Turkish Tax News

Corporate Income Tax

Corporate Income Tax
Income of the corporations are subject to taxation under Corporate Income tax law No: 5520.  This law has been put into force on 2006 instead of previous corporate tax law. The provisions of the new tax was clarified in comprehensive manner by communique No: 1. There are also 5 additional communique 2 of which are about transfere pricing.

Subject and Taxable income According to the Corporate Income Tax
Subject of the law is the income of the corporations. The income elements by Corporate Tax Law are the same as those covered in the Personal Income Tax Law. The Corporate Tax Law sets provisions and rules applicable to the income of corporations and corporate bodies, whereas the income Tax Law deals with the income derived by individuals.

Corporations and corporate bodies specified by the Law 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.

Full and Limited Liability
Companies whose legal or business headquarters are located in Turkey or whose operations are  managed and intensified in Turkey are subject to corporation tax on their worldwide income. According to the legislation, they are described as “full liability taxpayers” and also known as resident companies. Taxable income of “limited liability taxpayers” (nonresident companies or taxpayers other than full liability taxpayers) are comprised of the following elements:

- Professional fees obtained in Turkey

- Profits from commercial, agricultural and industrial enterprises in Turkey (if they have an establishment or a permanent representative in Turkey)

- Income arising from rental of real estate, rights and movable property in Turkey - Income obtained in Turkey from various types of securities

- Other income and revenue obtained in Turkey

In the context of the Corporate Tax Law the term “headquarter” means the office specified in the articles of assosiation. Therefore, it is not difficult to determine where the legal head office of a company is located. However, the place of effective management, which is defined as a location where the business activities are intensified and supervised, may not be easy to determine in some cases. It may be expected, the law defines “limited tax liability” quite parallel to term unlimited tax liability, as the liability requiring to tax only the income derived in Turkey, provided that both legal head office and the location of effective management are abroad.

Determination of Income Tax Base 
In essence, the provisions of the income Tax Law concerning the determination of business profit also applies to the procedure required in determining corporate income. Any item or expense that can be subtracted from adjusted gross income to show the tax base are specifyied on the income and corporate tax codes.   Items that can be deducted from gross income and the specific rules governing the deductibility are described on both of these law. Basicly all business-related expenses are deductible, with the following exceptions: Interest on shareholder’s equity or on advances from shareholders.

The following expenses can be deducted from gross income to determine the net business income (Personal Income Tax Law 41). According to Corporate Income Tax Law (Art.6) this provision is also applied upon calculation of corporate profit.

  • Overhead expenses for the derivation and continuation of business income,
  • Following expenses of the workers:
  • Treatment and medicine expenses,
  • Insurance premiums and pension contributions,
  • Lodging and food expenses in the work place,
  • Provided that they are related to the business; losses, damages and compensations paid in accordance with a contract, court decision or legal order,
  • Travel and accommodation expenses related to business,
  • Expenses of vehicles which are leased or already included in the business and used for business purposes.
  • Taxes, fees and duties in kind such as building taxes, stamp duties, municipal taxes etc.; provided that they are related to the business,
  • Depreciations,
  • Contributions of employers to unions,
  • Contributions by employers to private pension funds on behalf of their employees,
  • Donations to poor-aid associations and foundations.

The following expenses are also deductible according to the CIT law Art.8

  • Expenses of issuing securities,
  • Start-up costs and incorporation expenses,
  • Expenses incurred for the general meetings and expenses in connection with merger, liquadition and division,
  • In commandite companies, share of profit of active partner,
  • Share of profit paid in return for profit and loss sharing account by the participation banks,
  • For the insurance and reinsurance companies, suspended claim and amend reserves related to insurance contracts in effect on the balance sheet date.
  • When establishing the corporate income tax base, taxpayers may also deduct the following losses provided that the amount of each year is shown separately on the corporate tax return:
    • The losses indicated in the past years’ returns can be  carried forward up to five years,
    • The losses suffered as a result of the activities abroad can be carried forward up to five years (excluding those related to income excepted from corporate tax in Turkey).

