What are the tax liabilities in Türkiye for a loan taken from a financing company abroad?

Republic of Türkiye

Revenue Administration

Istanbul Tax Office

Income Tax and VAT-Excise Tax Group Directorate

Date: 02.05.2024

Number: -39044742-130[Special Ruling]-….

Subject: Taxation of Loans Received from Foreign Firms

In the special ruling request form, it is asked whether a tax deduction should be made on the interest amounts paid for a loan received from a foreign firm that does not have a partnership with your company, whether these payments are subject to value-added tax (VAT), and whether the loan agreement to be signed between your company and the foreign firm is subject to stamp duty.

REGARDING CORPORATE TAX LAW

Article 3, paragraph 2 of the Corporate Tax Law No. 5520 stipulates that institutions whose legal and business centers are not both located in Turkey will be taxed on the income they earn in Turkey on a limited taxpayer basis. Paragraph 3 of the same article lists the types of income and returns that constitute corporate income for limited taxpayers.

Article 30, paragraph 1 of the same law states that a 15% tax deduction will be made by those who pay or accrue the income and returns of limited taxpayers in Turkey, including advances. Paragraph (ç) of the same article provides for tax deductions on movable capital returns, excluding those listed in Article 75, paragraph 2 of the Income Tax Law.

According to paragraph 8 of the mentioned article and the authority granted to the Council of Ministers, the 2009/14593 Decision of the Council of Ministers specifies the rates of tax deductions on various types of interest income. Subparagraph (a) of this decision sets the tax deduction rate at 0% for interest paid on loans from foreign states, international institutions, or foreign banks authorized to provide credit. Subparagraph (ç) specifies a 10% tax deduction rate for other interest payments.

Article 75, subparagraph 6 of the Income Tax Law No. 193 states that all types of interest income, regardless of their source, including interest on non-secured, preferential, pledged, and promissory note receivables, as well as interest paid on debts borrowed by public legal entities, are considered as movable capital income.

According to the Capital Movements General Communiqué, Article 32, paragraph 2, the term “foreign credit institutions” refers to institutions authorized to provide financial resources under the legislation of their residing country and whose primary activities include lending. Article 23, paragraph 3 specifies that if a Turkish bank intermediates in a loan from abroad, the bank may require the borrower to prove that the lending institution is authorized to provide credit according to the legislation of the relevant country.

Reviewing the prospectus of the firm that provides the loan to your company, it is understood that the firm is a credit-giving institution under the relevant country’s legislation. In case of any doubt about the nature of the credit institution, proof that the institution is authorized to provide credit under the relevant country’s legislation may be requested. According to these rules and explanations, the interest paid to the foreign firm will be subject to a 0% tax deduction.

REGARDING VALUE-ADDED TAX LAW

Article 1/1 of the VAT Law No. 3065 stipulates that deliveries and services within the scope of commercial, industrial, agricultural activities, and free professions in Turkey are subject to VAT.

Article 17/4-e provides exemptions from VAT for transactions under the banking and insurance transactions tax and insurance intermediary services, and for credit guarantee operations of institutions specified in Article 4, paragraphs 1 and (p) of Law No. 5520.

The VAT General Implementation Communiqué, in section II/F-4.5 titled “Banking and Banking Transactions,” states that all transactions by banks and insurance companies, except those conducted under the Financial Leasing Law, are within the scope of VAT. Additionally, foreign credit transactions are similar to domestic banking services that are not subject to VAT, and thus, VAT is not applied to foreign credit transactions.

Therefore, since the firm is authorized to provide credit under the relevant country’s legislation, its credit transactions with your company will not be subject to VAT.

REGARDING STAMP TAX LAW

According to Article 1 of the Stamp Tax Law No. 488, stamp tax is imposed on documents listed in Table (1) annexed to the Law. The taxation of these documents is determined based on the nature, content, and parties of each document.

Since signed copies related to the specific case in the special ruling request form are not included, an assessment regarding stamp tax could not be made.

Source: Revenue Administration of Republic of Türkiye
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