Important Amendments to the Corporate Income Tax General Communiqué

The amendments to the Corporate Income Tax General Communiqué No. 1, through Communiqué No. 23, have been published in the Official Gazette, dated 28/9/2024. This Communiqué outlines the significant regulations introduced by seven different laws enacted over the past three years and updates certain figures and dates in the examples provided. The relevant laws and articles are listed below:

• Article 60 of Law No. 7338 dated 14/10/2021,
• Article 12 of Law No. 7341 dated 4/11/2021,
• Article 22 of Law No. 7394 dated 8/4/2022,
• Article 20 of Law No. 7440 dated 9/3/2023,
• Articles 19, 20, 21, and 22 of Law No. 7456 dated 14/7/2023,
• Articles 57, 58, 59, and 62 of Law No. 7491 dated 27/12/2023 and
• Articles 24, 32, and 36 of Law No. 7524 dated 28/7/2024.

This Communiqué No.23 explains the regulations brought by the above-mentioned laws and provides updated examples. Key topics covered include:

• Domestic minimum corporate income tax
• Corporate income tax rate and provisional tax
• Participation exemption
• Exemption for the earnings of funds and investment partnerships established in Türkiye
• Exemption applicable for at least 50% foreign participations
• Elimination of tax-free transfer of immovable property
• 5% reduction in corporate income tax rate applied to export earnings
• Deductibility of financial expenses in company mergers
• Increase in the exempted earnings from services provided to non-residents from 50% to 80%
• Limitation to the full tax exemptions applicable for export revenues of free trade zones
• Utilization of the earned investment contribution amount through cancellation other tax liabilities
• Corporate income tax exemption granted to İhracatı Geliştirme Anonim Şirketi and Katılım Finans Kefalet Anonim Şirketi

 

1. Domestic minimum corporate income tax

With Article 36 of the Law dated 28/7/2024 and numbered 7524, Article 32/C titled “Domestic minimum corporate income tax” has been added to the Corporate Income Tax Law (the CITL). With this article, it is regulated that the corporate income tax calculated by taking into account the provisions of Articles 32 and 32/A of the CITL cannot be less than 10% of the corporate income before deducting deductions and exemptions.

For 2025 and the following taxation periods; and including corporations subject to special accounting period, it will enter into force on the date of publication to be applied to the earnings obtained in the respective accounting periods starting in the calendar year of 2025 and the following taxation periods. Domestic minimum corporate income tax will also be applied for advance tax periods.

In the Communiqué, deductions and exemptions deducted from the corporate income tax base in the calculation of the domestic minimum corporate income tax, taxes to be deducted from the calculated corporate income tax and examples related to these issues are included.

From the calculated minimum corporate income tax; the below ones will be deducted and the minimum corporate income tax to be paid will be determined accordingly:

• Two points applied to the earnings of the corporations whose shares are offered to the public at a rate of at least 20% to be traded for the first time in the Borsa Istanbul Equity Market in accordance with Article 32 of the Corporate Income Tax Law, five points applied to export earnings, and the tax not collected due to the one-point reduced rate application applied to the earnings obtained exclusively from the production activities of the corporations holding the industrial registry certificate and actually engaged in production activities,
• Due to the use of the investment contribution amounts in the incentive certificates obtained from the Ministry of Industry and Technology before 2/8/2024, when Article 32/C of the Corporate Tax Law entered into force, the tax not collected in the relevant accounting period in accordance with the provision of Article 32/A of the Corporate Tax Law.

Corporate tax paid by withholding tax for the accounting period and temporary taxes paid can be deducted from the calculated minimum tax. Taxpayers are also required to calculate the minimum corporate income tax in the declarations submitted due to liquidation, merger, transfer and full spin-off transactions. Corporations that have the right to tax deduction within the scope of Article 121 of the Income Tax Law will be able to use these rights for the calculated minimum corporate tax.

On the other hand, based on the explanation in the  Communiqué No. 23 prior year losses, which are subject to deductions in the declarations, will not be deducted from the minimum corporate income tax base and will be taken into consideration in the calculation of the minimum corporate income tax.

The Communiqué includes explanations and examples regarding this regulation. Please also be informed that this domestic minimum tax is totally different from the “Qualified Domestic Minimum Top-up Tax (the QDMTT)” under the Pillar 2 legislation of Türkiye but there is a certainly interaction of minimum local corporate income tax with the QDMTT which is related to the effective tax burden and its calculations.

2. Corporate income tax rate and provisional tax

With the Article 21 of the Law No. 7456, it was determined that the corporate income tax rate will be 25% to be applied on the corporate earnings obtained in 2023 and the following taxation periods; banks, companies within the scope of Law No. 6361, electronic payment and money institutions, authorized foreign exchange offices, asset management companies, capital market institutions and insurance and reinsurance companies, pension companies will be subject to corporate income tax at a rate of 30% on their corporate earnings.

In addition, with the Law No. 7524 published in the Official Gazette dated 2/8/2024, the corporate income tax rate has been increased to 30% for the earnings obtained within the scope of build-operate-transfer model and public-private partnership projects. With this Communiqué, the section titled “32.1. Corporate Tax Rate and Advance Tax” of the Communiqué has been amended in line with the aforementioned regulations.

