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Leasing in Turkey

Leasing in Turkey: A Comprehensive Guide for Foreign Investors

Leasing in Turkey has become an attractive option for foreign investors, offering flexibility, financial benefits, and tax advantages. Understanding leasing practices within the context of Turkish GAAP (Generally Accepted Accounting Principles), Turkish tax laws, and the Turkish Commercial Code is crucial for making informed investment decisions. This article will explore the key aspects of leasing in Turkey, providing foreign investors with a clear understanding of the legal framework, accounting standards, and taxation.

What is Leasing in Turkey?

Leasing, also known as “financial leasing” in Turkey, is a method of financing where the lessor (the leasing company) purchases an asset and leases it to the lessee (the customer) for a specified period. The lessee can use the asset without owning it, making leasing an ideal choice for companies looking to preserve cash flow or avoid large capital expenditures.

In Turkey, leasing is regulated by the Financial Leasing, Factoring, and Financing Companies Law No. 6361, which governs the operations of leasing companies, ensuring they operate within a legal framework that protects both the lessee and the lessor.

Types of Leasing in Turkey

There are two primary types of leasing in Turkey:

  1. Financial Leasing (Finansal Kiralama): This is the most common form of leasing in Turkey, where the lessee uses the asset for most of its economic life and, at the end of the lease, often has the option to purchase it at a residual value. The lessor retains ownership during the lease term.
  2. Operational Leasing (Operasyonel Kiralama): In this type, the lease term is shorter, and the lessee does not have the right to buy the asset. The lessor is responsible for maintenance, and the asset is usually returned at the end of the lease period.

Leasing and Turkish GAAP

Turkish GAAP plays a significant role in the accounting treatment of leasing transactions. Turkey follows the Turkish Financial Reporting Standards (TFRS), which are aligned with the International Financial Reporting Standards (IFRS).

From an accounting perspective, financial leases are recognized as assets and liabilities in the lessee’s balance sheet. The leased asset is recorded under the property, plant, and equipment, while the lease liability is recorded under financial liabilities. Depreciation is applied to the leased asset over its useful life, while the lease payments are divided into interest and principal components. This accounting treatment ensures transparency and consistency in financial reporting.

Operational leases, on the other hand, are treated as off-balance-sheet items. Lease payments are recognized as expenses in the lessee’s income statement.

For foreign investors, understanding how Turkish GAAP applies to leasing is essential for aligning with local accounting standards and ensuring accurate financial reporting.

Leasing and Turkish Tax Laws

Turkey’s tax system is another critical factor to consider when engaging in leasing transactions. The Turkish Tax Procedure Law (Vergi Usul Kanunu) and the Corporate Income Tax Law (Kurumlar Vergisi Kanunu) outline specific tax implications for leasing.

  1. Value-Added Tax (VAT) on Leasing: In Turkey, leasing transactions are subject to Value-Added Tax (VAT), which is generally applied at a rate of 20%. However, specific assets such as industrial machinery or medical equipment may benefit from reduced VAT rates. For financial leases, VAT is applied only to the lease payments rather than the full asset value, providing a tax benefit for businesses.
  2. Corporate Tax: Lease payments made under financial leases are treated as deductible expenses for corporate tax purposes, reducing taxable income. Depreciation expenses on leased assets can also be deducted, providing further tax advantages.
  3. Withholding Tax: Leasing payments to foreign lessors may be subject to withholding tax, depending on the applicable tax treaties between Turkey and the lessor’s country of residence. Understanding these treaties is crucial for foreign investors to avoid double taxation.
  4. Stamp Duty: Lease agreements are subject to stamp duty, which is calculated as a percentage of the total lease value. Stamp duty rates for leasing contracts are generally around 0.189%, but this may vary depending on the nature of the lease.

Leasing and the Turkish Commercial Code (TCC)

The Turkish Commercial Code (TCC) provides the legal framework for commercial transactions in Turkey, including leasing agreements. Under the TCC, leasing contracts must be written and signed by both parties, clearly outlining the terms of the lease, the rights and obligations of both the lessor and lessee, and the duration of the agreement.

The TCC also emphasizes the importance of transparency and fairness in commercial transactions, ensuring that leasing agreements are structured in a way that protects both parties. Foreign investors should pay close attention to the provisions of the TCC to ensure that their leasing contracts are legally enforceable and in compliance with Turkish law.

