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How are companies in Turkey taxed in cases of Transfer, Split-off and Share Exchange?

14.07.2021

  1. Taxation and declaration in case of transfer

In the transfers to be made in accordance with Article 19 of the Corporate Tax Law, only the profits of the annulled corporation until the transfer date will be taxed, and the profits arising from the merger will not be calculated and taxed.

The transfer date is the date on which the decision of the authorized board of the company regarding the transfer is registered in the Trade Registry.

The corporate tax return regarding the transfer will be submitted to the tax office to which the annulled corporation is affiliated within thirty days from the date of the announcement of the merger in the Trade Registry Gazette.

The declaration will be prepared and jointly signed by the annulled corporation and the merged corporation as of the date of transfer.

The income calculated as of the transfer date must be included in this declaration and taxed, since the income up to the transfer date is taxed. The income arising from the transactions after this date will belong to the transferee corporation.

In case the transfer is made within the period from the month in which the accounting period is closed to the end of the month in which the corporate tax return is submitted, the corporate tax return to be prepared for the previous accounting period of the annulled corporation will also be submitted together with the corporate declaration regarding the transfer.

The aforementioned declarations must also be signed jointly by the annulled corporation and the merging corporation and submitted to the tax office to which the annulled corporation is affiliated.

Example 1: (A) Ltd Company, of which accounting period is the calendar year, was transferred to (A) A.Ş. by changing its type on 4/6/2007. In this case, (A) Ltd Company’s tax return for the period between 1/1/2007 and 4/6/2007 must be submitted to the tax office to which the annulled corporation is affiliated, until the end of the working hours of 4/7/2007.

Example 2: In the event that (A) Ltd Company transforms into (A) A.Ş. on 11/2/2007, the declaration regarding the promissory period between 1/1/2007-11/2/2007 and the declaration regarding the 2006 accounting period of the annulled corporation (A) Ltd Company must be submitted to the tax office of the annulled corporation until the end of working hours on 13/3/2007.

The merged corporation must undertake to pay the tax liabilities accrued and to be incurred by the annulled corporation and to fulfill its other duties, with a letter of undertaking attached to the corporate tax return to be submitted by the annulled corporation due to the merger.

The largest property officer can also request collateral from the merged corporation in this regard. In the implementation of the Corporate Tax Law, the chief tax officer is the heads of the tax offices in the provinces where the head of the tax office is located, and the bookkeepers in the other provinces.

The statement of undertaking and the balance sheet and income statement regarding the transfer must be attached to the annexes of the declarations to be submitted.

On the other hand, if a corporate tax return is submitted for the same period due to the transfer process before the submission of the provisional tax return, a separate provisional tax return will not be submitted for this period.

Provisional taxes paid by the corporation, which became annulled due to the transfer, until the transfer date can be deducted from the corporate tax to be calculated over the earnings before the transfer to be taxed due to the transfer. If the amount that cannot be deducted remains, this amount will be deducted from the corporate tax of the merged corporation.

  1. Taxation and declaration in case of full split-off

In full split-off to be made pursuant to Article 19 of the Corporate Tax Law, only the profits of the annulled corporation until the date of division will be taxed within the framework of the following explanations; profits arising from the division will not be calculated and taxed.

The date of full split-off is the date when the decision of the authorized board of the company is registered in the Trade Registry.

The corporate tax return regarding the split-off transaction will be submitted to the tax office of the corporation that split up (divided) within thirty days following the announcement of the split-off in the Trade Registry Gazette.

The declaration will be prepared by the split corporation and the corporations that have taken over the assets of this corporation as of the date of the split-off, and will be given by signing jointly.

In order to be able to tax the income up to the split-off date, the income calculated as of the split date must be included in this declaration and taxed. Gains arising from transactions after this date will belong to the transferee corporations.

In case the split-off is made within the period from the month the accounting period is closed to the end of the month in which the corporate tax return is filed, the corporate tax return of the split corporation for the previous accounting period will also be submitted together with the corporate tax return for the split-off.

The said declaration must be signed jointly by the split corporation and the corporations that took over the assets of this corporation and must be submitted to the tax office to which the annulled corporation is affiliated.

Corporations that take over the assets of the split corporation will undertake to pay the tax liabilities accrued and to be incurred by the split corporation and to fulfill its other duties, and they will undertake with a letter of undertaking to be given in the annex of the corporate tax return to be submitted due to the split-off of the split corporation.

The largest property officer can also request collateral from the split corporation and the corporations that have taken over the assets of this corporation.

A copy of the split-off balance sheet and income statement, split-off agreement and the Trade Registry Office letter showing the new capital structure of the corporations that took over the split corporation’s assets will be attached to the split-off declaration.

If a corporate tax return is submitted for the same period due to full split-off transactions before the submission period of the provisional tax return, a separate provisional tax return will not be submitted for this period.

  1. Taxation in case of partial split-off and exchange of shares

Profits arising from partial split-off and share exchange transactions carried out in accordance with Article 19 of the Corporate Tax Law will not be calculated and taxed.

In partial split-off transactions, corporations that take over the assets of the split corporation will be jointly and severally liable for the tax debts accrued or to be incurred until the split-off date of the split corporation, limited to the precedent value of the assets they have taken over.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Tax withholding on earnings and revenues obtained by limited taxpayer corporations through their workplace or permanent representative in Turkey

07.07.2021

Pursuant to the first paragraph of Article 30 of the Corporate Tax Law, the progress payments made to the limited taxpayer companies for the construction and repair works spread over more than one calendar year and the tax deductions of the mentioned institutions will be made on the following, according to the principles specified in the Income Tax Law:

  • Self-employment earnings,
  • Real estate capital gains,
  • Security income, excluding those listed in subparagraphs (1), (2), (3) and (4) of the second paragraph of Article 75 of the Income Tax Law

In the first paragraph of Article 22 of the Law, it is stated that the provisions applicable to full taxpayer corporations will be applied in determining the earnings of limited taxpayer corporations through workplace or permanent representative, unless otherwise stated.

According to Article 15 of the aforementioned Law, tax deductions are made from the progress payments of full taxpayer corporations regarding construction and repair works spread over more than one calendar year, from all kinds of bonds and Treasury bill interests, income from securities issued by the Mass Housing Administration and Privatization Administration, from deposit interests, from dividends paid by participation banks in return for participation accounts, dividends paid in return for profit and loss sharing certificate, repo earnings and from the rent payments made to the immovables belonging to the cooperatives in return for the lease.

Therefore, if the tax deducted earnings and revenues of full taxpayer corporations are obtained by limited taxpayer corporations engaged in commercial activities by having a workplace or permanent representative in Turkey, tax deduction will be made on the said earnings and revenues in accordance with Article 30 of the Corporate Tax Law, in any case.

On the other hand, within the scope of commercial and agricultural activities carried out by corporations subject to limited liability by having a workplace or permanent representative in Turkey, according to Article 30 of the aforementioned Law, no tax deduction will be made on self-employment earnings, real estate capital gains (except for rent payments made to limited taxpayer corporations in return for renting immovable) and security capital gains (excluding dividends and income from securities subject to withholding tax in the first paragraph of Article 15 of the Law) obtained through these workplaces or their permanent representatives.

However, even if the corporations subject to limited liability do not have a workplace or permanent representative in Turkey or vice versa, tax deductions will be made in accordance with Article 30 of the Law from self-employment earnings, real estate capital gains and movable capital revenues excluding dividends, which are not related to the commercial activities they carry out in these workplaces.

For example, according to the first paragraph of Article 30 of the Corporate Tax Law, tax deductions will not be made on the earnings and revenues obtained by the branches of foreign banks in Turkey within the framework of their banking activities. However, tax deductions will be made in accordance with the aforementioned article on the earnings and revenues obtained by these banks outside the branches and not included in the banking activities.

If it is not known whether the limited taxpayer has workplaces or permanent representatives in Turkey, during the payment of limited taxpayers in cash or on account by those who are responsible for withholding tax, it will be required to withhold tax in accordance with the aforementioned article.