3. Participation exemption

Paragraph (a) of the first paragraph of Article 5 of the Corporate income tax Law regulates the exemption for income from the participations. With Article 19 of the Law No. 7456, the income arising from the return of the participation shares to the fund and the value increase gains arising from the valuation of the participation shares of these funds within the scope of Article 279 of the Tax Procedure Law No. 213 have been included for the exemption applied for the investment fund participation shares acquired as of 15.07.2023.

On the other hand, in order to benefit from this exemption, with the amendment made by Article 32 of the Law No. 7524, to be applied to the earnings obtained as of 1/1/2025, at least 50% of the earnings obtained from the immovable properties owned by the funds and partnerships (excluding pension investment funds) must be distributed as dividends until the end of the second month following the month in which the corporate income tax return for the respective accounting period is submitted.

Therefore, dividends derived from these funds and partnerships that meet the profit distribution requirement and benefit from the said exemption will not be subject to the participation exemption. Dividends derived from funds and partnerships that do not meet the profit distribution requirement and do not benefit from the participation exemption will be subject to the that exemption.

4. Exemption for the earnings of funds and investment partnerships established in Türkiye

Article 5 of the Corporate income tax Law also regulates the exemption for the earnings of funds and investments partnerships established in Türkiye.

With the amendment made to the aforementioned article of the Law with Article 32 of the Law No. 7524 to be applied to the earnings obtained as of 1/1/2025, in order to benefit from this exemption, at least 50% of the earnings obtained from the immovable properties owned by those funds and partnerships (excluding pension investment funds) must be distributed as dividends until the end of the second month following the month in which the corporate income tax return for the respective accounting period is submitted.

Earnings subject to dividend distribution are the ones derived from the aforementioned immovable properties and earnings other than these sort of earnings are not subject to dividend distribution obligation. If the profit distribution condition is not met, the exemption cannot be utilized for all types of income, including immovable property income.

In cases where the income is distributed after the stipulated period, the aforementioned exemption will not be utilized. In determining the profit to be distributed, the legal reserves required to be set aside by the corporations in accordance with the Turkish Commercial Code may be taken into consideration and 50% of the profit after deducting the legal reserve amount corresponding to the immovable income will be subject to distribution.

The Communiqué also includes explanations and examples regarding this regulation.

5. Income exemption applicable for at least 50% foreign participations

With Article 58 of the Law dated 27/12/2023 and numbered 7491, an amendment has been made in the subparagraph (b) of the first paragraph of Article 5 of the Corporate Income Tax Law regulating the exemption for foreign participation income to be applied to the gains obtained as of 1/1/2023.

With this amendment, 50% of the earnings of corporations that own at least 50% of the paid-in capital of foreign corporations, which are joint stock companies or limited liability companies, whose legal and business headquarters are not located in Türkiye, and transfer the dividend earnings from the participating corporation to Türkiye until the due date of the corporate income tax return filing for the accounting period in which the earnings are obtained, are exempt from corporate income tax.

In order to benefit from this exemption, all conditions stated below must be met:

• The subsidiary has the status of a joint stock or limited liability company resident abroad,
• Ownership of at least 50% of the paid-in capital of the associate company,
• Transferring the gain to Türkiye until the date of filing the corporate income tax return for the accounting period in which the gain is obtained,

No other conditions will be required to benefit from the exemption. However, the aforementioned exemption will not be utilised for the part of the earnings that is not transferred to Türkiye until the date of submission of the annual corporate income tax return for the accounting period in which the said earnings are obtained.

6. Elimination of tax-free transfer of immovable property

With Article 20 of Law No. 7456, as of 1/1/2024, “immovables” have been excluded from the scope of partial demerger regulated in subparagraph (b) of the third paragraph of Article 19 of the Corporate income tax Law.

On the other hand, with the Law No. 7456, the exemption for the transfer and delivery of immovable properties that have been in the assets of the corporations for at least two full years has been abolished. On the other hand, in the provisional Article 16 of the Corporate Tax Law, it is stated that the provisions regarding the exemption of the gain on sale of immovable property will continue to be applied for the immovable properties in the assets of the corporations before 15/7/2023, but the exemption rate will be 25%.

The Communiqué includes amendments regarding the aforementioned regulation and provides explanations on the elimination of exemption applicable for the tax-free transfer of immovable property including partial demerger transactions.

7. 5% reduction in corporate income tax rate applied to export earnings

With Article 21 of the Law No. 7456, starting from the declarations to be submitted as of 1/10/2023, it has been determined that the corporate income tax rate will be reduced by 5 points for the earnings obtained from exports to be applied to the earnings of the corporations obtained in 2023 and the following taxation periods, and the earnings of the corporations subject to the special accounting period to be applied to the earnings obtained in the special accounting period starting in the calendar year 2023 and the following taxation periods.

