New decree adds additional tax burden for companies with foreign-currency expenditures, such as energy

Presidential Decree no. 2568, which increases the tax rate for banking and insurance transactions in foreign currency from 0.2% to 1%, was issued and published in the Official Gazette on 24 May 2020.

This Decree amends the Supplemental Decision of Council of Ministers No. 98/11591.

This new amendment puts companies with expenditures in foreign currency in a challenging position, given that foreign currency rates in Turkey, volatile at the best of times, are now increasing due to the Covid-19 pandemic. This situation also has a negative impact on the banking and insurance transactions tax, which accrues for each foreign-currency transaction. Therefore, the real cost of the additional tax burden exceeds the new rate of 1%.

According to the Banking Regulatory and Supervisory Agency's Banking Sector Main Indicators Report for March, which was released on 11 May, the energy sector ranks sixth in terms of the size of cash loans used. Companies operating in the energy sector have substantial TRY-based income, but the majority of expenditures, especially loan payments, are based on Euro or US dollar.

Due to a recent significant increase in foreign currency rates, electricity producers are highly concerned by this increase in the banking and insurance transactions tax rate. On the other hand, power plants established within the scope of the Supporting Mechanism for Renewable Energy Sources (YEKDEM incentive) should be less affected since most of their income is based on foreign currency.

For more information on this amendment to the expenditure tax rate, contact your regular CMS advisor or local CMS experts: Dr. Döne Yalçın or Dr. Levent Bilgi.