On the other hand, regardless of whether these earnings and revenues are included in commercial or agricultural income or not, corporate tax deductions will be made by the responsible persons over the payments made in return for the sale, transfer and assignment of royalties, privileges, passions, businesses, trade names, brands and similar intangible rights. In tax deductions to be made in accordance with the other paragraphs of Article 30 of the Corporate Tax Law, the provisions of the relevant paragraphs will be taken into account.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Discount on capital increase in Turkey

06.07.2021

In the subparagraph (ı) added to the first paragraph of the 10th article of the Corporate Tax Law with the 8th article of the Law on the Amendment of Certain Laws and Decree Laws dated 27/3/2015 and numbered 6637, it is stipulated that 50% of the amount calculated until the end of the relevant accounting period can be deducted from the corporate income, provided that it is separately shown on the corporate tax return in the determination of the corporate tax base, within the relevant accounting period of capital companies, excluding institutions operating in the finance, banking and insurance sectors and state economic enterprises, by taking into account the weighted annual average interest rate applied to commercial loans in TL opened by banks for the year benefiting from the discount by the Central Bank of the Republic of Turkey on the basis of cash capital increases in the paid or issued capital amounts registered in the trade registry or the portion of the paid-in capital paid in cash in newly established capital companies.

1.1. Scope of the discount

In calculating the amount to be subject to discount pursuant to this regulation, which was introduced to strengthen the capital structures of capital companies, until the end of the relevant accounting period, the amount to be calculated according to the provisions of subparagraph (ı) of the first paragraph of Article 10 of the Corporate Tax Law will be taken into account, over the cash capital increases in the paid or issued capital amounts registered in the trade registry as of 1/7/2015 or the cash amount of the paid-in capital in newly established capital companies as of this date.

In this discount application,

  1. a) Cash capital increase refers to the cash increases in the paid or issued capital amounts registered in the trade registry by the capital companies in the relevant accounting period and the portion of the paid-in capital in newly established capital companies in cash.
  2. b) Commercial loans interest rate refers to the “Commercial Loans” (Opened in TL) (Excluding Legal Entity Overdraft Account and Corporate Credit Cards) interest rate from the “Weighted Average Interest Rates Applied to Loans Extended by Banks”, which will be considered as the weighted annual average interest rate applied to commercial loans in TL opened by banks and which was announced last year by the Central Bank of Republic of Turkey (CBRT) for the year in which the discount was used.
  3. c) Duration refers to the ratio of the number of months from the date of deposit (in which the registered capital is deposited to the bank account of the company before the decision regarding the capital increase is registered in the trade registry) to the bank account of the company to the end of the accounting period, compared to the 12 months, when the cash portion of the capital increase registered in the trade registry is deposited in the company’s bank account.

In the calculation of the amount to be subject to the discount; cash capital increases in paid or issued capital amounts in existing capital companies, in newly established capital companies, the part of the paid-in capital that is covered in cash will be taken into account, and discounts will not be available for the portion of the capital that is not covered in cash.

In addition to these, the following will not be taken into account in the calculation of the discount amount.

– Capital increases arising from non-cash asset transfers to capital companies,

– Capital increases arising from the participation of capital companies in merger, transfer and division transactions,

– Capital increases arising from the addition of equity items in the balance sheet to the capital,

– Capital increases made by the shareholders or by persons related to the shareholders within the scope of Article 12 of the Corporate Tax Law, by using loans or borrowing,

– Capital increases realized by adding securities such as stocks, bonds or bills other than cash capital to the company,

– Capital increases realized in the form of offsetting balance sheet items within each other

Example: (A) Ltd. Company lent 1.000,000 TL to Ms. (D), who is a 50% shareholder, on 4/5/2015, and this amount is followed in the “Receivables from Shareholders” account. On 15/7/2015, it was decided to increase the capital of (A) Ltd. Company by 2.000,000 TL in cash and 50% of this amount, 500,000 TL, was deposited into the company’s bank account on the same date. The decision regarding the cash capital increase was registered in the trade registry on 22/7/2015. Ms. (D) has fulfilled her capital commitment by depositing the remaining 750.000 TL in the bank account of (A) Ltd. Company, of which she is a shareholder, on 31/7/2015 and she has not yet paid the debt of 1.000.000 TL that she received from the company on 4/5/2015.

Since the capital increases realized by the shareholders by using loans or borrowing money will not be taken into account in the calculation of the discount amount, for the 1,000,000 TL paid by Ms. (D) in relation to the capital commitment, Ms. (D) has received the 1.000. It is not possible to benefit from the discount until the debt of 1.000.000 TL is paid (in case of partial payment of this debt, limited to the unpaid amount).

1.2. Those who will benefit from the discount

Except for institutions operating in the finance, banking and insurance sectors and state economic enterprises; capital companies that meet the conditions can benefit from the discount. Therefore, institutions operating in the finance, banking and insurance sectors and state economic enterprises will not be able to benefit from this discount.

1.3. Application of Discount

Based on the cash capital increase, the portion of the amount calculated until the end of the relevant accounting period, which corresponds to the rate determined by the Council of Ministers, can be deducted from the corporate earnings of the relevant period, taking into account the commercial loan interest rate announced by the CBRT for the year benefiting from the discount.

The amount that can be deducted from the corporate income will be calculated as follows:

In the application of the discount, the fraction of the month (in which the registered capital is deposited to the bank account of the company before the decision regarding the capital increase is registered in the trade registry) in which the increased capital is paid in cash by the shareholders during the accounting period will be counted as a whole month, and the discount amount will be calculated on a pro-rata basis for the remaining period of the year.

1.3.1. Registration of the capital increase and depositing the increased amount into the company’s bank account

Capital companies will be able to benefit from this discount application as of the accounting period in which the decision of their authorized bodies regarding the partial or full cash capital increase is registered in the trade registry.

The amount of capital increase that can be subject to the discount calculation is limited to the portion of the increased capital actually deposited in cash to the company’s bank account by the shareholders, and the portion of the committed capital that is not actually deposited into the company’s bank account in cash by the shareholders will not be taken into account in the calculation of the discount amount.

This discount can be benefited from for the capital committed in cash, based on the following;

– Registration date for the part of the company deposited into the bank account before the decision on the capital increase is registered in the trade registry

– Date of deposit into the company’s bank account for amounts deposited into the company’s bank account after the registration date

Example 1:  A decision was taken on 15/7/2015 to increase the capital of (B) A.Ş. by 6,000,000 TL in cash and the amount committed by Mr. (F), one of the partners of the company, is 2,000,000 TL and the amount committed by Mr. (K) is 4,000,000 TL. 1,500,000 TL, 25% of the committed amounts, was deposited into the company’s bank account by the partners on 30/7/2015, and then the capital increase decision was registered with the trade registry on 3/8/2015.

Company partner Mr. (F) invested the remaining portion of the capital he has committed, 1,500,000 TL on 6/8/2015, after the registration date of the decision regarding the capital increase, and the other partner of the company, Mr. (K), deposited the remaining 3.000.000 TL of the committed capital to the bank account of the company on 9/11/2015.

The discount rate that (B) A.Ş. can benefit from is 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2015 is 10%.

It is possible to benefit from the discount based on the registration date of this decision, 3/8/2015, for 25% of the capital commitment deposited in the bank account of (B) A.Ş. before the decision regarding the capital increase is registered in the trade registry

The discount amount will be calculated by taking into account the dates when these amounts are deposited into the company’s bank account, for capital commitments deposited into the company’s bank account by the partners after the registration date of the decision.

From this month until the end of the year, the discount amount can be calculated for the portion of 1,500,000 TL deposited into the company’s bank account, since the decision regarding the capital increase was registered with the trade registry on 3/8/2015, the committed capital must be paid before the registration date of the decision.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 1.500.000 TL x 0,10 x 0,50 x (5/12)

= 31.250 TL

After the date of registration of the decision regarding the capital increase in the trade registry, from the months when these amounts are deposited into the company’s bank account, the discount amount can be calculated until the end of the year, since 1,500,000 TL of the committed capital was deposited by Mr. (F) on 6/8/2015 and the remaining 3,000,000 TL was deposited into the company’s bank account on 9/11/2015 by Mr. (K), the other partner of the company,

For the amount deposited by Mr. (F),

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 1.500.000 TL x 0,10 x 0,50 x (5/12)

= 31.250 TL

For the amount deposited by Mr. (K),

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 3.000.000 TL x 0,10 x 0,50 x (2/12)

= 25.000 TL

Therefore, the total discount amount (31.250 TL + 31.250 TL + 25.000 TL =) calculated over the capital increase of 6.000.000 TL in the 2015 accounting period and to be taken into account in the determination of corporate income will be 87.500 TL.

Moreover, if (B) A.Ş. does not reduce its capital in the 2016 accounting period and fulfills other conditions, it will be able to calculate the discount amount for 12 months over the whole of this capital increase of 6,000,000 TL.