There also some types of expenses that are not allowed for deduction. These are as follows:

  • Interest paid or calculated on equity capital,
  • Interest, foreign exchange losses and such expenses paid or calculated on thin capital,
  • Hidden profit distribution through transfer pricing,
  • Reserve funds,
  • Corporation tax, all fiscal penalties and default interests,
  • Losses resulting from the sale of securities below their nominal values and expenses paid related to these securities,
  • Depreciations and expenses of motorized seacrafts and aircrafts leased or registered in the corporation and not related to the main field of operations of the enterprise,
  • Advertisement of alcoholic drinks and tobacco products.

Tax Exemptions
The following gains are exempted from corporate tax if specific conditions are met:

  • Dividends from a resident subsidiary.
  • Dividends from a foreign subsidiary.
  • Profits derived from foreign branches.
  • Gains derived by international holding companies from the sale of participation shares.
  • Premium on shares issued by joint stock companies during establishment or capital increase.
  • Gains concerning mutual funds and trust companies, real-estate investment funds and trusts, venture capital funds and trusts, retirement funds, housing funds provided that these institutions are established in Turkey.
  • Revenues derived from the sale of immovables and participation shares under legal prosecution due to their debts to banks, to be credited from such debts to these banks or; 75% of gains derived from the sale of such assets which the banks acquired by these means.
  • 75% of gains from the sale of immovables and participation shares.
  •  Profits derived from construction, maintenance and assembly works abroad.
  •  Returns derived from cooperatives.
  •  Gains derived from the pre-school education, primary education, special education and private secondary schools as well as those derived from rehabilitation centers operating under foundations which are recognized for tax exception by the Council of Ministers or societies working for public interest are except from corporate tax for five taxation periods.

Other specific exemptions cited on other laws are as follows:

  • According to the Law No. 3218 on Free Trade Zones  Only, the earnings generated from manufacturing activities are exempted from the personal and corporate income taxes until the end of the taxation period of the year Turkey becomes a full member of the EU.
  • Earnings from software and R&D activities carried out in the specified zones are are exempted from personal and corporate income taxes until 31.12.2023.
  • Wages paid to researchers, programmers and R&D staff employed in these zones are exempted from  personal income tax until 31.12.2023.
  • Earnings derived by administrator companies of technology development zones within the scope of the Law are exempted from personal and corporate income taxes until 31.12.2023.

Tax Exclusions
Corporations specified in the law are excluded from corporate income tax. Most of the tax excluded companies are economic enterprises of public administrations and economic enterprises of foundations and associations. Other exclusions regarding cooperatives, exhibitions and fairs, social security institutions, scientific R&D institutions, are as follows:

  • Establishments operated by public administrations and establishments with a view to teach, disseminate, improve and foster agriculture, cattle breeding, science and fine arts (schools, conservatoires, libraries, theaters, museums, etc.),
  • Establishments operated by public institutions and enterprises for social purposes and  protection of general human and animal health (such as hospitals, libraries, workshops of the day nurseries, home for the elderly, dormitories, dispensaries, boarding home for animals, etc.),
  • Establishments operated by public administrations and establishments for social objects (charity, pawning and assistance funds, kitchens for the poor, prison and penitentiary workshops, social insurance institutions, student homes etc.),
  • Local, national or international exhibitions and fairs opened by public administrations and establishments with the permission of the responsible administrations,
  • Baby nurseries, guest houses and canteens at military zones owned by the departments of general budget serving only the members of public administrations and operated for a non-profit seeking purpose without being rented to third parties,
  • Retirement funds and social security institutions established by law,
  • Public establishments that charge levies and duties in consideration of the work or services rendered,
  •  Privatization Administration and Fund, Housing Development Administration, National Lottery Administration,
  •  Mint and Stamp Printing House, military factories and workshops,
  • Following enterprises and establishments operated by local public administrations:
  • water supply facilities,
  • passenger transportation enterprises within municipal boundaries,
  • slaughter houses,
  • Agricultural enterprises of village or village unions; public baths, laundries and mills operated by these for common needs of villagers as well as qualifying passenger transportation enterprises thereof.
  • Enterprises of sports clubs carrying on training and sports activities.
  • Qualifying cooperatives.
  • Institutions established solely for the purpose of providing guarantee for SME loans.
  • Associations and institutions engaged in scientific research and development activities.
  • Enterprises established jointly by public organizations and other persons for the construction of infrastructure in organized industrial zones and respond to the common needs therein.

