Stamp Tax Liability in Free Zones
Introduction
Free Zones are zones that are established to promote export-oriented investment and production, accelerate foreign direct investment and technology access, direct enterprises towards export, and develop international trade. There are many tax advantages provided to taxpayers operating in free zones in Turkey in order to achieve these objectives. One of these advantages is the exemption from stamp tax for documents issued for transactions carried out in relation to the activities of the enterprises in the free zones. Within this context, this newsletter will first review regulations related to the stamp tax. Next, the stamp tax liability of the companies in the free zones will be evaluated. Finally, the rulings of the Turkish Revenue Administration on the subject will be reviewed.
Main Regulations Regarding Stamp Tax
Pursuant to Article 1 of Stamp Tax Code No. 488 (“STC”), documents indicated in Table (1) attached to STC are subject to stamp tax. The term “documents” used in this code defines (i) the documents created by adding a signature, or a sign in lieu of a signature, that may be produced in order to prove or designate anything; and, (ii) documents produced as magnetic and electronic data to use electronic signature. Table (2), attached to STC lists documents exempted from stamp tax.
Pursuant to Article 10 of STC, stamp tax is collected in the form of ad valorem or fixed stamp tax. In ad valorem stamp tax, the calculation is made on a certain amount indicated in the document, according to the kind and nature of the documents. In fixed stamp tax, stamp tax liability arises over the fixed amount in Table (1) attached to STC, depending on the nature of the documents.
Definition of Free Zones
Pursuant to Article 6 of Free Zones Law No. 3218 (“FZL”), free zones are defined as special sites within the country which are deemed to be outside of the customs territory and where the goods in free circulation normally benefit from the opportunities associated with the export of goods.
Regulations regarding Stamp Tax Exemption in Free Zones
Paragraph 53 of the section entitled "IV - Documents related to commercial and civil transactions" of Table (2) specifies that contracts drawn up regarding the allocation of lands in free zones are exempt from stamp tax. Within the article, the aim is to reduce the cost of the investments made by enterprises in the free zones.
In Paragraph 2(c) of Provisional Article 3 of FZL, another exemption is envisaged. Pursuant to this regulation, transactions fulfilled and documents prepared in relation to the activities carried out in these regions are exempt from stamp duty and fees until the end of the taxation period of the year including the date of full membership to the European Union.
Companies operating within the borders of free zones are not liable to pay stamp tax on wages paid to personnel employed exclusively in relation to their activities in the free zones until the end of the taxation period of the year including the date of full membership to the European Union,
The type of operating license and the date of receipt of the operating license has no effect on the implementation of this exemption. Also, there is no obligation to engage in production activities in order to apply for it. However, only some of the documents related to the activities carried out within the borders of a free zone are exempt from stamp tax.
The Rulings of the Turkish Revenue Administration regarding Stamp Tax Exemption in Free Zones
Some of the rulings of the Turkish Revenue Administration on the subject are compiled as follows:
In the ruling of the Kayseri Tax Office, dated 23.12.2020 and numbered 50426076-155[1-2019/20-585]-117758,[1] the stamp tax exemption application on the Articles of Association of an unlimited liability company that would be established in a free trade zone was evaluated. Interpreting the law narrowly, the Tax Office held that the Article of Association could not be exempted from stamp tax since it was unrelated to the company’s free zone activities.
In a ruling dated 20.08.2020 and numbered 90792880-155.15[6166]-E.219119,[2] the Ankara Tax Office, sales transaction of materials procured from the country or abroad by the free zone branch of the company without any processing in the free zone is evaluated. As a result of the evaluation, the Tax Office held that the tender decision taken and the contract are exempt from stamp tax, provided that the sales transaction of the company is within the scope of the company's field of activity in the free zone.
In the ruling dated 20.01.2020 and numbered 17192610-155[ÖZG-18-62]-E.12986,[3] the Bursa Tax Office held that a support contract between the company and the development agency would be exempt from stamp tax, provided that the company could prove that it operated in the free zone and that the contract was drawn up in relation to the activities carried out in the free zone.
In a ruling dated 10.11.2017 and numbered 66813766-155[Ek-2-2016/54]-121038,[4] the Izmir Tax Office considered a case where a company had partially manufactured some wheels outside of a free zone but later sent the wheels to the free zone to be completed. The Office held that the declarations given to the relevant customs directorate regarding this shipment should be subject to fixed stamp duty.
Conclusion
One of the tax advantages provided to taxpayers operating in free zones is the stamp duty exemption. Accordingly, Paragraph 2(c) of Provisional Article 3 of FZL envisaged that transactions fulfilled and documents prepared in relation to the activities carried out in these regions are exempt from stamp duty and fees until the end of the taxation period of the year including the date of full membership to the European Union. The condition of being “related to the activities carried out in these regions” is a condition that should be evaluated separately for each case.
As a matter of fact, in many of their rulings, the Tax Offices have emphasized that in order for a document to benefit from the stamp tax exemption, (i) it must be certified that the company operates in the free zone and (ii) the document must have been drawn up in relation to the activities that the company carries out in the free zone. Therefore, in any case, the relevant contracts and documents should be examined in each individual case, in order to confirm whether a stamp tax liability or exemption exists.
- https://www.gib.gov.tr/node/152699/pdf, Serbest bölgede kurulacak kolektif şirketin ana sözleşmesine noter harcı ve damga vergisi istisnası konulu, s.50426076-155[1-2019/20-585]-117758, t.23/12/2020
- https://www.gib.gov.tr/serbest-bolgelerde-damga-vergisi, Serbest Bölgelerde Damga Vergisi konulu, s.90792880-155.15[6166]-E.219119, t. 20.08.2020
- https://www.gib.gov.tr/serbest-bolgedeki-sirket-ile-bebka-arasinda-buzenlenen-sozlesmenin-damga-vergisi, Serbest Bölgedeki şirket ile BEBKA arasında düzenlenen sözleşmenin damga vergisi konulu, s.17192610-155[ÖZG-18-62]-E.12986, t.20.01.2020
- https://www.gib.gov.tr/kati-ihracata-yonelik-olarak-iscilik-islemi-amaciyla-serbest-bolgeye-gecici-olarak-gonderilen, Kati ihracata yönelik olarak işçilik işlemi amacıyla serbest bölgeye geçiçi olarak gönderilen mallara ilişkin olarak gümrük müdürlüğüne verilecek beyannamelerin damga vergisine tabi olup olmadığı hk., s.66813766-155[Ek-2-2016/54]-121038, t.10.11.2017
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