Example 2: With the general assembly decision dated 22/12/2015, it was decided to increase the capital of (C) A.Ş. by 12.000.000 TL and 25% of this amount, 3.000.000 TL, was deposited to the bank account of the company on 29/12/2015.

The said general assembly resolution was registered with the trade registry on 13/1/2016 and the remaining 9.000.000 TL of the capital commitment was deposited in cash on 29/1/2016 to the bank account of the company. (C) A.Ş. will take into account the discount rate in calculating the discount amount of 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2016 is 10%.

Although the decision regarding the capital increase was taken in the 2015 accounting period, as of 2015 accounting period, it is not possible to benefit from the discount for 25% of the committed capital deposited to the bank account of the company on 29/12/2015, since the registration of this decision to the trade registry was carried out on 13/1/2016.

On the other hand, in determining the corporate tax base for the 2016 accounting period, (C) A.Ş. will be able to benefit from the discount application on the entire amount of its capital increased in cash, since the decision regarding the capital increase was registered in the trade registry in January 2016, and the remaining part of the capital commitment was deposited in the bank account of the company by the partners in this period.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 12.000.000 TL x 0,10 x 0,50 x (12/12)

= 600.000 TL

(C) A.Ş. will be able to benefit from the discount application for the amount of 600.000 TL in the determination of the corporate tax base for the 2016 accounting period.

(Section added with Article 1 of Corporate Tax General Communiqué Serial No. 10) 1.3.1.1. Status of capital advances

In order to be used in the fulfillment of the capital commitment arising from the capital increase to be made in the future, it is possible to consider the amounts deposited to the bank account of the company as a capital advance by the partners before the decision regarding the capital increase, based on the date of registration of the said decision in the trade registry, provided that:

  1. The amounts deposited in the company’s bank account as a capital advance are followed in the “Other Capital Reserves” account, which is among the equity items in the company’s balance sheet, as of the date of depositing the bank account.
  2. Registration of the decision regarding the capital increase related to these amounts to the trade registry until the end of the accounting period of the date the amounts deposited to the bank account of the company as capital advance are deposited into the bank account

Therefore, it is not possible to take into account the amount of capital advance which is not subject to capital increase in the accounting period of the date of deposit in the bank account of the company. Moreover, for the amounts that are not followed in the “Other Capital Reserves” account, which is among the equity items in the balance sheet from the date of deposit in the company’s bank account, it is not possible to benefit from the discount application even if the capital increase regarding these amounts is realized in the relevant accounting period.

Example: Capital advance amounting to 1.000,000 TL deposited by Mr. (T), one of the partners of (B) A.Ş., to the bank account of the company on 10/5/2016, in order to provide the financing needed for the project carried out by the company and to be added to the capital in the future, by (B) A.Ş. It was transferred to the company records by being recorded in the “Other Capital Reserves” account on 10/5/2016. Then, the decision regarding the cash capital increase of (B) AŞ was registered with the trade registry on 30/6/2016, and the necessary accounting records regarding the capital increase related to the said amount were made.

Accordingly, for this amount deposited by the partner Mr. (T) to the company’s bank account on 10/5/2016 and recorded in the “Other Capital Reserves” account on the same date, it is possible to benefit from the discount application as of 30/6/2016 when the decision regarding the cash capital increase was registered in the trade registry.

1.3.2. Benefiting separately for each accounting period

Capital companies will be able to benefit from the discount application for each subsequent accounting period, starting from the accounting period in which the cash capital increase is made, on the cash capital increases they make.

On the other hand, in case of a capital reduction in the following periods, the portion of the cash capital increase equal to the reduced capital amount will not be taken into account in the calculation of the deduction.

Example: (BA) A.Ş.’s general assembly resolution dated 3/8/2015 regarding the increase of 6,000,000 TL in cash was registered with the trade registry on 24/8/2015 and the entire capital commitment was deposited into the bank account of the company within this month.

(BA) A.Ş. will benefit from the discount for a period of 5 months in the 2015 accounting period and also from this discount in the following accounting periods due to this increased capital amount as long as it continues to meet the conditions.

1.3.3. Transfer of the amount that cannot be deducted due to insufficient earnings to the next periods

In case the deduction amount calculated by the capital companies for the cash capital increase cannot be deducted in the determination of the tax base for the relevant accounting period due to insufficient earnings, these deduction amounts can be subject to deduction in determining the base for the following accounting periods without being subject to any indexation.

Example: (D) A.Ş., which calculated a discount amount of 50.000 TL over the cash capital increases realized in the 2016 accounting period, could not benefit from the discount due to its financial loss in this accounting period.

(D) A.Ş.’s discount amount of 50.000 TL, which could not be deducted from the corporate income due to insufficient earnings in the 2016 accounting period, will be carried over to the following periods. If there is a profit in the following periods, this amount that cannot be deducted in the 2016 accounting period can be subject to deduction in the determination of the relevant period’s base without being subject to any indexation.

1.3.4. Capital decrease

If the capital companies benefiting from this discount make a capital decrease later on, it is not possible to benefit from this decrease as of the month following the month in which the decision regarding the capital decrease is registered in the trade registry for the portion of the cash capital increase equal to the decreased capital amount.

On the other hand, if the capital companies have made a capital decrease before the cash capital increase, the portion equal to the decreased capital amount will not be taken into account in the calculation of this decrease.

Example: The general assembly decision was taken on 9/5/2016 regarding the increase of the capital of (E) A.Ş. by 150.000 TL, and 37.500 TL, which is 25% of the capital commitment, was deposited to the bank account of the company by the partners on 11/5/2016.

The decision was registered in the trade registry on 23/5/2016, and the remaining part of the committed capital, 112.500 TL, was deposited in cash by the shareholders to the company’s bank account on 27/6/2016. The discount rate that (E) A.Ş. can benefit from is 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2016 is 10%.

The general assembly decision regarding the decrease of the capital of (E) A.Ş. by 120.000 TL was registered in the trade registry on 10/7/2019.

The discount amount that (E) A.Ş. can benefit from in the 2016 accounting period will be calculated for the 37.500 TL portion of the subscribed capital, taking into account the date of registration of the decision, 23/5/2016, for the part of 112.500 TL, it will be calculated by taking into account the date of 27/6/2016, when this amount is deposited into the company’s bank account by the partners.

For 37.500 TL;

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 37.500 TL x 0,10 x 0,50 x (8/12)

= 1.250 TL

For 112.500 TL;

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 112.500 TL x 0,10 x 0,50 x (7/12)

= 3.281,25 TL

(E) A.Ş. will be able to deduct a deduction amount of TL 4,531.25 in the 2016 accounting period (1.250 TL + 3.281.25 TL =) in the determination of the corporate tax base. In 2017 and 2018 accounting periods, provided that other conditions are met, the discount amount can be calculated for 12 months over the said cash capital increase, taking into account the commercial loans interest rate announced by the CBRT for these periods.

For the August-December 2019 period, the discount amount can be calculated over the capital amount of 30.000 TL (150.000 TL – 120.000 TL=) considering the capital reduction, since the capital decrease was made on 10/7/2019, over the capital amount of 150.000 TL for the January-July 2019 period.

On the other hand, if (E) A.Ş. makes a capital increase in the following periods, provided that it meets the conditions, it will be able to benefit from the discount application for these increased capital amounts.

1.4. The authority granted to the Council of Ministers regarding the discount application

The authority granted to the Council of Ministers with the fourth paragraph of subparagraph (i) of the first paragraph of Article 10 of the Corporate Tax Law has been used by the Council of Ministers Decision dated 26/6/2015 and numbered 2015/7910.

1.4.1. Discount rates

In the aforementioned Council of Ministers Decision, the general discount rate has been determined as 50%, and depending on their situation, capital companies will be able to benefit from the discount application by adding the following rates to this rate.

1.4.1.1. Discount rate in publicly traded capital companies whose shares are traded on the stock exchange, ratio registered in the trade registry of the nominal amount of the shares followed as tradable shares in the stock exchange at the Merkezi Kayıt Kuruluşu A.Ş. (Central Registry Agency) as of the last day of the year benefiting from the discount, to the paid in or issued capital will be applied by adding the following:

– 25 points for companies with 50% or less,

– 50 points for companies with more than 50%,

Example: The authorized body of (F) A.Ş. has decided to increase the cash capital of 6,000,000 TL on 6/7/2015. 1,500,000 TL, 25% of the capital committed in cash, was deposited into the bank account of the company on 3/8/2015 by the partners. The said decision was registered with the trade registry on 12/8/2015 and the remaining portion of the capital commitment, 4.500.000 TL, was deposited into the bank account of the company until the end of August 2015.

