YURTDIŞINA VERİLEN HİZMETLERDE KAZANÇ İSTİSNASI

EXEMPTION OF INCOME IN SERVICES PROVIDED ABROAD

With the addition of Article (ğ) to Article 10 of the Corporate Tax Law by Law No. 6322, as of 15/6/2012, it is stipulated that companies operating in the service sector that exclusively provide architectural, engineering, design, software, medical reporting, accounting, call center and data storage services in which non-resident individuals and businesses with workplaces, legal and business centers abroad are involved, and companies that operate in the education and health sectors and provide services to non-resident individuals in Turkey under the permission and supervision of the relevant ministry, can deduct 50% of the income obtained exclusively from these activities from the declared corporate earnings, subject to the permission and supervision of the relevant ministry.

Services Included in the Deduction

In order for 50% of the income obtained by relevant companies to be deducted from the declared corporate earnings, this income must be obtained from the activities listed below:

• Architecture
• Engineering
• Design
• Software
• Medical reporting
• Accounting
• Call center and data storage services
• Additionally, professional training services identified by the Ministry of Finance, taking into account the opinions of relevant ministries, will be considered eligible for discounts in the following areas, as authorized by the ministry:
1. Planning, promotion, sales, after-sales services, brand management, financial management, technical support, R&D, design, external procurement, testing of newly developed products, laboratory, research and analysis,
2. Industry, tourism, construction, agriculture, defense, advertising, internet and e-commerce, environment, health, press, culture and arts, insurance, energy, sports and maritime, domestic and international trade, logistics, and transportation.

Conditions for Benefitting from Discounts

1. Main Activity of Companies Eligible for Discounts Should be Stated in Their Articles of Association
   

   The main activity of the relevant companies stated within their articles of association should include architecture, engineering, design, software, medical reporting, accounting record keeping, call center, product testing, certification, data storage, data processing, data analysis, vocational education, and providing education and health services. Only one of the mentioned services can be provided within the company, but more than one can be provided if stated in the articles of association.

   In order for healthcare companies to benefit from discounts applied to their earnings, it is mandatory for them to operate within the framework of the license received from the Ministry of Health. Similarly, companies operating in the field of education must operate within the framework of the permission certificate or license obtained from the Ministry of National Education. Companies dealing with health tourism, provided that they are licensed by the Ministry of Health, can also benefit from discounts.

2. Service Should be Exclusively Provided for Foreign Persons and/or Institutions Residing Outside Turkey
   

   The services must be actually provided, and services such as assistance, consultancy, and mediation provided in these areas cannot be evaluated within this scope.

3. Invoice Should be Issued in the Name of Foreign Persons and/or Institutions Residing Outside Turkey
   

   The invoice related to the provided service must be issued in the name of foreign persons and/or institutions who are residents outside Turkey as described above.

   In case of healthcare companies, if the service fee is collected by the Social Security Institution of Turkey from relevant foreign institutions due to bilateral social security agreements with Turkey, discounts can also be applied if the invoice for the service fee is issued to the Social Security Institution.

4. Usage of Architecture, Engineering, Design, Software, Medical Reporting, Accounting Record Keeping, Call Center, Product Testing, Certification, Data Storage, Data Processing and Data Analysis Services Provided from Turkey Outside of Turkey
   

   The service must be utilized outside of Turkey. In other words, the service provided for foreign persons and/or institutions must not be related to their activities in Turkey.

   Product testing and certification services provided to customers abroad of products to be exported from Turkey or to sellers abroad of products to be imported into Turkey cannot be evaluated as services used exclusively abroad within the scope of article 10/ğ of the Corporate Tax Law, therefore, the earnings obtained from these activities cannot be subject to the aforementioned discount[1].

5. Education and Health Services Provided to Persons Who are Not Residing in Turkey, Subject to the Permission and Inspection of Relevant Ministries, and Vocational Education Services Whose Beneficiary is Outside of Turkey
   

   Although these services are physically provided in Turkey, the beneficiary must be persons who are not residing in Turkey.

Determination, Recording, and Declaration of Income Earned from Services Provided to Individuals and/or Institutions Residing Abroad from Turkey

1. Determination of the Discount Amount
   

   50% of the income obtained by deducting the cost and expense elements incurred due to the activities accepted within the scope of the discount from the revenue obtained from these activities can be subject to discount by showing it in the "Exemptions and Discounts to be Deducted in Case of Finding Profit" section of the corporate tax return. The amount that cannot be subject to discount due to other discounts and exemptions and losses from previous years cannot be carried over to subsequent periods. If the activity results in a loss, no discount will be applied.

2. Tracking of Income
   

   In terms of determining the corporate tax base, the revenue, cost, and expense elements of the activities accepted within the scope of the discount must be tracked separately, not associated with other activities, and records must be kept in a way that will provide this distinction.

   If activities accepted within the scope of the discount and activities not included in this scope are performed together, the revenue, expense, and cost elements related to the discount-applicable income must be determined separately.

