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Law no 5904 on Amendments to Income Tax Law and Some Other Laws went into effect on 3 July 2009. It is important that the respective taxpayers thoroughly understand the changes to have the utmost benefit and not make mistakes and be penalized.
This law mostly deals with tax legislation and changes twenty regulations. It is possible to discuss the part about regulations on tax legislation under two separate headings.
Amendments in Income Tax
- Re-employment Penalties
The disputed uncertainty whether the re-employment penalty is subjected to income tax or not is clarified in the new regulation. With the latest change, the compensation paid to the employee is exempt from income tax. As of 3 July 2009, the compensation payments are not subjected to any taxes with the exception of stamp tax. The ones who have paid income taxes for re-employment compensation before 3 July 2009 due to the ambiguity in law are able to refund their money on condition that they will not apply to tax administration and sue a law suit or withdraw lawsuits if any.
- Preferential execution of exceptions and discounts on income tax
According to law, income tax is retained from the employee’s base salary. However, some factors are left out of the scope of taxation while retaining taxes or some amounts are deducted from the salary as discounts and the remaining salary is subjected to taxation. “Minimum living allowance” is such a deduction. On the other hand, in some circumstances like economic crisis, exceptions such as periodic incentives may be warranted.
In establishments within the scope of such incentives, there were no provisions regulating preferential execution of minimum living allowance and other incentive deductions and exceptions in salaries. This situation created incertitude and discrepancies. The new regulation clearly states that “minimum living allowance” will be executed before any deduction and exceptions. The regulation will be effective as of 1 January 2010.
Amendments in Corporation Tax
Severally liables for liquidated companies’ corporate tax are defined:
- Legal representatives became liable for previous taxes and penalties of disincorporated, liquidated companies and taxpayers erased from commercial register; and liquidators became liable for taxes and punishments belonging to liquidation period.
Within the scope of the regulation, the liquidators’ responsibility is limited to the amount liquidated and private company shareholders’ responsibility is limited to his share rate in partnership capital.
- Limit of authority regarding Council of Minister’s corporate tax reduction procedure on investments with incentive certificate has changed.
With the regulation, the Council of Ministers is granted authorization to determine the investment contribution rate for each province group not to exceed 70% for the large scale investments exceeding 50 million TL and not to exceed 60% for smaller investments.
- The post-merger profits of SME activities are excluded from corporate tax scope.
Until 31 December 2009, post-merger profits of small and medium sized enterprises (SME) belonging to the period before 31 December 2009 will be exempt from corporation tax.
The new regulation proposes that the transferee company will account for fixed assets of the acquired company at the current value rather than fixed value. A reduction will be applied to corporation tax on the combined entity’s profits for three accounting periods.
20% reduction on corporation tax can be extended to 75% for the new company after the merger. The Council of Ministers is granted full authority to apply 75% reduction on corporate tax. In this way, corporate tax rate can be reduced to 5% for three years.
In case small and medium sized companies’ merger constitutes a SME, the tax incentive is applied in two different ways. Either the post-merger profits are totally exempted from corporate tax or a reduction is applied to companies providing the requirements for three years. These regulations encourage the SMEs to gather under the same roof. These organizations that have been facing hardships due to current economic conditions should complete their reorganization to benefit from the opportunity.
Source: MESS İşveren Gazetes,Atakan Ceylan, MESS Chamber Counselor