As of 31/12/2015, the ratio of the nominal amount of the shares of (F) A.Ş., which are followed up as tradable shares at the Merkezi Kayıt Kuruluşu A.Ş., to the issued capital is 40%, and as of the end of 2015, the commercial loan interest rate announced by the CBRT is 10%.

Accordingly, the discount rate that (F) A.Ş. will consider in the discount application due to the cash capital increase realized will be (50% + 25%=)  75% provided other conditions are met.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 6.000.000 TL x 0,10 x 0,75 x (5/12)

= 187.500 TL

On the other hand, if the ratio of the nominal amount of the shares of (F) A.Ş. to the issued capital of Merkezi Kayıt Kuruluşu A.Ş., which are followed up as tradable shares, is 80%, the discount rate (50% + 50%=) that will be taken into account in the calculation of the discount amount will be 100%.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 6.000.000 TL x 0,10 x 1 x (5/12)

= 250.000 TL

1.4.1.2. If the capital increased in cash is used in production and industrial facilities with investment incentive certificates, machinery and equipment investments belonging to these facilities and/or land and plot investments allocated for the construction of these facilities, the said discount will be applied by adding 25 points, limited to the fixed investment amount included in the investment incentive certificate.

Example: Authorized body of (G) A.Ş. has decided to increase the cash capital of 24.000.000 TL on 28/8/2015. 6,000,000 TL, 25% of the capital committed in cash, was deposited into the company’s bank account on 8/9/2015.

The decision in question was registered with the trade registry on 15/9/2015 and the remaining portion of the capital commitment was deposited into the company’s bank account by the end of September of the same year. On the other hand, (G) A.Ş. used 10.000.000 TL of this resource obtained from the cash capital increase in the investment of industrial facility with investment incentive certificate, which includes a fixed investment amount of 9.000.000 TL in September of the same year.

The ratio of the nominal amount of the shares of (G) A.Ş. to the issued capital of the Merkezi Kayıt Kuruluşu A.Ş. which are followed as tradable shares in the stock exchange is 80%, and as of the end of 2015, the commercial loan interest rate announced by the CBRT is 10%.

Accordingly, since the ratio of the nominal amount of the shares of (G) A.Ş. to the issued capital of Merkezi Kayıt Kuruluşu A.Ş. which are followed as tradable shares in the stock exchange, is 80%, the discount rate that will be taken into account in the calculation of the discount amount will be (50% + 50%=) 100%.

On the other hand, limited to this amount, the discount rate will be taken into account as (50% + 50% + 25%=) 125% by adding 25 points, since 9.000.000 TL of the 10.000.000 TL used in the investment incentive certificate industrial facility investment of (G) A.Ş.’s cash capital increase is related to the fixed investment amount.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 9.000.000 TL x 0,10 x 1,25 x (4/12)

= 375.000 TL

For the remaining capital increase of (24.000.000 TL – 9.000.000 TL=) 15.000.000 TL, the discount rate will be considered as (50% + 50%=) 100%.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 15.000.000 TL x 0,10 x 1 x (4/12)

= 500.000 TL

Therefore, the total amount that (G) A.Ş. can deduct in its corporate tax return for the 2015 accounting period is (375,000 TL + 500,000 TL=) 875,000 TL.

1.4.2. Limitations on discount application

Different discount rates have been determined to be taken into account in the discount application in the third paragraph of the first article of the Council of Ministers Decision No. 2015/7910.

1.4.2.1. The discount rate will be applied as 0% for capital companies whose income consists of passive income such as interest, profit share, rent, license fee, security sales income other than commercial, agricultural or self-employed activities, which are carried out by employing capital, organization and personnel, 25% or more of which is proportional to the company’s activity.

Example: (H) A.Ş. decided to increase the capital of 10.000.000 TL in cash on 29/7/2015 and this decision was registered in the trade registry on 14/8/2015. However, from the income statement of (H) A.Ş. for the 2015 accounting period, it is seen that 55% of its income consists of the sum of the interest income from the time deposit accounts of the company in the banks and the profit shares obtained from the subsidiaries.

Accordingly, in the calculation of the amount that can be deducted due to the cash capital increase, the discount rate to be taken into account for the 2015 accounting period will be applied as 0%, since more than 25% of (H) A.Ş.’ income consists of passive income.

1.4.2.2. The discount rate will be applied as 0% in the calculation of the deductible amount, for capital companies whose total assets are 50% or more of subsidiaries, subsidiaries and participation shares.

Example: (K) A.Ş. took a cash capital increase decision of 2.000.000 TL on 7/6/2016 and this decision was registered in the trade registry on 10/8/2016. As of the last day of the accounting period in which the cash capital increase decision of (K) A.Ş. was registered, it is seen that 57% of total assets consist of subsidiaries, affiliates and subsidiaries.

Therefore, the discount rate to be taken into account in the calculation of the deductible for the 2016 accounting period will be applied as 0%, since more than 50% of the total assets of (K) A.Ş. consists of subsidiaries, affiliates or subsidiaries.

1.4.2.3. The discount rate will be applied as 0% in the calculation of the deductible amount, limited to the amount corresponding to the portion of the increased cash capital that has been invested in other companies as capital or made available as a loan.

Example 1: (L) A.Ş. made a cash capital increase of 1,000,000 TL on 10/9/2015 and invested 400,000 TL of this fund, which it obtained from the cash capital increase, on 22/10/2015 as capital to the newly established company (KL) Ltd, of which it is a partner.

The discount rate that (L) A.Ş. will take into account in calculating the deductible amount for the 400,000 TL invested as capital in the newly established (KL) Ltd Company of the cash capital increase amounting to 1.000,000 TL will be 0%.

However, (L) A.Ş. will be able to benefit from the discount application according to the rate to be determined in the relevant period, provided that other conditions are met for the remaining 600,000 TL capital increase.

Example 2: (T) A.Ş., which increased its capital in cash by 5.000.000 TL on 17/9/2015, lent 2.000.000 TL of this resource to its partner on 27/10/2015.

The discount rate that (T) A.Ş. will take into account in calculating the deductible amount for the 2,000,000 TL loaned to its partner of the cash capital increase amounting to 5,000,000 TL will be 0%. However, for the remaining 3,000,000 TL portion of the cash capital increase, provided that other conditions are met, it will be able to benefit from the discount application according to the rate to be determined.

On the other hand, it is possible to benefit from the discount application, limited to the amount collected, starting from the period when 2,000,000 TL given as a loan is partially or completely collected.

1.4.2.4. In capital companies investing in land and plot, a discount rate of 0% will be applied in calculating the deductible amount, limited to the amount corresponding to the land and plot investment.

Example: (M) A.Ş., which had a cash capital increase of 1.000.000 TL on 11/1/2016, purchased a land for 800.000 TL on 23/10/2017.

Accordingly, (M) A.Ş. will be able to benefit from the discount application for 12 months in the 2016 accounting period, provided that the conditions are met, taking into account the general discount rate, due to the cash capital increase of 1,000,000 TL in the 2017 accounting period, the 10-month general discount rate will be taken into account, and in the remaining 2 months, the discount rate will be applied as 0%, limited to the amount of 800,000 TL used in the purchase of the land on 23/10/2017.

1.4.2.5. In case of a capital reduction in the period from 9/3/2015 to 1/7/2015 when the subparagraph (ı) of first paragraph of Article 10 of the Corporate Tax Law entered into force, the discount rate will be applied as 0% in the calculation of the deductible amount, limited to the amount corresponding to the reduced capital amount.

Example: The authorized body of (N) A.Ş., which had a capital decrease of 4.000.000 TL on 15/4/2015, decided to increase its capital in cash of 10.000.000 TL on 7/7/2015, and 2,500,000 TL, 25% of this amount, was deposited into the company’s bank account by the partners on the same date.

The said decision was registered in the trade registry on 15/7/2015 and the remaining portion of the capital commitment, 7.500.000 TL, was deposited in cash on 29/7/2015 by the partners to the company’s bank account.

Accordingly, (N) A.Ş. will be able to benefit from the discount application by taking into account the general discount rate for only the portion of (10.000.000 TL – 4.000.000 TL=)  6,000,000 TL of the cash capital increase, if it meets the conditions, and for the remaining 4,000,000 TL, the discount rate will be 0%.

