Tax Update: Minister of Finance Regulation Number 41 of 2023 regarding Value-Added Tax on the Transfer of Collateral Taken Over by the Creditor to the Collateral Buyer
Minister of Finance Regulation (MoF Reg) Number 41 of 2023 regulates Value Added Tax (VAT) on the Transfer of Collateral Taken Over (known as AYDA) by the Creditors to the Collateral Buyers, which is effective as of May 1, 2023. According to MoF Reg No. 41, the transfer of collateral by the Creditor to the Collateral Buyer is considered as the transfer of rights over Taxable Goods subject to VAT. If the Debtor experiences default/payment failure, the Creditor must collect VAT at a rate of 10% x VAT Rate x Tax Base, or effectively 1.1% x Collateral Sale Price. The Creditor is also required to issue a Tax Invoice in accordance with the applicable regulations for the transfer of collateral to the buyer. Certain similar documents can be treated as Tax Invoices. The Creditor is also obligated to remit and file the collection of VAT in accordance with the applicable tax regulations.