Finance Focus

Metin Karabudak, Ph.D. MK Strategic Consultancy Eskişehir Yolu 9. Km No: 266 Tepe Prime A Blok Office: 83

Çankaya Ankara 06800 Turkey Tel: +90 (312) 473 32 90

Email: info.tr@mkmusavirlik.com Web: www.mkmusavirlik.com

Taxation, Turkey

“There are many state aids and incentives for new investments in terms of exemptions and deductions in taxes and social insurance premiums. Turkey applies fruitful tax exemptions especially in construction industry in addition to the exemptions in technology development zones, industrial

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zones, FTZs and R&D centres.” etin Karabudak has an extensive background in business administration and is also a Certified Public Accountant. With a career spanning over 30-years, Metin has for the last 15-years been running his own consultancy company, MK Strategic Consultancy.

Providing strategy-oriented professional solutions to its clients, MK Strategic Consultancy offers services in the fields of accounting, audit, law and tax.

Can you give us an overview of taxation in Turkey over the last year?

There were important regulations that came into effect during 2013. Instead of tax allowance as applied in the past, state contribution of 25% to personal retirement system has been initiated, which is worth to underline that $100 personal contribution to the system for example, leads to $25 state contribution.

State incentives for investments are still in effect, and new incentives have been announced for certain investments such as electrical energy production (from certain metals/ ores), automobile engine/spare part production.

In addition, new DTTs have come into force with Australia and Malta as well as new TIEAs with Bermuda and Jersey. New Protocols amending DTT articles regarding information exchange have also come into force in the DTTs with Malaysia and Singapore.

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What aspects of Turkey’s tax landscape help to make it an attractive jurisdiction for business?

Turkey offers reasonably low tax rates (CIT: 20%, Income Tax: %15-35, VAT: %1-%18) having DTT network with 79

jurisdictions, and FTAs with 22 jurisdictions (Turkey-EU Customs Union as well), constantly adding new ones to the list each year.

There are many state aids and incentives for new investments in terms of exemptions and deductions in taxes and social insurance premiums. Turkey applies fruitful tax exemptions especially in construction industry in addition to the exemptions in technology development zones, industrial zones, FTZs and R&D centres.

Tax authority in Turkey has well-educated staff. Taxpayers also enjoy the opportunity of advance ruling system which clarifies controversial issues in the first place. Actions taken according to the ruling are all protected from tax penalties.

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What do you foresee in terms of taxation in Turkey for 2014/15?

Turkey has been renewing certain legislations in recent years. Corporate Tax Law and Commercial Code, for example, were drawn up again and came into effect. In the upcoming years, we foresee the same for Income Tax Law and Tax Procedures Law. Currently, draft Income Tax Law has already been released to the public.

These are the changes we expect locally; there are also global agendas in the framework of taxation. As announced, OECD has a new agenda about BEPS (Base Erosion and Profit Shifting). In a couple of years, OECD may change common applications concerning transfer pricing, PE definitions, tax compliance and documentation. In addition, OECD may introduce new regulations and applications for digital economy and multi-national business structures.

Both on local and global level, taxation is one of the fields seems to be evolved in due course. This may pose challenges

for taxpayers and professionals in taxation. Adaptation to new definitions, methodology, and reporting and compliance rules will require certain time and maybe workforce even in the best scenario. Yet, new rules in the game may be much more effective and easy to apply in the end.

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What advice can you offer for optimising tax management and balancing efficiency and

compliance this year?

Professional consultancy companies can be of assistance to maintain efficiency in the firm. A number of client portfolios from SMEs to large ones among various industries enable consultancy companies to experience many different cases and the ways to sort out the matters. I do not mean to only point out our company and sell services; instead I suggest that working with any professional most of the time makes the firm take necessary measures before problems arise. This requires undertaking some costs, but cuts off unknown costs, penalties and losses at the same time. Functioning like additional control mechanism, professionals also help continuous staff development through direct consulting and training, which ultimately eliminates over-employment costs.

Q Is there anything else you would like to add?

In addition to taxation, Turkey offers so much in many aspects. Investors who are planning to take part in international trade, seeking for places to set up production facilities, to acquire real estate or to get started with construction business around the world will be awarded with lower/nil tax rates in Turkey as well as lower/nil tax rates and longer construction periods (from six to forty-two months) in the jurisdictions within Turkish DTT network. Turkey will always be welcoming you with sounding opportunities.

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