New Cash Repatriation

INTRODUCTION

The New Cash Repatriation practice, which aims to nationalize the money of citizens abroad, entered into force by being published in the Official Gazette No. 28661 dated 29 May 2013 with Law No. 6486. In addition, General Communiqué on the Inclusion of Certain Assets to the Economy (Serial no: 1) was published in the Official Gazette dated 11 June 2013 and numbered 28674.

According to this communique, individuals and companies will be able to benefit from financial amnesty provided that they declare their money and financial resources abroad and their immovables abroad as of 15 April 2013. Moreover, it may be possible to exempt some foreign earnings from income or corporate tax, provided that they are transferred to the country. Here in this context, the special factors regarding the regulation in the temporary Article 85 of the Income Tax Law compose the subject for today’s article and the next article.

1. LEGAL REGULATIONS

1.1 Income Tax Law [1]

Provisional Article 85 has been added to the Income Tax Law with Article 12 of Law No. 6486. With this article, it is aimed to bring money, foreign currency, gold, securities and other capital market instruments abroad belonging to real and legal entities’ to the country and bring them to the national economy by registering immovables abroad.

With the same regulation, the affiliate earnings of real entities and companies with unlimited liability from institutions whose legal and business headquarters are located abroad, and their earnings arising from the sale of their affiliate shares, and also and their commercial earnings obtained through their foreign business or permanent representative are transferred to the country, provided that they are transferred to the country, are exempt from corporate tax.

1.2 General Communiqué with serial no 1 on the New Cash Repatriation [2]

As of 15/4/2013, it has been decided that money, foreign currency, gold, securities and other capital market instruments and immovables owned by real or legal entities and located abroad shall be subject to notification or declaration. The procedures and principles regarding the regulation in the temporary Article 85 of the Income Tax Law regarding the exemption of some foreign earnings from income or corporate tax were determined in the general communiqué serial no 1.

2. THE INCLUSION OF CERTAIN ASSETS IN ABROAD TO THE ECONOMY

2.1 THE DECLARATION OF MONEY, MONETARY ASSETS AND IMMOVABLES

2.1.1. Which Assets to Declare?

• Money, foreign exchange, gold, securities, and other capital market instruments abroad,
• Immovables located abroad. What is meant for immovables are; land, independent sections registered in the condominium register. They are independent and permanent rights registered in the land registry on a separate page.

2.1.2. What is an Advisory Document?

It is possible to classify advisory documents in three groups. These documents must be kept during the statute of limitations to be submitted to tax inspection when it is necessary.

2.1.2.1 Foreign State Registration and Registries

It refers to the records and registers kept by or under the security of the foreign state. Declarations given due to land registry records, other registries and legal obligations are advisory documents.

2.1.2.2. Other Advisory Documents

• Records and documents issued by banks and bankers regarding their transactions,
• Records and documents issued by intermediary institutions, portfolio management companies, insurance companies and similar financial institutions,
• Checking account at the postal administration and other documents issued,
• Statements and contracts issued by institutions and organizations such as notaries and other records and documents,
• The records of the taxpayers who keep books and the documents specified in the third part of the second book of the Tax Procedure Law and their equivalent documents in these records,
• Membership records of companies, partnerships and cooperatives are advisory documents. Moreover, these documents alone are sufficient, and there is no requirement for additional approval before the embassy or consulate or state institutions.

2.1.3. When is the Notification or Declaration of Foreign Assets?

It is possible for persons or companies to declare the assets they obtained abroad by April 15, 2013 to

1. Banks
2. Tax offices
3. Intermediary firms (securities and other capital market instruments only)

with their current market value (buying and selling values at the time of declaration) in Turkish Lira between 29.05.2013 and 31.07.2013 evening hours. Those who make declaration to banks or intermediary firms do not need to make an additional declaration to the Tax Office. On the other hand, those who make an e-declaration regarding the income and corporate taxes declaration must declare to the tax office in the electronic environment. Other taxpayers can submit manually or in the electronic environment.

Those who make a notification to the Bank or Intermediary Authority will not make a declaration to the Tax Office. Those who submit their income or corporate tax returns electronically have to submit their declarations regarding to these assets to the tax office electronically. Other taxpayers can give it by hand or electronically. Let's try to explain the correction requests through examples.

Example 1: ABBA Tekstil A.Ş. made a foreign asset declaration to Foreign Trade Tax Office on June 12, 2013 for 1.500.000 TL gold. On June 15, 2013, they have decided to correct this amount as 1.200.000 TL. In this case, by submitting a correction declaration to the tax office, the amount related to the first declaration will be reduced. Or, if they decided to increase this amount to 1.800.000 TL on June 30, 2013, they will increase the amount of their first declaration by submitting a correction declaration to the tax office.