On the other hand, based on the provision of Article 62 of the Law No. 7491, 5 points discount will also be applied to the earnings obtained from export activities carried out by the manufacturer or supplier institutions through foreign trade capital companies or sectoral foreign trade companies based on the intermediary export contract, to be applied to the income and earnings obtained as of 1/1/2023. The Communiqué also includes revisions and examples regarding the amendment.

8. Deductibility of financial expenses in merger transactions

With the 20th article of the Law No. 7440, with the amendment made in the third paragraph of Article 5 of the Corporate Income Tax Law applicable to the income and gains obtained as of 1/1/2023, it is stated that in cases where the acquiring company takes over the company it has participated in, or the company being acquired takes over the acquiring company, financial expenses related to the acquisition of shares and equity, corresponding to the period after the merger, can be deducted by the acquiring company.

Accordingly, within the scope of the first paragraph of Article 19 of the Corporate Tax Law; in cases where the parent company takes over the subsidiary (ordinary merger) or in cases where the subsidiary takes over its parent company (reverse merger), it will be possible to deduct the financing expenses incurred due to the purchase of subsidiary shares and shares, corresponding to the post-transfer and arising after 1/1/2023, in the transferee company. This means that debt push-down is legally accepted under the Turkish tax law. The Communiqué includes two examples regarding implementation of this legislation.

9. Increase in the reduction on earnings from services provided to non-residents from 50% to 80%

With Article 59 of the Law No. 7491, it has been ruled that the discount rate will be applied as 80% to be applied to the earnings obtained as of 1/1/2023, provided that all of the earnings from the aforementioned activities are transferred to Türkiye until the date of filing the corporate income tax return for the accounting period in which the discount is utilized.

In order for the earnings obtained as of 1/1/2023 to benefit from the discount, all of these earnings must be transferred to Türkiye until the date of filing the annual corporate income tax return. In case some of the earnings are transferred, the deduction will not be utilized at all. In addition, if the earnings are transferred outside the specified period, this deduction will not be applied in subsequent periods.

The Communiqué includes amendments regarding the aforementioned regulation

10. Limitation to the full tax exemptions applicable for export revenues of free trade zones

With the Law No. 7524, the provisional Article 3 of the Free Zones Law has been amended. Accordingly, to be applied to the earnings obtained as of 1/1/2025, only the earnings of the taxpayers engaged in production activities in free zones of Türkiye from the sale of the products manufactured in these zones abroad are exempted from income or corporate income tax, and the domestic sales of the manufactured products are excluded from the scope of the exemption.

Therefore, as of 1/1/2025, corporate income tax exemption will not be applied to the earnings derived from the domestic sales of the products manufactured in free trade zones. The delivery of the products of the producer companies engaged in production activities in the free trade zone to the exporters operating in the same or another free trade zone, provided that they are sold abroad, will also be considered as sales abroad.

In the deliveries made on the condition of export in this way, it is not possible for the exporting companies to benefit from this exemption, since only the producer companies will benefit from the exemption. The goods in question must be exported within three months from the beginning of the month following the date of delivery to the exporter. If they are not exported within this period, foreign sales of these goods will be considered as unrealised.

11. Utilization of the earned investment contribution amount through cancellation other tax liabilities

In the eighth paragraph added to Article 32/A of the Corporate income tax Law with the Article 60 of the Law No. 7338 to be applied to the investment expenditures to be made as of 1/1/2022; it was regulated that 10% of the investment contribution amount can be used by cancelling other accrued tax debts (such as withholding tax of individuals and stamp tax), excluding special consumption tax and value added tax, provided that it is requested until the end of the second month following the month in which the corporate income tax return should be submitted.

Accordingly, provided that it is requested until the end of the second month following the month in which the corporate tax return should be submitted at the beginning of the relevant accounting period, it is possible to benefit from 10% of the investment contribution amount entitled as of the relevant period by cancelling other accrued tax debts, excluding special consumption tax and value added tax.

However, the amount that can be requested for cancellation cannot be more than half of the amount found after deducting the amount of contribution to investment used through discounted corporate tax from the amount of contribution to investment.

12. Corporate income tax exemption granted to İhracatı Geliştirme Anonim Şirketi and Katılım Finans Kefalet Anonim Şirketi

Within the scope of Article 18 of the Law on the Establishment and Duties of the Turkish Exporters Assembly and Exporters’ Associations dated 18/6/2009 and numbered 5910; İhracatı Geliştirme Anonim Şirketi, which was established to contribute to the elimination of the financing needs of exporters of goods and services and to provide guarantees in favor of exporters with insufficient collateral, is exempt from corporate income tax in accordance with the subparagraph (p) added to the first paragraph of Article 4 of the Corporate income tax Law with Article 12 of the Law No. 7341, limited to its works in accordance with its establishment purpose.

On the other hand, with the amendment made to the same subparagraph by Law No. 7491, Katılım Finans Kefalet Anonim Şirketi, which was established to provide guarantees for all kinds of financing in accordance with the principles and principles of participation banking and in which participation banks are shareholders, is also exempt from corporate income tax due to these activities.

You can find full text of the Communique in Turkish via below link.

https://www.resmigazete.gov.tr/eskiler/2024/09/20240928-4.pdf

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