16.06.2021
Subject: The status of the machines purchased from a foreign company through financial leasing against tax laws.
By stating that you will lease the goods listed in the 84.57 and 84.58 Customs Tariff Statistics Position (CTSP) numbers of the Turkish Customs Tariff Table (TCTT) subject to the financial leasing contract from a financial leasing company located abroad and take over the ownership at the end of the contract period, to be used by your company in the investments you will make within the scope of investment incentive certificate, pursuant to the Financial Leasing, Factoring and Financing Companies Law No. 6361, and you will import the said goods with partial exemption within the scope of temporary importation regime within the scope of Articles 128 and 134 of the Customs Law No. 4458; our Presidency’s opinion is requested on the value-added tax (VAT) rate to which the said goods will be subject, and whether VAT withholding will be applied from the monthly rental payments to be made to a German company regarding financial leasing, and the VAT rate to be applied or not.
IN TERMS OF THE TURKISH CORPORATE TAX LAW:
In the second paragraph of the Article 3 of the Corporate Tax Law No. 5520, it is stipulated that the corporations written in Article 1, whose legal and business centers are not located in Turkey, will be taxed only on their earnings in Turkey, and in subparagraph (ç) of the third paragraph, it is stipulated that the income obtained from the rental of movable and immovable properties and rights in Turkey will be taxed as corporate income, which is included in limited liability.
The revenues obtained from the leasing of movable and immovable properties and rights in Turkey are the earnings of limited taxpayer companies in the form of real property capital income. According to Article 7 of the Income Tax Law No. 193, immovable properties must be located in Turkey and such goods and rights must be used in Turkey or evaluated in Turkey for such gains to be deemed to have been earned. Evaluation in Turkey means making the payment in Turkey or if the payment is made in a foreign country, it is transferred to the accounts of the payer in Turkey or on whose behalf the payment is made, or it is separated from the profit.
On the other hand, in Article 30 of the Corporate Tax Law, it is stipulated that corporate tax deductions will be made by those who pay or accrue these earnings and revenues, including advances, in cash or on account, on the earnings and revenues of limited taxpayer companies. In subparagraph (c) of the first paragraph of the article, it is stipulated that corporate tax deduction will be made from real estate capital gains. In accordance with the Council of Ministers Decision No. 2009/14593, the rate of corporate tax withholding on real estate capital gains, it has been determined as 1% from the real estate capital gains to be obtained from the activities within the scope of the Financial Leasing, Factoring and Financing Companies Law No. 6361, and 20% for the others.
WITH RESPECT TO THE AGREEMENT BETWEEN TURKEY AND GERMANY AVOIDING DOUBLE TAXATION:
The Agreement between the Republic of Turkey and the Federal Republic of Germany for the Prevention of Double Taxation and Tax Evasion in Taxes on Income entered into force on 01.08.2012 to be implemented as of 01.01.2011. In Article 12 of the Agreement, titled “Intangible Rights Fees”;
- Royalties arising in a Contracting State and paid to a resident of the other Contracting State can be taxed in that other State.
- However, such royalties can also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax charged shall not exceed 10% of the gross amount of the royalties.
- The term “royalties” used in this article means the use or right of use of any literary, artistic or scientific copyright, any patent, trademark, design or model, plan, secret formula or production method, including motion pictures and radio and television recordings, or industrial, commercial or scientific know-how or industrial, commercial or scientific any payment for the use or right to use the equipment. The term “royalties” also includes any payments made in return for the use or right of use of a person’s name, image or any other similar personal right. …” clause are included.
Accordingly, the payments to be made to the financial leasing company will be considered within the scope of royalties, within the scope of paragraph 3. The right to tax these payments belongs to Germany in accordance with paragraph 1. However, Turkey, as the source state, has the right to collect taxes on these payments. This taxation to be made according to the domestic legislation of Turkey shall not exceed 10% of the gross amount of the royalties in accordance with paragraph 2 if the beneficial owner of the payment is a resident of Germany.
However, if a lower rate is applied to the said payments in our internal legislation, this lower rate determined in our internal legislation will be applied.
Pursuant to the clause (b), paragraph 2 of Article 22 of the Agreement titled “Prevention of Double Taxation”, the tax paid in this way in Turkey for the said payments shall be deducted from the tax on this income to be paid in Germany and double taxation on the same income will be avoided.
In cases where the provisions of the Agreement bring about changes according to the internal legislation, the resident of Germany who wants to benefit from the provisions of the Agreement must prove with a document to be obtained from the German authorities that s/he is a full taxpayer in Germany and is taxed in this country on all world earnings, the original of this document and a copy of its Turkish translation certified by the notary public or by the Turkish Consulates in Germany must be submitted to the tax authorities or the relevant tax office. In case the residence document is not submitted, it is natural that our internal legislation provisions will be applied instead of the provisions of the relevant Agreement.