1.5. Other issues

1.5.1. It is possible to benefit from this deduction only as of the fourth temporary taxation period among the temporary tax periods, since the most recently announced commercial loan interest rate for the year utilized by the CBRT will be taken into account when calculating the discount amount.

On the other hand, the amounts that cannot be deducted in the relevant accounting period due to insufficient earnings can be subject to deduction in the determination of the provisional tax bases of the temporary taxation periods for the following accounting period.

1.5.2. Capital companies, for which a special accounting period has been determined, will be able to benefit from the discount by taking into account the commercial loan interest rate announced by the CBRT as of the end of the accounting period, provided that the conditions are met.

1.5.3. Capital companies wanting to benefit from the discount are required to submit the bank account statement approved by the relevant bank branch, in paper form or electronically, containing these transactions regarding the amount of the committed capital increase actually deposited into the company’s bank account, to the tax offices to which they are affiliated in terms of corporate tax within the period of filing the relevant period corporate tax return.

Moreover, within the framework of the explanations in this section of the Communiqué, capital companies wanting to benefit from the discount are required to submit information on the capital they have increased in cash and the amount to be subject to the discount in the annex of the corporate tax return.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Offsetting of Taxes Paid Abroad in Turkey

02.07.2021

  1. Offseting opportunity

The taxes previously paid for the profits obtained abroad and to be taxed in Turkey will be deducted from the corporate tax to be calculated due to these gains in Turkey.

The exchange rate at the time of transfer to the general result accounts of the related earnings will be applied to the taxes paid in foreign currency abroad.

  1. Offsetting duration

If it is not possible to partially or completely deduct the taxes paid on the foreign earnings included in the declarations in Turkey, this right of offsetting can be used until the end of the third accounting period, provided that the limitations below are essential, due to the absence of taxable corporate income in Turkey in the relevant year as a result of loss offsetting or exceptions.

  1. Limit of foreign taxes that can be setoff

Corporate tax and similar taxes paid abroad that can be deducted from taxes to be levied in Turkey and paid on foreign earnings cannot be more than the amount to be found by applying 20% corporate tax rate to earnings obtained abroad, under no circumstances.

When it is requested to setoff the taxes paid abroad from the corporate tax to be calculated in Turkey, the amount of foreign earnings included in the tax base in Turkey must be grossed up to include these taxes.

For example; Corporation (A) has earned a corporate income equivalent to 100,000.- TL at its workplace in country (B). In accordance with the tax legislation in the foreign country, 25% corporate tax and similar taxes were paid on this income. In this case, Corporation (A) will include 100,000.- TL in corporate income in Turkey, but cannot setoff the portion – ie [25,000 – (100,000 x 20%)=] 5,000.- TL-of the tax paid abroad regarding this income from the tax calculated in Turkey, which exceeds the tax calculated in relation to this income in Turkey. It is not possible to setoff this tax in the following years as in the current year.

On the other hand, if the earnings obtained abroad are exempted from corporate tax, it is not possible to setoff the taxes paid abroad on these earnings from the corporate tax calculated in Turkey.

  1. Taxes paid by the controlled foreign corporation

In cases where Article 7 of the Corporate Tax Law is applied, taxes similar to income and corporate tax paid by the controlled foreign corporation, can be setoff from the corporate tax calculated on the income of the said corporation to be taxed in Turkey.

  1. Offsetting of taxes paid on dividends from foreign subsidiaries

From the corporate tax payable in Turkey, the portion corresponding to the dividend amount of the income and corporate tax-like taxes paid on the earnings that form the source of the dividend distribution in the countries where the subsidiaries are can be deducted, over the dividends obtained directly or indirectly from foreign subsidiaries in which resident companies hold at least 25% of the capital or voting rights. The profit share added to the earnings will be taken into account by including taxes such as income and corporate tax paid abroad over these earnings.

Example: The information regarding the participation income obtained from the Corporation (C) abroad, in which the Corporation (A) participates by 30% in its capital, is as follows.

(Dividends in foreign currency and taxes paid abroad are calculated in TL.)

Participation rate …………………………………………. …………………………………….. 30%

Corporate tax rate in foreign country ……………………………………………………… 10%

Tax withholding rate applied to dividends distributed abroad ……………………. 20%

Total corporate income of the corporation (C)………………………….. 1.000.000.- TL

Corporate tax paid by the corporation (C) in a foreign country (10%) ……………. 100.000.- TL

Participation income (gross) of the corporation (A)………………………. 300.000.- TL

The amount corresponding to the participation earnings of the corporation (A) from the corporate tax paid in the foreign country (300.000 x 10%) ………….. 30.000.- TL

The distributable earnings of the Corporation (C)…………………… ……. 900.000.- TL

After-tax profit share of the Corporation (A)  ………………………. 270.000.- TL

The tax deducted abroad from the profit share obtained by the Corporation (A)  at the stage of distribution (270,000 x 20%)…………………………….. ………… 54.000.- TL

The net profit share of the Corporation (A) ……………………….. ….. 216,000.-TL

In this case, Corporation (A) will add the net 216,000.- TL obtained from Corporation (C), which has not been exempted from corporate tax in Turkey, to its corporate income with its gross amount (300.000.- TL), and the part up to 60,000.- TL of the [(100,000 x 30%) + 54.000=] 84,000.- TL (300.000 x 20%=) paid abroad over this income is setoff from the corporate tax calculated in Turkey over this income. There is no offsetting opportunity for the tax amount of 24.000.- TL paid abroad, which is over 60.000.- TL.

  1. Provisional tax offsetting of taxes paid abroad

Taxes paid abroad can be setoff from provisional tax. In case of income obtained from abroad within the provisional taxation period, taxes paid with deductions or other forms in the countries where these incomes are obtained can also be setoff from the provisional tax amount calculated for that period. However, the amount to be deducted cannot be more than the amount to be found by applying the 20% temporary tax rate to the earnings obtained abroad.

  1. Authentication of taxes paid abroad

Unless it is documented that taxes are paid in foreign countries, obtained from the competent authorities and certified by the local Turkish embassies or consulates, or if not by the same qualified representatives of the country protecting Turkish interests, taxes paid in a foreign country cannot be deducted from the tax levied in Turkey.

If the documents showing that the taxes deducted from the corporate tax have been paid in foreign countries, cannot be submitted by the taxpayer at the time of assessment, the tax paid or to be paid in the foreign country will be calculated over the rate known to be current in that country, provided that it does not exceed the 20% corporate tax rate. If the part of the assessment that corresponds to the amount calculated in this way is postponed, the documents to be submitted are submitted to the relevant tax office within 1 year at the latest from the date of assessment, the assessment must be corrected according to the exact amount written in these documents.

If the documents are not submitted within the specified period without force majeure, or if it is understood that there is a lower right of deduction from the deferred tax amount after the presentation of these documents, for the deferred taxes, the default interest will be calculated in accordance with the provisions of the Law No. 6183.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Reduced Corporate Tax Application in Turkey

29.06.2021

Reduced corporate tax can be applied to the income obtained from investments within the scope of investment incentive certificate, starting from the accounting period in which the investment is started to be operated partially or completely, until the investment contribution amount is reached, by taking into account the investment contribution and tax reduction rates within the relevant incentive certificate.

The amount of contribution to the investment refers to the amount to be covered by the Government for the investments by way of tax, the collection of which is waived by applying reduced corporate tax. The ratio to be found by dividing this amount by the total investment amount refers to the investment contribution ratio.

Example 1: The total amount of the investment of (A) A.Ş. within the scope of the investment incentive certificate is 5,000,000 TL and the investment contribution rate is 25%. In this case, the contribution amount to the total investment will be calculated as follows.

Contribution to the total investment =   Total investment expenditure x Investment contribution rate

=             5.000.000 TL x 25%

=          1.250.000 TL

The contribution amount to the total investment in question refers to the corporate tax amount that the Government will refuse to collect by applying reduced corporate tax to the income obtained from the investment.

On the other hand, the Council of Ministers is authorized to limit the proportions of expenditures such as land, buildings, used machinery, spare parts, software, patents, licenses and know-how costs separately or collectively in investment expenditures, in accordance with the Council of Ministers Decisions on State Aids in Investments dated 14/7/2009 and numbered 2009/15199 and dated 15/6/2012 and numbered 2012/3305 issued within the framework of this authority, land, plot, royalty, spare parts and other expenses that are not subject to depreciation cannot be subject to reduced corporate tax. Therefore, in the calculation of the investment contribution amount, land, plot, royalties and spare parts expenses and other expenses that are not subject to depreciation will not be taken into account.

