Business Law

STAMP DUTY ON CONTRACTS IN TURKEY: WHEN IS IT PAID? HOW IS IT CALCULATED? WHO PAYS IT?

Although some issues can be handled without signing a contract in commercial life, and we, as are not mostly accustomed to record our business with contracts, it is certain that clarification of the issues agreed by the parties by regulating them in a contract makes it much easier to resolve possible disputes in the future. However, it is a fact that contracts with a specific value create a brand-new tax liability for the parties as soon as they are signed: Stamp duty.

In the Stamp Duty Law, it is stated that the event giving rise to this tax; is signing of the papers subject to business and transactions, and the aforementioned “papers” are “documents written and signed or marked by means of a sign that replaces the signature and can be submitted to prove or determine any matter, and documents created in magnetic environment and electronically by using an electronic signature “. In other words, contracts with wet signature as well as contracts with electronic signature may incur stamp duty. The contracts that are subject to stamp duty and their rates are listed one by one in the tables annexed to the Stamp Duty Law.

You may find my short replies to the first questions that come to mind about stamp duty below:

IS IT NECESSARY TO PAY THE STAMP DUTY FOR OUR CONTRACT TO BE VALID?

For a contract to become valid, it is not obligatory to pay stamp duty. However, if you submit the contract to an official authority, for example, if you want to initiate an enforcement proceeding or file a lawsuit based on the contract, or wish to have a contract notarized, you must first pay the stamp duty and relevant fine, if any, arising from the contract.

WHEN SHOULD STAMP TAX BE DECLARED AND PAID?

Certain taxpayers, especially joint stock companies, are within the scope of “permanent liability” and are required to keep a stamp tax book, declare and pay the stamp duty of the papers issued, until the end of the following month. Taxpayers with temporary liability are not  obligated to keep a stamp tax book. However, they must also make records regarding stamp duty in their books. They are also obliged to declare and pay the stamp duty related to the papers they issue, with a stamp duty return within fifteen days following the issuance of the paper.

WHAT IS THE PENALTY IF THE STAMP DUTY IS NOT PAID ON TIME?

In case the taxes of the documents subject to stamp duty are not declared and paid in due time, within the framework of Tax Procedure Law (T.P.L) art. 344, a general tax loss penalty is applied and the taxpayer is requested to pay the stamp duty amount, tax loss penalty and delay interest. However, if this stamp duty is declared to the Tax Administration voluntarily by the stamp taxpayer within the framework of T.P.L art. 371, before it is detected during a tax inspection or similar administrative audit within the frame of a penitence application and all the legal conditions related to the penitence are fulfilled, no penalty is applied and only the tax itself and the default interest are collected.

WHO PAYS THE STAMP DUTY ARISING FROM A CONTRACT?

One of the most problematic issues in contracts is the division of contract costs and tax burden. Is it possible for the parties freely come to an agreement on this issue? For example, if it is regulated in the contract that the other party will pay the stamp duty arising from the contract, can you still be expected to pay stamp duty? What does the Stamp Duty Law say regarding contracts?

  • The parties that signed the contract are responsible for the stamp duty (article 3).
  • If the stamp duty has not been paid, the person who submits the contract to the official authorities for any transaction is responsible for the tax. (m.24)

Due to these regulations, it will not produce any results to state to the Ministry of Finance or the relevant administrative institution that “you have imposed the stamp duty on the other party with the contract and he will pay” during a tax inspection or upon submitting a contract to an official institution. In other words, the private arrangement between the parties does not have any legal effect against the State. However, in such cases, you can then recourse to the other party for the tax you have been compelled to pay on your own.

HOW IS THE STAMP DUTY AMOUNT CALCULATED?

The stamp duty amount is calculated over the highest value of the agreements and transactions stated in a contract and may have different rates depending on the contract type. The lowest of these rates is 1,89 per thousand and the highest is 9.48 per thousand. However, as I mentioned, different rates may be applicable for different contract types. For example, the stamp duty rate to which a general contract is subject to is lower than that applied to lease contracts or termination statements. In this regard, it will always be safest to look at the current version of the Stamp Duty Law at https://www.mevzuat.gov.tr/MevzuatMetin/1.5.488.pdf  for the applicable rates.

In case there is more than one completely separate agreement and transaction in a contract (such as provisions regarding the construction of a house and then provisions on leasing this house), a stamp duty is charged separately on the valve of each transaction. On the other hand, if more than one agreement and transaction regulated under a single contract are interconnected and originating from a single origin (for example, a 2-year lease agreement and payment of a penal clause that will arise in case of non-payment of this rental fee), the stamp duty is calculated over the highest value agreement or transaction regulated in the contract (i.e., in the last example, over the annual rental fee and the penalty clause, whichever is higher).

DO WE PAY LESS STAMP TAX IF WE EXECUTE THE CONTRACT IN A SINGLE COPY?

The old version of Article 5 of the Stamp Duty Law was stating that “Each copy of the papers issued in more than one copy is subject to the same amount or rate of Stamp Duty.”. In other words, it was understood from this article that if you prepared a contract in 3 copies, each of these copies was subject to stamp duty separately and the stamp duty amount to be calculated over the highest amount in the contract would be multiplied by three. However, in 2016, the relevant article of the Stamp Duty Law has been amended and became “Out of the papers issued in more than one copy, each copy of the papers subject to fixed tax is charged separately in the same amount; While on the other hand, only one copy of those subject to proportional tax is subject to stamp tax.” In other words, for contracts that are subject to proportional tax and drawn up after the said date, stamp duty is to be calculated on a single copy, regardless of how many copies there are.

 

İrem Soyman Alevok, Attorney At Law

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