IN TERMS OF TURKISH VALUE-ADDED TAX LAW:
In the following articles of the VAT Law No. 3065, the following are provided;
– In article 1/1, deliveries and services made within the framework of commercial, industrial, agricultural and self-employment activities in Turkey, and in article 1/2, imports of all kinds of goods and services are subject to VAT,
– In article 4/1, service can be realized in the form of making something, processing, creating, manufacturing, repairing, cleaning, preserving, preparing, evaluating, renting, undertaking not to do something,
– In article 6/b, making the transactions in Turkey means that the service is done in Turkey or that the service is used in Turkey,
– In Article 9/1, in cases where the taxpayer does not have a residence, workplace, legal center and business center in Turkey and in other cases deemed necessary, the parties to the taxable transactions may be held responsible for the payment of tax in order to secure the tax receivables of the Ministry of Treasury and Finance,
– In article 13/d, deliveries of machinery and equipment within the scope of the certificate to taxpayers holding investment incentive certificates are exempt from tax.
– In article 16/1-a, import of goods and services of which deliveries are exempt from tax according to this Law, and in article 16/1-b, exempt from customs duty within the scope of provisions regarding temporary importation and outward processing regimes and returned goods – article 167 of the Customs Law No. 4458 [Except for subparagraph (a) and clause (7) of paragraph (5)] – or import of exceptional goods is exempt from VAT
On the other hand, VAT rates applied to goods and services are based on the authority given by Article 28 of the VAT Law, within the limits of the article, it is determined by the Council of Ministers before the amendment with the Decree Law No. 700, and by the President after the amendment.
In this context, VAT rates have been determined as 1% for the deliveries and services in the list (I) of the Council of Ministers Decision (CMD) numbered 2007/13033, and 8% for the deliveries and services in the list (II), 18% for taxable transactions not included in the aforementioned lists.
In financial leasing transactions, it is stated that the VAT rate applicable to the goods related to the transaction will be applied, except for the transactions listed in the 16th and 17th rows of the list (I), in the second paragraph of the article 1 of the said Decision.
With the annex of the decision, it has been decided to be subject to VAT at the following rates;
– In the 16th row of the list (I), in accordance with subparagraph (d) of the first paragraph of the article 13 of the VAT Law No. 3065, renting of machinery and equipment within the scope of the certificate by financial leasing companies in accordance with the Financial Leasing Law No. 3226 to taxpayers holding Investment Incentive Certificate,
– In the 17th row of the list numbered (I), machinery and equipment (excluding used ones and parts, accessories and fixtures) that are depreciable economic assets defined in tariff numbers 84.57 and 84.58 of the Turkish Customs Tariff Table (TCTT) are subject to financial leasing; considering the delivery of these goods to financial leasing companies in accordance with the Financial Leasing Law No. 3226 and the leasing and delivery of these goods by financial leasing companies to income and corporate taxpayers who do not have VAT liability because of their transactions with VAT taxpayers are exempt from VAT, but whose earnings are determined on the basis of balance sheet, it has been decided that these transactions will be subject to VAT at the rate of 1%.
– Considering the goods classified in the 84.58 tariff position of the Turkish Customs Tariff Schedule, in the B/29th row of the list (II), it has been decided that the import and delivery of this product will be subject to 8% VAT.
“Machining centers for metalworking, single station benches and multi-station transfer benches” in tariff position no. 84.57 of the Turkish Customs Tariff Schedule (TCTT), “Machining centers” in sub-tariff position no. 8457.10, 8457.10.10.00.00 and 8457.10.90.00.00 GTIP numbers are classified as “Horizontal” and “Others”, respectively. In the position no. 84.58, “Metalworking lathes (including turning centers)” is defined, and single-spindle automatic lathes from horizontal lathes with numerical control are classified under HS Code 8458.11.41.00.00.
According to these provisions, since it is not possible to evaluate the leasing transactions to be made by companies established abroad within the scope of the 16th or 17th row of the list (I) of the CMD annex numbered 2007/13033, which are not included in the scope of the Financial Leasing, Factoring and Financing Companies Law No. 6361, which came into force by repealing the Law No. 3226 , the rent payments to be made to the company abroad as a result of the rental of the aforementioned goods must be declared and paid as responsible by subjecting them to VAT at a general rate (18%).
On the other hand, pursuant to Article 133 of the Customs Law No. 4458, it must be calculated 3% of the amount of taxes to be charged in relation to the free circulation of the goods to be subject to the temporary importation regime with partial exemption; the VAT to be collected within the import duties for each month must be calculated as 8% for the 8458.11.41.00.00 GTIP numbered goods within the scope of the B/29 row of the list annexed to the Decision (II), and for goods with GTIP numbers 8457.10.10.00.00 and 8457.10.90.00.00 that are not included in the lists attached to the decision, it must be calculated over the general rate (18%).
On the other hand, provided that the goods in question have met the necessary conditions by your Company, imports within the scope of investment incentive certificate are exempt from VAT in accordance with Articles 13/d and 16/1-a of VAT Law No. 3065. However, it is explicit that these exemption provisions will not be applied in the rental of the aforementioned goods from abroad.
Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
