of Tax Procedure Law, in line with the provisional article 30, added to Tax Procedure Law through article 16 of Law numbered 7103.
In this context, depreciation rates and periods, which shall be applied on certain new machinery and equipment, acquired in order to be used for investments in scope of investment incentive certificate until the end of 2019 calendar year, shall be calculated through considering half of useful life periods, determined and announced by Ministry of Finance in accordance with article 315 of Tax Procedure Law and provided that the outcome of such calculation of useful life is fractional, depreciation rate and period, applied to related assets, can be determine through rounding the outcome figure off to the upper whole number. It is not possible to change rates and periods, determined accordingly, during the following periods.
The implementation is optional and it is also possible not to benefit from the implementation for the purpose of liquefying contribution amounts, obtained during the investment period, in higher rates.
3. VAT exemption during the delivery of certain new machinery and equipment, made to taxpayers, having industrial registry certificate
Temporary VAT exemption is introduced for the following machinery and equipment deliveries in accordance with the provisional article 39, added to Value Added Tax Law through article 31 of Law numbered 7103. In this context;
Deliveries of new machinery and equipment, made in order to be utilized exclusively in production industry by VAT taxpayers, having industrial registry certificate, shall be exempted from value added tax until December 31, 2019 in accordance with the Industrial Registry Law numbered 6948.
Taxpayers can request refund in terms of taxes, which are burdened and cannot be eliminated through reduction and related to such transactions since the arrangement is in nature of full exemption.
Provided that machinery and equipment, acquired in scope of the exemption, is used out of production industry or disposed within three years as of the beginning of calendar year following date of delivery; overdue taxes shall be collected from purchaser with late fee through applying tax loss penalty.
Machinery and equipment, which shall be delivered in scope of exemption to be utilized in production industry, are determined through Cabinet Decree numbered 2018/11674 and Ministry of Finance is authorized for the procedures and principles regarding aforementioned exemption transaction. Serial No:18 Communique on Making Amendments on VAT General Implementation Communique, in which such procedures and principles shall be determined, is still in the process of approval as a draft in the website of Turkish Revenue Administration as of the date of this article.
It shall be appropriate to expect new regulations in favour of taxpayers during the following periods in terms of investment incentive system when the numbers of Cabinet Decrees and “Bag Bills”, published in 2018, is considered.