Advantages of Leasing in Turkey for Foreign Investors

For foreign investors, leasing in Turkey offers several benefits:

  1. Preservation of Capital: Leasing allows companies to use valuable assets without tying up large amounts of capital. This can be particularly beneficial for businesses looking to maintain liquidity or invest in other areas of their operations.
  2. Tax Benefits: As mentioned earlier, leasing offers significant tax advantages, including the ability to deduct lease payments and depreciation expenses, which can reduce taxable income.
  3. Flexibility: Leasing agreements can be tailored to meet the specific needs of the business, providing flexibility in terms of lease duration, payment structure, and asset usage.
  4. Access to Modern Equipment: Leasing enables businesses to access the latest technology and equipment without the need for large upfront investments. This is especially important in industries where technology is rapidly evolving.
  5. Risk Management: Leasing helps companies manage the risk of asset obsolescence, as the lessee can return the asset at the end of the lease term and lease newer equipment if needed.

Key Considerations for Foreign Investors

While leasing in Turkey offers numerous advantages, foreign investors should also be aware of certain key considerations:

  • Due Diligence: Before entering into a leasing agreement, it is essential to conduct thorough due diligence on the lessor and the leased asset. Ensuring that the leasing company is reputable and the asset is in good condition will help mitigate risks.
  • Exchange Rate Fluctuations: For foreign investors, exchange rate fluctuations can impact lease payments. It is important to structure lease agreements in a way that minimizes the risk of currency fluctuations, either by negotiating payments in foreign currency or using hedging strategies.
  • Legal Compliance: Ensuring that the lease agreement complies with Turkish law, including the TCC and tax regulations, is critical for avoiding legal issues. Working with a local legal advisor can help foreign investors navigate the complexities of Turkish leasing laws.

Conclusion

Leasing in Turkey presents a valuable opportunity for foreign investors seeking to expand their operations while preserving capital and benefiting from tax advantages. Understanding the legal framework, accounting standards under Turkish GAAP, and tax implications is essential for making informed decisions.

With the proper planning and due diligence, foreign investors can leverage leasing to drive growth and success in the Turkish market. As always, consulting with experienced professionals familiar with Turkish GAAP, tax laws, and the Turkish Commercial Code can help ensure that your leasing arrangements are structured in the most beneficial and compliant way possible.

For foreign investors interested in exploring leasing options in Turkey, this guide serves as a starting point to navigate the complex landscape of Turkish leasing practices.

[OUR SERVICES] Expert Leasing Advisory Services for Foreign Investors in Turkey

Securing the right leasing arrangements in Turkey can play a crucial role in optimizing operational costs and ensuring a suitable location for your business. Navigating Turkish leasing regulations and agreements requires careful planning, especially for foreign investors unfamiliar with local practices. Our services provide the support needed to manage your leasing process efficiently and in compliance with Turkish laws.

  • Assistance with reviewing and negotiating lease agreements to align with your business needs
  • Advisory on leasing tax implications to ensure compliance and optimize financial planning
  • Customized reporting on lease expenses and impact on cash flow for better financial oversight
  • Internal control structuring to manage lease payments and associated accounting requirements
  • Mentorship for your accounting team on lease-related Turkish accounting standards

Contact us for dependable leasing advisory that supports your business’s operational and financial goals.

FAQ

1. What are the common types of leasing in Turkey?

Answer:
The two most common types of leasing in Turkey are financial leasing and operational leasing. Financial leasing is long-term and involves the transfer of ownership at the end of the lease term, while operational leasing is typically short-term, where ownership remains with the lessor.

2. Is leasing in Turkey governed by specific laws?

Answer:
Yes, leasing in Turkey is regulated by the Financial Leasing, Factoring, and Financing Companies Law (Law No. 6361). This law governs leasing contracts, rights and obligations of both lessors and lessees, and the legal framework for leasing operations.

3. What are the tax implications of leasing in Turkey?

Answer:
Leasing transactions in Turkey are subject to Value-Added Tax (VAT), usually at the standard rate of 20%. Additionally, expenses related to leasing, such as lease payments, are often deductible for tax purposes, which can offer financial benefits to businesses.

4. Can foreign investors lease property in Turkey?

Answer:
Yes, foreign investors can lease both commercial and residential properties in Turkey. The process is straightforward, and foreign entities have the same leasing rights as local companies, provided they comply with Turkish regulations.

5. How long are typical lease terms for commercial property in Turkey?

Answer:
Commercial lease agreements in Turkey typically range from 3 to 10 years, though shorter or longer terms can be negotiated depending on the agreement between the lessor and lessee. Renewal options and rent adjustments are usually included in the contract.