The reduced corporate tax application regarding the earnings obtained from the investments within the scope of the investment incentive certificate is started as of the temporary tax period when the investment is partially or fully operated, from the ad hoc tax period when the investment is started to be operated, corporate tax is applied at a reduced rate until the amount of contribution to the investment that is entitled due to the investment expenditure made on the income from the investment is reached, by not exceeding the investment amount included in the incentive certificate and including tax deduction.

Example 2: The total amount of the completely new investment of the newly established (B) A.Ş., which was started in the 2014 accounting period and within the scope of the investment incentive certificate, is 8,000,000 TL. 1,000,000 TL of this investment, which started to be partially operated in the 2015 accounting period, has been realized.

 

(B) A.Ş. has gained 300.000 TL from the said investment in this accounting period. (Investment contribution rate: 40%, tax reduction rate: 60%)

Contribution to the total investment =   Total investment expenditure x Investment contribution rate

=        8.000.000 TL x 40%

=        3.200.000 TL

Contribution to the investment earned in the 2015 accounting period = Investment expenditure incurred x Contribution rate to investment

= 1.000.000 TL x 40%

= 400.000 TL

Accordingly, the reduced corporate tax rate to be applied to the income obtained from this investment of (B) A.Ş. within the scope of investment incentive certificate in the 2015 accounting period and the amount of contribution to the investment will be as follows.

Reduced Corporate Tax rate = [Corporate Tax rate – (Corporate Tax rate x Tax reduction rate)]

=       [20% – (20% x 60%)] =  [20% – 12%] = 8%

– Income from investment ………………………………………………………… : 300.000 TL

– Corporate Tax to be paid if there was no reduced CT (300.000 TL x 20%)………. : 60.000 TL

– CT calculated according to the reduced rate (300.000 TL x 8%)…………….….. : 24.000 TL

– Contribution amount to the benefited investment (60.000 TL – 24.000 TL)……… : 36.000 TL

By applying reduced corporate tax to the income of 300.000 TL earned in the 2015 accounting period from the partial operation of the investment of the (B) A.Ş. within the scope of investment incentive certificate, the amount of contribution to the investment benefited from is 36.000 TL, so, 364,000 TL of the 400,000 TL investment contribution amount earned in the 2015 accounting period due to the investment expenditures, which could not be used in this period (400,000 TL – 36.000 TL), will be able to be used in the following accounting periods by applying reduced tax rate to the earnings from this investment.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Addressee of Imposition, Date of Imposition and Place of Imposition in Limited Liability in Turkish Corporate Tax Law

29.06.2021

In Article 28 of the Corporate Tax Law, regulations regarding the addressee of the imposition, the time of imposition and the place of imposition in limited liability taxpayers are included.

1.Addressee of imposition

Tax of foreign corporations subject to limited liability is imposed to these corporations’;

  • Managers and representatives in Turkey,
  • Those who provide earnings and revenues to the foreign corporation, if the director and his/her representatives are not available

2 Time and place of imposition

Corporate tax will be imposed by the tax office where the declaration is given or sent

  • on the day of submitting the tax return,
  • within three days of the date it arrives at the office imposing the tax, if the declaration is sent by post.

Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Earnings for which Special Declaration Time is Determined in Turkish Corporate Tax Law

29.06.2021

In the event that the earnings consist of other earnings and revenues, excluding the fees received in return for the sale, transfer and assignment of the taxable income of limited taxpayers, the copyright, privilege, patent, business, trade name, brand and similar intangible rights written in the Income Tax Law, must be reported to the tax office specified in Article 27 of the Corporate Tax Law with a declaration, within fifteen days from the date of earning by the foreign institution or the persons acting on their behalf in Turkey.

The relevant provisions of the Income Tax Law must be applied in determining other earnings and revenues, and the provisions, conditions, periods and exceptions regarding non-taxation in the provisions regarding other income and revenues will not be taken into account in the determination of other earnings and revenues obtained by limited taxpayer companies. The only exception to this is the provisions regarding foreign exchange gain during the disposal of securities and participation shares obtained in return for cash and in-kind capital brought to Turkey personally. Therefore, the determination of foreign exchange gain in the determination of other earnings and revenues in the Income Tax Law will be valid for limited taxpayer companies.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Exception application regarding sponsorship expenditures, donations and aids in Turkish Corporate Tax

24.06.2021

Sponsorship expenditures, donations and aids made by corporations will be taken into account as a deduction in the determination of the corporate tax base within the framework of the explanations below.

In the event that donations and aids are not made in cash, the cost value or registered value of the donated goods or rights, and if this value is not available, the value to be determined by the valuation commissions according to the provisions of the Tax Procedure Law shall be taken as basis.

Since the sponsorship expenditures, donations and aids made by the corporations are considered as expenses in the records on the date of the expenditure or donation and aid, it must be deducted from the corporate tax base, provided that it is shown separately on the declaration, within the framework of the explanations in this section, in case the said expenditures, donations and aids are taken into account as non-deductible expenses in the determination of the corporate income and the corporate income is sufficient.

– Sponsorship expenditures

All for amateur sports branches and 50% for professional sports branches can be deducted from the declared corporate income in the determination of the corporate tax base determined in accordance with the aforementioned laws of the sponsorship expenditures within the scope of the Law No. 3289 on the Organization and Duties of the General Directorate of Youth and Sports and the Law No. 3813 on the Establishment and Duties of the Turkish Football Federation.

Sponsorship expenditures are expenses that are not directly related to the commercial gain or cannot be measured, and their social purpose is prominent and differs from the advertising expenditures that are directly related to the commercial gain.

Provided that the name of the sponsoring institution is mentioned; the following expenses will be considered as sponsorship expenses:

  • Field, hall or facility rental fees for official sports organizations,
  • Subsistence, travel and accommodation expenses of the athletes,
  • The cost of sports equipment,
  • Expenditures in kind and in cash for sports facilities to be deemed appropriate by the General Directorate of Youth and Sports,
  • Reference fees that will enable the transfer of athletes,
  • Premium payments in cash and in kind to athletes or sportsmen according to the results of sports competitions

With the help of written or electronic signals on the sportswear or sports equipment of the athletes or other interested persons in the sports fields, expenditures that provide direct commercial benefit and aim to promote the corporation, such as placing emblems, brands, names and similar signs that will enable the promotion of the corporation virtually, will be considered as advertising expenditures.

In addition, it is possible to separate the expenditures made due to the transactions that include the purpose of advertising and promotion in addition to the sponsorship activities as advertising and sponsorship expenditures, provided that they are specified in the contract and are in accordance with the precedent. For example, expenditures related to advertising activities can be separated from the reference fee, provided that they are specified in the contract and are in line with their precedents, and will be considered as advertising expenses, if an institution transfers an athlete to a club by paying a reference fee, and also uses it in advertisements for the promotion of the company or its products.

The procedures and principles regarding the sponsorship application are regulated in the General Directorate of Youth and Sports Sponsorship Regulation published in the Official Gazette dated 16/6/2004 and numbered 25494. Accordingly, real and legal persons can be sponsor to federations, youth and sports clubs or athletes within the scope of the procedures and principles specified in the aforementioned Regulation regarding sports facilities and activities.

According to the Article 8 of the regulation, a written contract must be made between the parties – one of them is sponsor and the other one is receiving sponsorship services- which includes the rights and obligations of both parties. The person, institution or organization receiving the sponsorship service is authorized to make a contract with the sponsors. The information to be included in the contract to be made is specified in the mentioned article.

As can be seen from the examination of articles 4 and 13 of the regulation, there is no special regulation that the supports given in kind or in cash to the persons, institutions and organizations receiving the sponsorship service must be bound to the documents prepared in accordance with the Tax Procedure Law.

In Article 4 of the aforementioned Regulation, “document” is the document regarding sponsorship and advertising services and transactions. “Cash support” is the monetary payment made by the sponsor to the person receiving sponsorship service. “In-kind support” is defined as expenditure related to the purchase of goods and services made by the sponsor in connection with the sponsorship business.

In the 12th article of the regulation, it is stated that the sponsorship fee incurred in connection with the service and work subject to the sponsorship can be spent by the sponsor himself or it can be deposited into the account of the person receiving sponsorship service, and that the provisions of the legislation to which the person receiving sponsorship service is subject will be applied for the expenditures related to this amount, which is recorded as income by the person receiving sponsorship service.

