• Turkish Tax System
  • Corporate Income Tax
  • Other Taxes
  • Personel Income Tax
  • Specıal Comsumptıon Tax
  • Value Added Tax

The corporate tax is levied on the income and earning derived by corporations and corporate bodies. The income elements by the Corporate Income Tax Code (CITC) are the same as those covered in the Income Tax Code. In other words, the CITC sets provisions and rules applicable to the income resulted from the activities of corporations and corporate bodies, whereas the Income Tax Code deals with the income derived by individuals. Corporations and corporate bodies specified by the Code as taxpayers in respect to the corporate tax are as follows:

·     Capital companies and similar foreign companies;

·     Cooperatives;

·     Public enterprises;

·     Enterprises owned by foundations societies and associations;

·     Joint ventures.

Tax liabilities

According to the CITC, those legal entities covered by the Code, which their legal head office situated in Turkey, or the place of effective management in Turkey are taxed on their world-wide income (unlimited liability). By specifying two criteria the Code intends to prevent any problem, which may arises in determining tax liability. The term legal head office, as used in the context of the CITC, means the office specified in the written agreements of the mentioned entities. Therefore, it is not difficult to as certain where the legal head office of a company is located. However, the place of effective management, which is defined as the place in which the business activities are concentrated and supervised, is not easy to determine in some cases.

As may be expected, the Code defines the term limited tax liability quite parallel to term unlimited tax liability, as the liability requires taxing only the income derived in Turkey, provided that both legal head office and the place of effective management are abroad.

Determination of net taxable income

In essence, the provisions of the Income Tax Code concerning the determination of business profit also apply to the procedure required in determining corporate income. Basically, net corporate income is defined as the difference between the net worth of assets owned at the beginning and at the end of the fiscal year. In addition to the expenses mentioned in article 40 of Income Tax Code allowed to be deducted from revenues, the followings may also be deducted regarding to the determination of business profit, by corporations:

·     Expenses related to the issuance of stocks and shares;

·     Initial organization and establishment expenses;

·     Expenses incurred for general board meeting as well as expenses made for mergers dissolutions, and liquidations;

·     In case of insurance companies, technical reserves required for the insurance contracts still valid at date of inventory;

·     Profits shares accrued to active partners of partnerships in commendams limited by shares;

·     Profit shares accrued to partners by participation banks for participation accounts;

·     Research and development (R & D) deductions calculated as %40 of new technology and know-how research expenses realized within business.

In determining net corporate income, the following deductions are not allowed:

·     Interests paid or accrued on the basis of equity;

·     Interest, exchange difference and other costs paid or accrued on the basis of disguised capital;

·     Disguised earning distributed through transfer pricing;

·     Any kind of reserves;

·     The corporate income tax, fines, tax penalties and late payment penalties and interest;

·     Leased or registered motor vehicles' depreciation and other expenses not related with business activities;

Corporate income tax return

The corporate tax is assessed on the base declared through tax returns filled annually by taxpayers.

Tax returns contain the results of related taxation period. In principle, every taxpayer is required to file only one single tax return, even if he has derived the income through different business places or branches and those places and branches have their own accounting and allocated capital.

The corporate tax return is filled until the 25th day evening of the fourth month of the year following the month in which the fiscal year ends and the assessed taxes are paid until the end of that month. However, if a limited liable taxpayer leaves the country for sure the corporate tax return has to be submitted to the authorized tax office in the 15 days preceding. In such case, taxes are paid in the same period of time as forth for the declaration.

If the income earned by the foreign companies which are subject to the limited liability in respect to the corporate tax, consists of capital gains and non-recurring income discussed in the preceding sections (except for income earned from sale and transfer of intangible rights like license, know-how, and royalty), then the income is declared to the authorized tax offices those taxpayers (or the persons acting on behalf of them) in the fifteen days after the income has been earned. This procedure is called "special declaration".

If there is no presence in Turkey, withholding tax will generally be charged on income earned; for example income earned from sale and transfer of intangible rights like license, know-how, and royalty, income from movable and immovable property and income from independent professional services provided in Turkey. However, if there is an avoidance of double taxation treaty, reduced rates of withholding tax may apply.

Related party transactions

Thin capitalization, transfer pricing, anti-tax heaven provision, and controlled foreign company (CFC) are regulated the CITC, like the other OECD countries.

Treatment of group companies

Consolidation of the accounts of group companies for tax purposes is not allowed in Turkey, because each company is regarded as a separate taxpayer.

Merger, take-over, split-up (division), split-off (partial division), and exchange of shares

As a general rule, transfer of assets from one entity to another should be realized at fair market value and capital gains arising from the sale of assets should be taxed as corporate income. But, under certain requirements, there is no tax, duty, and other cost  on merger, take-over, split-up (division), split-off (partial division), and exchange of shares in Turkey.

Corporate income tax period

In principle, the tax period is the calendar year. But, having proper and acceptable justifications a tax payer may adopt a tax period (special tax period) other than calendar year by taking the permission from Ministry of Finance.

Corporate income tax rate

The corporate income tax rate is 20%. Dividend withholding tax rate of 15% is applicable to dividends distributed to individual and foreign corporate shareholders.

The calculation of effective tax burden on corporate income as follows.

Advance corporate income tax

Corporations are required to pay advance corporate income tax based on their quarterly profits at the rate of 20%. Advance corporate income taxes paid during the tax year are offset against the corporate income tax liability of the company, which is determined in the related year's corporate income tax return.