   In cases where it is not possible to track cost and expense elements in separate accounts, joint general expenses will be distributed based on the ratio of the revenue generated in the current year for these activities to the total revenue.

   In addition, the amortization of the facilities, machinery, and transportation vehicles used jointly in activities accepted within the scope of the discount and those not evaluated in this scope must be distributed according to the number of days each of them is used in each job.

   The amortization of fixed assets for which it is not possible to determine how long they were used will be subject to distribution together with joint general expenses.

3. Notification and Documents Regarding Education and Health Services Provided to Non-Resident Individuals in Turkey, Subject to the Permission and Supervision of the Relevant Ministry
   

   Companies that provide services in the fields of architecture, engineering, design, software, medical reporting, accounting record keeping, call center, and data storage, exclusively for the benefit of non-resident individuals and businesses with workplaces, legal and business centers abroad, subject to the permission and supervision of the Ministry, and companies that provide education and health services in Turkey to non-resident individuals must submit a form containing information such as name, surname or title, country of nationality, passport number, date and number of the invoice issued, nature of the service provided, and service fee related to the non-resident individuals to whom they provide services, along with each provisional tax return. Information that cannot be included in the form attached to the relevant provisional tax return can be reported with the form attached to the next provisional tax return.

   In addition, companies operating in the field of health must submit a copy of the permit issued by the Ministry of Health, and companies operating in the field of education must submit a copy of the permission document or license issued by the Ministry of National Education within the annual corporate tax return submission period in the first year they benefit from the exemption to the relevant tax office.

4. Income from Activities Outside the Main Activity
   

   Revenues obtained from the transactions outside the main activity of the relevant companies and extraordinary revenues cannot be evaluated within the scope of the discount. Therefore, interest income resulting from the evaluation of cash, exchange differences arising from the valuation of currencies in the cash register, and income arising from the disposal of economic assets will not be evaluated within this scope.

Example:

X Ltd. Co. generated service revenue of 1,500,000 TL in 2019. 1,000,000 TL of the revenue is from providing certification services to domestic resident companies, and 500,000 TL is from providing the same services to foreign customers. X Ltd. Co. also earned 50,000 TL of interest income. The production cost of the service in 2019 was 1,000,000 TL, 800,000 TL of which were for services provided to domestic resident companies and 200,000 TL were for services provided to foreign companies. Accordingly, gross sales profit was calculated as 500,000 TL.

X Ltd. Co. also incurred the following expenses in 2019:

Firstly, when activities accepted within the scope of the discount and activities not included in this scope are performed together, the revenue, expense, and cost elements related to the discount-applicable income must be determined separately.

In cases where it is not possible to track cost and expense elements in separate accounts, joint general expenses will be distributed based on the ratio of the revenue generated in the current year for these activities to the total revenue.

In our example, a total of 130,000 TL was incurred for expenses, but the amount of 10,000 TL for Provision Expenses is not considered in calculating the ratio of expenses to be allocated to the foreign customers. This is due to the reverse interpretation of the regulation titled “10.5.3.4. Income from activities outside the main activity” of the Corporate Tax Communiqué. For example, provision expenses are selected specifically to demonstrate this point. Contrary to the reverse interpretation, provisions are usually included in the profit and loss calculation in previous periods. The Tax Procedure Law includes provisions under the section of "valuation of doubtful receivables" that allow setting aside a provision in the balance sheet when the receivable becomes doubtful and deducting it from the corporate income. Therefore, it should not be included in the calculation of expenses. Likewise, if the receivable is collected in the future, it will not be eligible for the discount according to the regulations in the Communiqué.

In our example, 66% of the total revenue was generated from domestic customers, and 33% was generated from foreign customers.

Accordingly;

Result

As of 15/6/2012, non-residents in Turkey and businesses with legal and business centers located abroad, providing exclusively architectural, engineering, design, software, medical reporting, accounting record keeping, call center and data storage services in Turkey, subject to the permission and supervision of the ministry, and businesses operating in the education and health sectors that provide services to non-residents in Turkey can deduct 50% of the income they obtain exclusively from these activities from the declared corporate income.

In order to benefit from the discount, the main activity areas stated in the articles of association of the relevant companies should include providing architectural, engineering, design, software, medical reporting, accounting record keeping, call center, product testing, certification, data storage, data processing, data analysis, vocational education, education and health services. In addition, the invoice to be issued for the service provided should be issued in the name of the non-resident person and/or institution with the specified characteristics. However, the service must either be used abroad or provided physically in Turkey but the beneficiary must be a non-resident in Turkey.

References

• Corporate Income Tax Law No. 5520,
• Law No. 6322 on the Collection Procedure of Public Receivables and Amendments to Certain Laws
• Corporate Income Tax General Communique (SERI NO: 1),
• Private letter ruling dated 12/04/2017 and numbered 62030549-125[10-2016/474]-101894 of the Revenue Administration Presidency.
• [1] Private letter ruling dated 12/04/2017 and numbered 62030549-125[10-2016/474]-101894 of the Revenue Administration Presidency.
• www.muhasebetr.com

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