The Turkish Revenue Administration has officially published Law No. 7524 in the Official Gazette, on 2 August 2024, introducing significant tax reforms aimed at aligning with international standards. This legislation encompasses various measures, including the implementation of the Pillar Two global minimum tax in accordance with the GloBE rules endorsed by the BEPS Inclusive Framework.

Key Features of Law No. 7524

Global minimum tax implementation: The law establishes a domestic minimum top-up tax, an income inclusion rule (IIR), and an under taxed profits rule (UTPR) for multinational enterprises (MNEs) with annual revenues exceeding the Turkish lira equivalent of EUR 750 million in at least two of the previous four years. The IIR and domestic minimum tax will take effect for accounting periods starting 1 January 2024, while the UTPR will apply from 1 January 2025.

Domestic minimum corporate tax: A new corporate tax provision mandates that the corporate tax rate cannot fall below 10% on profits before deductions. Newly established companies will be exempt from this minimum tax for their first three years of operation.

Safe Harbours: The draft legislation features Transitional CbCR Safe Harbors and a Transitional UTPR Safe Harbor, consistent with the OECD Model Rules and Administrative Guidance. It also states that, for future permanent Safe Harbors, the President and the Ministry of Treasury and Finance of Turkey will have the authority to set the conditions, procedures, and principles for their application and implementation.

Increased corporate tax rate: The corporate tax rate for earnings derived from Build-Operate-Transfer (BOT) and Public-Private Partnership (PPP) projects will rise from 25% to 30%.

Investment fund exemption changes: The existing income tax exemption for investment funds and partnerships investing in real estate now requires at least 50% of income from real estate to be distributed as dividends by the end of the second month following the corporate tax return submission.

Revised free zone exemptions: The exemption for businesses in free zones is now limited to export income, excluding domestic sales.

VAT deduction rules: New regulations allow businesses to remove VAT amounts that have been carried forward for over five years from their deduction accounts, enabling them to treat these amounts as expenses for income or corporate tax calculations.