- Banking and Insurance Transactions Tax (GV)
- Fire Insurance Tax (YSV)
- Traffic Services Development Fund (THG Fund)
- Guarantee Fund (Assurance Account)
Banking and Insurance Transactions Tax (Excise Tax)
BSMV is regulated through Article 28 and the subsequent Excise Taxes Law No. 6802. The insurance firms are liable for said tax; the liability is an interim one as is the case with the value added tax and is ultimately reflected on individuals making use of the services.
According to Article 28 of Law No. 6802, any amounts collected either in cash or in account by the banks and insurance firms, for their own account, through any transactions they perform, save for the transactions covered by Leasing Law No. 3226 dated 10.6.1985 shall be subject to the banking and insurance transactions law.
According to Article 31 of the Law, insurance firms can deduct the taxes pertaining to cancelled insurance transactions (and then only the portion pertaining to the period following the date of cancellation), out of the banking and insurance transactions tax assessed for the period of cancellation. This allows for the deduction of cancelled BSMV in subsequent terms. Taxes that cannot be deducted in the next period can still be deducted from the tax returns for any subsequent period. Decision No. 91/2072 dated 12.8.1991 published in Official Gazette No. 20962 dated 16.8.1991 set the BSMV I rate to 5%.
Fire Insurance Tax (YSV)
The provisions regarding the Fire Insurance Tax are stipulated in Chapter 5 of the Municipal Revenues Law No. 2464. The premiums charged for fire insurances extended for real estate and other property inside municipal areas and neighboring areas shall be subject to Fire Insurance Tax under Article 40 of the Law. The insurance firms shall serve as the taxpayer for such tax.
The basis of the Fire Insurance Tax shall be the amount of premiums collected for the fire insurance transactions; the tax rate applicable for Fire Insurance payable over the basis thus established shall be 10%.
Traffic Services Development Fund (THG Fund)
The Traffic Services Development Fund is created through the Traffic Services Development Fund Regulation published in Official Gazette No. 23407 dated 19.07.1998. The 5% Financial Liability Insurance share collected under the amended Article 91 of Highways Traffic Law No. 2918 shall be transferred to said fund.
Guarantee Fund (Assurance Account)
The Assurance Account created through Article 14 of Insurance Law No. 5684 is regulated through the “Assurance Account Regulation” published in the Official Gazette No. 26594 dated 26.7.2007. In this context, the Account’s revenues are as follows:
1% of the overall net premiums the insurance firms collect each year for statutory insurances
0.5% of the overall net premiums the insurance firms collect each year for Green Card insurances
Participation shares the statutory insurance recipients shall pay separately to the insurance firm, at a rate of 2% of the net premiums
Participation shares the Green Card insurance recipients shall pay separately to the insurance firm, at a rate of 0.5% of the net premiums
How can one make use of the tax break?
What is a tax break?
A tax break refers to the option offered to the wage earner, allowing the policyholder to deduct part of the premiums paid to insurance firms for him/herself, his/her spouse and/or minor children from the tax figure he/she is obliged to pay. This option, only offered on insurance and private pension products from among all the investment instruments, enables the individual to cut back on the amount of taxes they pay and to increase their net savings.
Who can use the tax break option?
Wage earners and taxpayers who are required to submit their earnings through an annual income tax return can deduct the insurance premiums they paid from their income taxbase, subject to the following conditions.
What are the conditions of tax break offered to wage earners?
For the personal insurance premiums the wage earner paid for him/herself, his/her spouse and/or minor children to be deductible from his/her gross wages, the following requirements should all be met:
The insurance firm should be established and headquartered in Turkey
The insurance contract should be executed with such firms.
The payment of the insurance premium should be documented with an invoice or receipt issued by the insurance firm.
How can the insurance premiums paid by wage earners be deducted from their taxbase?
With the amendment to Article 63 of the Income Tax Law, effected through Law No. 4697 published in the Official Gazette dated 10.07.2001, the contributions paid to the private pension system were included in the article text, alongside a provision to introduce an upper limit of 5% of the monthly gross wage as the deductible portion of the premiums paid on personal insurance policies issued after 07.10.2001. The amended version of the law stipulated a second arrangement regarding the upper limits for deductible premiums and introduced the requirement that the annual sum of the premiums should not exceed the annual minimum wage figure as well.
In a nutshell, the personal insurance premium paid under the terms specified above, to be deducted in the assessment of the wage earner’s tax basis, can be deducted in terms of the assessment of the wage earners’ tax basis, provided that the following requirements are met;
The premium and subscription payments to be deducted do not exceed 5% of the wage earned in the applicable month.
The annual sum of the premium and subscription payments deducted do not exceed the annual figure of the gross minimum wage.
The wage figure taken into account to establish the premium figure to be deducted refers to the sum of the gross figures of continuous payments provided to the employee in consideration of his/her service, such as the monthly wage (salary), premium, bonus, social benefits and raises. The amounts paid in consideration of expense figures shall not be taken into consideration (regardless of them being paid in consideration of an actual expense or not).
The individual insurance premiums paid within a calendar year are required not to exceed the annual sum of minimum wage. In this context, comparison of minimum wages will be made on a yearly basis. Therefore, changes occurring within the year with respect to the minimum wage figure shall be taken into consideration in the assessment of the deductible figures.
Payment of Insurance Premium through the Employer
If the premiums in question are paid through the employer acting as an agent, the abovementioned limits (5% and minimum wage) will again apply.
The premium payments made by the employer on behalf of the employee, within the abovementioned limits, should, nonetheless, be registered in gross on the employees payroll, in terms of stamp duty assessment. The amount in question will be considered deductible when calculating the taxbase with reference to the gross wage. Therefore, the personal insurance premiums paid through the employer, subject to the limits above, shall be subjected to stamp duty assessment only, and shall not be required to be subjected to income tax.
In the case of a premium payment in excess of the abovementioned limits, on the other hand, the statements provided above will be observed, with the requirement to include the gross figure of the excessive part in the payroll with reference to stamp duty and income tax assessments. The process shall lead to the payment of stamp duty, as well as income tax on the excessive portion.