December 29, 2022
Exemption for income from the operation and transfer of ships registered in the Turkish international ship registry
1.1. Regulation and scope of exemption
In the first paragraph of the 12th article of the Law No. 4490 on the Amendment of the Turkish International Ship Registry Law and the Decree-Law No. 491 amended by the 3rd article of the Law No. 5266, there is a provision stating that “Incomes from the operation and transfer of ships and yachts registered in the Turkish International Ship Registry established in accordance with this Law are exempt from income and corporate taxes and funds”.
According to this provision, income from the operation of ships and yachts registered in the Turkish International Ship Registry established by Law No. 4490 will be exempt from income tax if the activity is carried out by income taxpayers (including non-resident taxpayers), if it is done by corporate taxpayers (including limited taxpayers), it will be exempt from corporate tax, income from the transfer of ships registered in the Turkish International Ship Registry will also be exempt from income and corporate tax.
This exemption is limited to the earnings of real and legal persons from the operation and transfer of ships and yachts registered in the Turkish International Ship Registry. However, regardless of whether the ships and yachts built in Turkey that are registered in the aforementioned Registry are operated or not, the profits obtained from the transfer will also be considered within the scope of the exemption.
(Additional paragraph: RG-11/2/2017-29976 (paragraph added with the General Communiqué No. 12)) In addition, on the Amendment of the Republic of Turkey Retirement Fund Law No. 6770 and some Laws and Statutory Decrees dated 18/1/2017 To come after the second paragraph of the 12th article of the Law No. 4490 with the Law, the third paragraph, which contains the provisions, has also been added: ““The provisions of the first and second paragraphs are also applied during the transfer phase of ships and yachts to be withdrawn from the Turkish International Ship Registry and recorded in another registry or by other means. However, in case the ships registered in the Turkish International Ship Registry pursuant to subparagraph (c) of the first paragraph of Article 4 of this Law are transferred from this registry to be registered in another registry or by other means, it is required that they have been operated as registered in the Turkish International Ship Registry for at least six months.”
(Additional paragraph: RG-11/2/2017-29976 (paragraph added with the General Communiqué No. 12)) In this context, the ships and yachts registered in the Turkish International Ship Registry have been registered as of 27/1/2017, when Law No. 6770 came into force, this exemption can also be used for the earnings arising from the transfer from this registry to be registered in another registry or in other ways. On the other hand, in accordance with subparagraph (c) of the first paragraph of Article 4 of the Law No. 4490, it was imported from abroad, in order to be exempted from income and corporate tax, the earnings to be obtained from the transfer of ships over 3.000 DWT (passenger ships and special purpose ships, 300 gross tons in special-built ships) registered in the Turkish International Ship Registry, to be canceled from this registry and recorded in another registry, or by other means, it will be required that they have been operated as registered in the Turkish International Ship Registry for at least six months.
In case the ships and yachts registered in the Turkish International Ship Registry are used in hotel or restaurant management (floating hotel or restaurant), this activity cannot be considered within the scope of ship management activity, so it is not possible to benefit from the said exemptions.
1.2. Determination of exemption income amount
In order for the exemption to be applied, the exemption income must be determined by deducting the expenses related to these activities from the revenues obtained from the operation and transfer of the ships.
In case of loss as a result of the operation of the ships registered in the Turkish International Ship Registry, it is not possible to deduct this loss from the profits obtained from other activities. Likewise, the expenses incurred for this activity, including the ship’s depreciation and amortization, cannot be deducted from the earnings obtained outside the scope of the exemption.
Income from maritime transport activities carried out exclusively with vessels registered in the Turkish International Ship Registry and gains arising from the transfer of these vessels will be subject to exemption, it is possible to exempt from corporate tax the foreign exchange and maturity difference incomes related to the receivables arising from the aforementioned activities.
On the other hand, the exemption shall not be applied for maritime transport with vessels registered in the aforementioned registry and for foreign exchange differences, maturity difference incomes, interest, repo and similar non-operating incomes obtained not related to the activities related to the transfer of these vessels.
In order to benefit from the exemption, the records must be kept in such a way as to make a distinction between the exempt income and the income obtained from other activities.
1.3. Distribution of joint general expenses
In case the taxpayers have other activities besides the operation of the ships registered in the Turkish International Ship Registry, it is necessary to determine the income by distributing the joint general expenses, if any, in proportion to the revenue obtained from these activities.
1.4. Distribution of exempted income
If the profits of the institutions from the operation of the ships and yachts registered in the Turkish International Ship Registry and their transfer are distributed as dividends, regardless of whether the corporate income is fully or partially derived from the operation of the ships and yachts, it is required to withhold tax according to sub-clause (b) of paragraph (6) of the first paragraph of Article 94 of the Income Tax Law on the dividends distributed to real person partners. However, no tax deduction will be made on the dividends distributed to full-fledged corporate taxpayers, and the profit shares obtained by the aforementioned corporations will benefit from the participation earnings exemption. Explanations on the tax withholding due to dividend distribution are provided in the section (15.6) of the Communiqué.
Since the tax withholding is deducted from the income tax of real persons who receive dividends, the exemption provision has no effect on the tax deduction to be made.
1.5. Exemption in case of selling surplus material
In case the surplus materials and fixed assets belonging to the ships registered in the Turkish International Ship Registry are the materials and fixed assets that are required to be on the ship in order to carry out the maritime transport activities, the earnings from their transfer may benefit from the exemption.
1.6. Time-charter management
In maritime transport, by allocating all or part of the ship to the shipper depending on time or load, since “Time-Charter Management” made within the scope of cargo and goods transportation contracting agreements will be considered within the scope of ship management activity, profits from these activities should be exempted from corporate tax. However, in case the ships registered in the international ship registry are leased directly regardless of time and load, it is natural that no exemption will be applied to the rental income obtained, since ship management activities cannot be mentioned.
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Source: Corporate Tax General Implementation Communiqué
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.