If a cash support is provided by the sponsors to the persons, institutions and organizations receiving the sponsorship service and this support is deposited into a bank account opened on behalf of the service recipients, the document or receipt to be given by the banks for the amounts deposited to the sponsors must be accepted as the proof of the donation. However, a statement stating that the money has been deposited “for sponsorship purposes” must be included in the bank statement or receipt.

In case the aforementioned cash support is delivered in cash to the sponsor service recipients, the receipt to be issued by the persons, institutions and organizations receiving the service can be accepted as a supporting document regarding the donation.

On the other hand, if the support is made in kind, not in cash;

  • In case the support in kind from the assets of the enterprise is delivered to the persons, institutions and organizations receiving the sponsorship service, it is obligatory to issue an invoice for the delivered values. In the invoice, it is obligatory to include information that cannot be left in doubt regarding the fact that the delivery is for sponsorship purposes and the type, nature and amount of the delivered values. The invoice must be issued on behalf of the service recipients and the back of the invoice must be signed by the service recipients or their legal representatives.
  • In case the in-kind values are donated by the taxpayers to those who receive sponsorship services from outside, it is obligatory that the receipt is issued for these values to be received by the service recipients and that the values, type, quantities, number, etc. of the donated assets must be included in the receipt.

In addition, the back side of the invoices issued on behalf of the taxpayers regarding the donated values must be signed by the person or legal representatives who receive the service within the above-mentioned explanations.

However, it is not possible for taxpayers to consider donations or aids made without a receipt as a discount.

Expenditures made in cash or in kind within the scope of the Sponsorship Regulation can be considered as a deduction by corporate taxpayers in the year in which the expenditure is made.

There is no obligation to submit any documents attached to the aforementioned declarations for the reduction of sponsorship expenditures, the scope of which is stated above. Not only real and legal persons cannot be sponsors indefinitely but also they should not have any tax liabilities. Therefore, corporations must apply to the tax office to which they are affiliated, receive a letter stating that they do not have tax debt, and submit a copy of the sponsorship agreement to the relevant tax office in order to become a sponsor.

If sponsors fail to pay their tax liabilities accrued during the sponsored periods, the relevant tax office will immediately notify the Provincial Directorate of Youth and Sports with a letter.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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R&D Deduction in Corporate Tax in Turkey

24.06.2021

R&D Deduction

Subparagraph (a) of the first paragraph of Article 10 of the Law No. 5520 regarding the R&D deduction application was repealed as of 9/8/2016 in accordance with the provision of Article 57 of the Law No. 6728.

With the 60th article of the Law No. 6728, Article 3/A was added to the Law No. 5746. In Article 3/A of the Law No. 5746, R&D discount is regulated for the R&D and innovation activities carried out by income and corporate taxpayers within their businesses. Accordingly, 100% of the amount of research and development expenditures made by income and corporate taxpayers, exclusively for the search for new technology and information, within their businesses, will be deducted in the determination of earnings, in accordance with Article 10 of Law No. 5520 and Article 89 of Law No. 193, provided that the projects within this scope are evaluated as R&D and innovation projects by the Ministry of Science, Industry and Technology of Republic of Turkey.

As of 9/8/2016, in the application of discounts regarding research and development projects for the search for new technology and information, which are the subject of applications made within the scope of Article 3/A of the Law No. 5746, the R&D discount will be utilized by taking into account the Law No. 5746 and related regulations. On the other hand, regarding the projects that are the subject of applications made within the framework of the regulations of this Communiqué before 9/8/2016, R&D discount will be used According to the provisions of subparagraph (a) of the first paragraph of Article 10 of the Corporate Tax Law before it was amended by Law No. 6728.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Controlled Foreign Corporation Earnings in Turkey

21.06.2021

1- Controlled Foreign Corporation Earnings

According to Article 7 of the Corporate Tax Law, it is accepted that taxpayers who invest in foreign subsidiaries under certain conditions are paid dividends in terms of tax applications, even if no actual dividends are distributed from these subsidiaries, and in this way, it is ensured that the earnings of these subsidiaries are subject to corporate tax in Turkey.

The concept of controlled foreign corporation refers to foreign subsidiaries that fully taxpayer real persons and corporations directly or indirectly control separately or together by owning at least 50% of their capital, dividends or voting rights.

With the expressions “directly or indirectly” and “separately or together” mentioned in the article, it is prevented that the partnership shares of the foreign subsidiary are shared between group companies or real persons, and going out of the scope is below the control rate specified in the article.

Example 1: Corporation (A), which is a full taxpayer in Turkey, participates 100% in the capital of Corporation (B) established in Country (S). 50% shares of Corporation (C) established in country (T) belong to Corporation (B). In this case, since Corporation (A) participates in Corporation (C) indirectly (100% x 50%=) 50%, Corporation (C) will be considered as a controlled foreign corporation if other conditions are also met.

 

Example 2: Corporation (A), which is a full taxpayer in Turkey, participates at the rate of 60% in the capital of Corporation (B) established in country (S). Corporation (C) established in the country (T) owns 50% of the shares of Corporation (B). Corporation (C)’s 20% share belongs to the real person (D), who is also a full taxpayer in Turkey. In this case, Corporation (A) participates in Corporation (C) indirectly (60% x 50%) by 30%. On the other hand, considering that the natural person (D) also directly participates in the Corporation (C) at the rate of 20%, since the total participation rate of the Corporation (A) and the real person (D) in the Corporation (C) is 50%, so Corporation (C) will be considered as a controlled foreign institution if other conditions are also met.

On the other hand, whether a real person (D) is related to the Corporation (A), which is a full taxpayer in Turkey, has no importance in the practice of the controlled foreign corporation.

When determining the controlled foreign corporation, if the indirect subsidiary relationship has several stages, partnership relations will be taken into account until the last indirect subsidiary.

1.1. Controlled foreign corporation

In order for a corporation abroad to be considered a controlled foreign corporation, at least 50% of the capital, dividend or voting right of this institution must belong directly or indirectly, separately or jointly, to fully taxpayer real persons and corporations.

In determining whether the foreign subsidiary is a controlled foreign institution, the highest control ratio held at any time during the relevant accounting period will be taken into account.

If the entire share (capital, dividend or voting right) of the foreign subsidiary is disposed of without collusion at any date before the end of the accounting period of the foreign subsidiary, the provisions of this article shall not apply to the relevant foreign subsidiary.

1.2. Conditions regarding the corporate income of a foreign subsidiary to be subject to corporate tax in Turkey

The following conditions must be met together in order for the foreign subsidiaries that the aforementioned control ratio is achieved to be accepted as a “controlled foreign corporation” in the Corporate Tax Law application and therefore the corporate earnings of the controlled foreign subsidiaries to be subject to corporate tax in Turkey whether they are distributed or not.

1.2.1. 25% or more of the total gross revenue of the foreign subsidiary in the relevant year consists of passive income

25% or more of the total gross revenue of the foreign subsidiary in the relevant year must consist of passive income.

Passive incomes consist of income such as interest, profit share, rent, license fee, security sales income, excluding income from commercial, agricultural or self-employment activities carried out by capital, organization and employee employment proportional to the activity of the foreign subsidiary.

Income obtained from commercial, agricultural or self-employment activities, which are not proportional to the activities of the foreign subsidiary, through capital, organization and employment of personnel will also be considered passive income.

For example, let the composition of the gross revenue of the foreign subsidiary, which is a total of 100 units, be as follows;

– Commercial income obtained through capital, organization and employee employment proportional to its activity……………………………… ……….. 30 units
– Dividend ……………………………………….. …………………………. 10 units
– Interest ………………………………………….. ……………………………………… 50 units
– Securities’ trading income ………………………………….. 10 units

Accordingly, in order that the ratio of passive incomes (Dividend + interest + securities trading income) to total gross income (70/100=) is 70%, the condition specified for the controlled foreign corporation will be met.

In determining the nature of the passive income of the controlled foreign corporation, since the passive income characteristic of the dividends to be obtained by the said corporation from its subsidiaries will not change, it is of no importance that the subsidiaries of the controlled foreign corporation deal with active commercial activities.

1.2.2. Tax burden of foreign subsidiary

The corporate income of the subsidiary established abroad must be less than 10% of the total tax burden similar to income and corporate tax.

The tax burden will be determined according to the definition in subparagraph (b) of the first paragraph of Article 5 of the Corporate Tax Law. Therefore, the explanations made in the section (5.2.1.5) of the Communiqué regarding the tax burden will be considered.