Example 2: ABBA İnşaat Ltd. Şti. has notified the equivalent of TL 2,000,000 in foreign assets to the Şişli branch of İşbank on 25 June 2013. It has decided to adjust this amount as 1.750.000 TL on 5 July 2013. In this case, the notification given to İşbank will be corrected and this amount will be reduced. However, if the company decided to increase this amount to 2.500.000 TL on 30 July 2013, it will be enough to make a new notification of 500.000 TL to İşbank without any correction.

• Of course, requests for correction after July 31, 2013 will not be taken into consideration.
• The correction request for the assets notified to the tax office with the declaration in Annex-4 by banks and intermediary institutions will be made through banks or intermediary institutions.

2.1.4. When is the deadline for making the 2% tax payment and deadline for processing the assets?

Ali Kırmızı declared his foreign real estate worth 1.000.000 TL to Avcılar Tax Office on 30 May 2013. Deed etc. to any document. Ali Bey has to pay 20.000 TL tax to the tax office until the end of June 2013 (1.000.000 x 2% =). In other words, the tax will have to be paid until the end of the month following the month in which the assessment is made.

Ankara Tax Department of Capital Tax Office, Istanbul Tax Office Beyoğlu Tax Office and İzmir Tax Department Mansion Tax Office are authorized to receive the aforementioned declaration related to the non-residences in Türkiye.

Regarding to the tax return calculated by the banks or intermediary institutions at the rate of 2% over the reporting values of the assets notified to them; with the declaration in Annex-4, it is required to pay monthly as the tax responsible until the evening of the fifteenth day of the month following the notification to the tax offices they are affiliated with in terms of corporate tax and the taxes must be paid within the same period.

Assets must be brought to Türkiye until the declaration or notification date’s end of the following month or must be transferred to an account opened in the bank or brokerage house in Türkiye.

In other words, the gold declared equivalent to TL 10,000,000 on July 31, 2013 must be transferred to an account to be opened by August 31, 2013.

Before the notification or declaration of assets brought to Türkiye from abroad, during the declaration of assets at a later date will be based on the values in the declaration or notification date.

In case when the assets that became subject to the article as of this date transform into other types of assets that, again, are subject to the article until 31/7/2013, it is possible to transfer the final asset to Türkiye by declaring or notifying it.

As of 15/4/2013, that the said assets are located abroad, that these assets are owned abroad And related (foreign exchange, customs, such as foreign capital) documents that prove their conviction brought to Türkiye in the framework of regulatory requirements transmitter belongs to the taxpayers.

2.1.5. Do Assets Appear on Behalf of Others Abroad Covered by Repatriation?

It is possible for individuals or companies within this scope to benefit from peace of existence.

• It is required to have an asset on behalf of persons who have a power of attorney or representation agreement issued by authorized institutions before April 15, 2013.
• And there must be persons who are authorized to save based on this power of attorney or representation agreement.

2.1.6. Notification and Declaration Value of Assets and their Transfer to Legal Books

Declared assets must be recorded in the legal books with their current values in Turkish Lira as of the date they are reported to banks or intermediary institutions or declared to tax offices by the taxpayers who keep books in accordance with the Tax Procedure Law, until the end of the month following the date of notification and declaration. If the notification or declaration is 28 June 2013, the notification and declaration must be recorded in the legal books by the end of 31 July 2013 at the latest by 31 July 2013, and latest until 31 August 2013.

If the said assets located abroad are declared on behalf of the company, if the relevant company is declared on behalf of real persons, these real persons themselves can benefit from the advantages provided by the article, so the assets subject to notification or declaration on behalf of the company must be transferred to the legal records of the said company. So, who will benefit from the advantage? Is it a company? It is important to determine this.

Taxpayers who keep books in the balance sheet method will open a special fund account in liabilities for the assets they have recorded in their legal books. This account will be deemed to be part of the capital and should not be used for any purpose other than adding to the capital.

These amounts, which are kept in the fund account, will not be taxed in case of liquidation of the enterprise, and will not be taxed in case of transfer or division in accordance with Article 81 of the Income Tax Law and Articles 19 and 20 of the Corporate Tax Law.

The taxpayers who keep books in the self-employment earning book and business account procedure must also show the said assets in their books.

These assets, which are registered in the legal books by income or corporate taxpayers, are not considered as income items in determining the period earnings.

2.1.7. Paid Taxes Are Not Recorded as Expenses, No Depreciation Is Allocated for Immovables.

• The taxes paid are not considered as an expense in determining the income or corporate tax base or are not deducted from any other tax.
• Depreciation is not allocated for immovables that are declared or transferred to the legal book records.
• Losses arising from the subsequent disposal of these recorded assets are not considered as expenses or deductions in determining the income or corporate income in terms of income or corporate tax application.

RESULT

New Cash Repatriation, capital flow to our country will be accelerated. These resources will strengthen the capital structure of companies. Its cost will be tax of 2%.

However, with this regulation, we will see together in time how much of the money flowing to countries that are tax havens will turn its direction to our country for registration.