Corporate Tax Return 
Corporate income tax is payable on accounting period (fiscal year) basis.  Like income tax, the corporate tax is also assessed on self decleration through tax returns filled 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 should be filled until the end of 25th day of consequent 4 months of fiscal yer. 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 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 (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.

Controlled Foreign Company ( CFC ) Legislation
Pursuant to Article 7 of CIT law, foreign corporations in which resident corporations and individuals directly or indirectly hold at least 50% of the capital or dividends or voting rights by means of separate or joint participation are considered as CFC.

In the determination of a CFC, the highest ratio of participation held in that corporation at any time during the relevant fiscal year will be taken into account as the control ratio.

Tax Rates:

  • Corporate income tax rate is 20%,
  • Tax is calculated on the basis of self assessment (Tax return includes the results of the related fiscal year).
  • Taxpayers do not file separate tax returns for branches, agencies, purchase and sale offices and stores, factories or other business sites attached to themselves even if they have separate bookkeeping or allocated capital.
  • On every three-month terms of the year taxpayers pay advance tax at corporate tax rate. At the end of the relevant fiscal year, they offset it from the corporate income tax.
  • Taxpayers must file their annual tax return until the 25th of the fourth month after the end of fiscal year and pay the tax until the end of that month.

Advance tax returns must be filed until the 14th of the second month after the end of three-month period and tax must be paid until the 17th of that month.

Offsets From Corporate Tax

  • CIT withholdings,
  • Advance taxes (must have been paid),
  • Corporate tax or similar taxes paid abroad and entered into general final accounts in Turkey, can be credited against the corporate tax calculated over these earnings in Turkey,
    • The amount to be credited against the income received abroad from the tax which is calculated in Turkey can not exceed the amount found by applying the corporate tax rate applied in Turkey to income earned abroad, under no circumstances.

Liquidaition and Restructing of Corporations
Turkish corporate tax provides several ways to companies for liquidiation and restructring purposes.1) Liquidatio 2) Merger 3) Division “Split-Up” 4) Partial Division “Split-Off” 5) Exchange of Shares


  • A company in liquidation is a company in the process of being dissolved.
  • If any assets remain, after the payment of the debts, they are distributed to the shareholders. (Art.17)
  •  When taxing a company in liquidation, liquidation period shall be taken into consideration instead of fiscal year.
  •  Liquidation period begins with the registration of the general meeting’s decision on liquidation.


  • Merging of one or more corporations with another corporation is considered as liquidation for the corporation dissolving due to the merger. (Art.18)
  • On a merger if the below conditions are met, only the profits of dissolving company accruing until the date of merger are taxed. But gains arising from the merger are not taxed.
  • Both transferring and receiving corporations must be full liable.
  • Assets and liabilities at the date of transfer must be transferred exactly and as a whole.
  • Changing type of corporations under above-mentioned conditions is also deemed as merger.

Division “Split-up”
A full-liable capital stock company transfers all of its assets and liabilities at book value to two or more existing or new full-liable capital stock companies, and in exchange for this, the shareholders of the transferring company acquire the share representing the capital of the receiving company. (Art.19/3-a)

Partial Division “Split-Off”

  • Partial division is an operation whereby a full liable capital stock company or a permanent establishment or permanent representative of a foreign capital stock company transfers as capital in kind at book value its participating shares with a minimum holding of two years and fixed assets or branch of production or service activity to another existing or new full-liable capital stock company. (Art.19/3-b)
  • Shares in exchange for the capital in kind are either kept by the transferring company or issued to its shareholders.

Exchange of Shares

  • Exchange of shares is an operation whereby a full liable capital stock company acquires a holding in the capital of another capital stock company such that it obtains the majority in the management and capital stock of that company, in exchange for the proportional issue to the  shareholders of  the latter company securities representing the capital of the former company. (Art.19/3-c)

Gains arising from the exchange of shares shall not be taxed. (Art.20/3)