1.2.3. Minimum gross revenue amount of foreign subsidiary

In order for the subsidiary abroad to be considered as a “controlled foreign corporation” in the application of the Corporate Tax Law, the gross revenue amount in the relevant year must be above 100,000.- TL equivalent in foreign currency. Subsidiaries of which total gross revenue in the relevant year is below this amount will not be considered as a controlled foreign corporation, even if all other conditions are met.

The foreign exchange buying rate announced by the Central Bank of the Republic of Turkey, which is valid on the last day of the accounting period of the relevant subsidiary, shall be taken as the basis for determining the TL equivalent of the revenue of the foreign subsidiary.

1.3. Controlled foreign corporation income to be included in the corporate tax base of full taxpayer corporations

The taxable income of controlled foreign corporations within the scope of this article will be corporate earnings before tax, after deducting expenses including loss deduction, before deductions.

In case the controlled foreign corporation does not have a distributable profit due to previous year losses, it will not be possible to mention taxable income in Turkey.

In the calculation of the income deemed to have been obtained from the foreign subsidiary, the shareholding rate of the foreign subsidiary at the end of the relevant accounting period (capital, dividend or voting right rate) will be taken into account.

In case the profit of the controlled foreign corporation is added to the capital, the said profit will be taxed in accordance with the provisions of the mentioned article.

In the event that full taxpayer corporations and real persons with full liability are also shareholders of the foreign corporation, the shares and participation shares held by the real persons will be taken into account in determining whether the foreign corporation is a controlled foreign corporation or not. In addition, the earnings to be obtained by the said real persons over the controlled foreign corporation will not be evaluated within the scope of this article, only the income obtained by the resident corporation will be subject to corporate tax within the scope of this article.

If the conditions of the controlled foreign corporation are fulfilled, the profit obtained by the subsidiary established abroad will be included in the corporate tax bases of the full taxpayer companies (and temporary tax bases as of the provisional tax periods) in proportion to their shares as of the accounting period of the said subsidiary’s accounting period. If there is an accounting period exceeding twelve months in the country where the controlled foreign corporation is located, the accounting period of the foreign company will be considered as the calendar year in determining the date of earning the profit.

On the other hand, it is not possible for the losses of the controlled foreign corporation to be taken into account in the determination of the earnings of the full taxpayer corporations participating in the said corporation.

Example 1:

The shareholding structure of the Company (CFC) abroad as of 20/5/2007 is as follows:

                Shareholder                                    Shareholder share

Full taxpayer real person (A) ……………………………… 40%

Full taxpayer corporation (B) ……………………………… 25%

Limited taxpayer real person (C) …………………………. 35%

The aforementioned company uses the accounting period of July 1 – June 30 in the country in which it is located. As of the end of the accounting period, the company’s corporate income is $200,000 and the corporate tax paid in the country it is based on is $10,000. The entire gross income of the company consists of passive income.

As of June 30, 2007, the full taxpayer corporation (B) has 5% of the shares of the aforementioned (CFC) Company in its assets.

Accordingly, 40% shareholder share held by full taxpayer real person (A) and 25% shareholder share of full taxpayer corporation (B) will be evaluated together as to whether the (CFC) Company is a controlled foreign corporation, and since the total participation rate of the fully taxpayer real person (A) and the full taxpayer corporation (B) to (CFC) company is 65% as of 20/5/2007, the (CFC) Company must be considered as a controlled foreign corporation for the 1/7/2006-30/6/2007 accounting period.

As of 30/6/2007, when the accounting period to which (CFC) Company is subject is closed, since the full taxpayer corporation (B) has 5% of its shares in its assets, as of this date, 5% of the company’s earnings will be deemed to have been earned by the full taxpayer corporation (B), whether it is distributed or not.

10,000 USD (200,000 x 5% =) calculated within this ratio will be considered as the profit share obtained by the full taxpayer corporation (B) as of 30/6/2007, and it will be included in the tax base of the second provisional taxation period. The tax [$500 (10,000 x 5% =) paid in the country where the foreign subsidiary operates] corresponding to the said income can be deducted from the corporate tax calculated in Turkey within the framework of the provisions in Article 33 of the Corporate Tax Law.

The earnings of the controlled foreign corporations, in which the full taxpayer corporations participate indirectly, will also be determined as the earnings of the foreign corporations in which they directly participate. According to the example, both companies, in which (A) A.Ş. participates, will be deemed to be controlled foreign corporations and the profits of both companies will be subject to tax in Turkey if the other conditions are met. After the profits of both companies are taxed in Turkey, in case of a profit distribution between the companies (For example, if CFC 2 distributes profits to CFC 1), the previously taxed CFC 2 profits will be taxed again in Turkey as CFC 1 profit will not be the matter.

1.4. Offsetting of taxes paid by the subsidiary abroad

According to Article 33 of the Corporate Tax Law, taxes such as income and corporate tax paid in the country where the foreign subsidiary is located can be deducted from the corporate tax calculated over the profit of the controlled foreign corporation to be taxed in Turkey.

However, it is not possible to deduct taxes, such as income and corporate tax that the controlled foreign corporation has paid in countries other than the country in which it is located, from the corporate tax calculated over the income of the said corporation to be taxed in Turkey.

For instance, the earnings of (CFC) Company established in Country (A) are taxed as profits of foreign corporations controlled in Turkey and the aforementioned company does not have any income other than dividend income. A tax deduction of 10% was made on the profit share of $100,000 obtained from Company (Y) in Malta, which is a subsidiary of the said (CFC) Company, and $90,000 was transferred to the (CFC) Company. (CFC) Company has paid 5% corporate tax in (A) country on this income.

Accordingly, the income of the (CFC) Company to be included in the corporate income and taxed in Turkey must be considered as $90.000, and the tax paid abroad to be deducted from the corporate tax calculated on this income must be considered as $4.500.

1.5. Taxation if the subsidiary distributes dividends

If the profits of the foreign subsidiary taxed in Turkey within the scope of the controlled foreign corporate income, are subsequently distributed by the foreign corporation, the part of the profit shares previously taxed in Turkey will not be taxed separately.

However, in the following years, if more dividends are distributed than the taxable earnings of the controlled foreign corporation in Turkey, the excess amount will be subject to corporate tax.

1.6. Controlled foreign corporation’s position against double taxation treaties

Double taxation avoidance agreements in force do not limit their right to tax their own residents according to the provisions of “Controlled foreign corporate income” in Article 7 of Turkey’s Corporate Tax Law. In other words, whether or not a dividend is distributed to a resident corporation in Turkey by another state resident corporation, the provisions of the Corporate Tax Law “Controlled foreign corporate income” will be applied.

However, in cases where the income taxed in Turkey as the profit of a foreign corporation controlled by a corporation residing in another state is distributed to a corporation residing in Turkey as a dividend, the provisions regarding the taxation of “dividends” and “avoidance of double taxation” in the Agreements will be applied normally.

In case a tax is made on the dividends distributed by the source country and these dividends are not exempted from corporate tax in Turkey, the profit share must be added to the corporate income in the year it is earned, and the corporate tax must be calculated over it, and the taxes paid in the other country related to this profit share must be deducted in accordance with the provisions of the agreement and the Corporate Tax Law on the deduction of the taxes paid abroad. If there is a residual amount after this deduction, the part of the corporate tax that is calculated and paid over the profits that was previously taxed as foreign corporate income, which is attributed to the said profit share, must also be deducted from the remaining amount. Provided that the dividend has been brought to Turkey, the part that cannot be deducted, can be returned.

In case the provisions of the relevant agreement stipulate that the said dividend distributed be exempted in Turkey, in the period when the dividend is distributed and brought to Turkey, the portion corresponding to the distributed profit share amount can be refunded from the corporate tax calculated and paid on the income taxed within the framework of the provisions on foreign corporate income that was previously controlled.

1.7. Enforcement in the controlled foreign corporation income

Article 7 of the Corporate Tax Law regarding the controlled foreign corporate income has entered into force on the date of its publication, to be applied to the earnings obtained as of 1/1/2006 and to be effective from this date. Therefore, the corporate earnings of the controlled foreign corporations for the accounting periods ending as of 1/1/2006 must be included in the earnings of the corporate taxpayers who directly or indirectly participate in the aforementioned corporations in proportion to their shares.

On the other hand, if the previous year’s profits for the accounting periods before 1/1/2006 of the corporations in which the controlled foreign corporation participates are distributed to the controlled foreign corporation after this date, since the profit will be earned as of the date of the profit distribution, the said profits must be taken into account in the calculation of the controlled foreign corporate income.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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