Corporate tax is a tax levied on the profits of companies. However, in some cases, corporate tax exemptions or exemptions may apply.
Corporate tax exemption allows for the non-payment of all or a portion of the tax if certain conditions are met. Exemption means that the entire or a portion of the tax is not paid when certain conditions are fulfilled.
Corporate tax exceptions refer to the reduction of tax for specific sectors or activities. These exceptions are applied to support the economic or social objectives of the country.
According to Law No. 5520 on Corporate Income Tax ("CIT"), in order to determine taxation, the net corporate income must be determined. Since the tax base for taxation is determined in accordance with the provisions of the Income Tax Law No. 193 ("ITL") regarding commercial income, all profits subject to Corporate Income Tax will be taxed as corporate income without any distinction. The determination of net corporate income will involve calculating the costs and expenses incurred, as well as other exemptions, exceptions, and deductions as per the CIT Law.
Corporate Tax Liability
The majority of corporate tax payers consist of capital companies with limited liability based on the provisions of the Turkish Commercial Code numbered 6762, which have limited liability determined by the partners' contributions of capital. These include joint-stock companies, limited liability companies, and foreign entities with similar characteristics. All profits of joint-stock and limited liability companies are subject to corporate tax.
The corporate tax liability of capital companies with divided shares is directed towards the share of the limited partner. The portion of taxable corporate income that corresponds to the limited partners is subject to individual income tax, to be declared by these partners.
Corporate Tax Exemptions
The following entities are exempt from corporate tax:
- Schools, school workshops, conservatories, libraries, theaters, museums, exhibitions, sample nurseries, seed and animal development and production stations, racecourses, book, newspaper, magazine publishing houses, and similar institutions operated by public authorities and organizations for the purpose of teaching, promoting, developing, and encouraging agriculture and animal husbandry, science, technical and fine arts.
- Hospitals, clinics, dispensaries, sanatoriums, nursing homes, child care centers, animal hospitals and dispensaries, animal shelters, veterinary bacteriology, serology, distofage establishments, and similar institutions operated for the purpose of protecting and treating general human and animal health by public authorities and organizations.
- Charitable, custody, and assistance funds operated by public institutions and organizations, social welfare institutions, soup kitchens for the poor, correctional and detention facilities, workshops in prisons, nursing home workshops, student dormitories, hostels, and similar establishments.
- Exhibitions, fairs, and fairs of local, national, or international nature opened with the permission of competent administrative authorities by public administrations and organizations.
- Cooperative housing associations that comply with the provisions in their articles of association, excluding consumption and transportation cooperatives, which do not distribute profits based on capital, do not provide shares of earnings to their board of directors' chairman and members, do not distribute reserve funds to shareholders, and only engage in transactions with their members (Housing cooperatives that obtain one workplace or residence for each share by offering their own lands on a cost-sharing basis are not considered as non-member transactions.) until the construction is completed from their establishment, in addition to the registration and conditions mentioned in this text, do not include individuals who partially or entirely undertake the construction works in the management and supervisory boards, representatives of legal entities, or individuals considered to be related according to Article 13 of the Law, or those in an employee-employer relationship with the aforementioned, and housing cooperatives whose building permits and land titles are registered in the name of the cooperative legal entity.
Corporate Tax Exemptions
The following institutions are exempt from corporate tax:
- In cases where it is mandatory to establish a separate company according to the legislation of the relevant country for the purpose of carrying out construction, repair, assembly work, and technical services abroad, provided that it is specified in their articles of association that they are established for a specific purpose and they do not engage in activities other than that purpose in practice, the conditions stated in this paragraph are not required for the gains obtained from participating in these companies.
- According to this provision, the tax burden is determined by calculating the ratio of the total income and similar taxes, including taxes paid on profits that have accrued in the relevant period and are attributable to dividend distributions, to the total distributable corporate earnings obtained in this period and the total income and corporate taxes accrued.
- The exemption for foreign subsidiary profits will be applied without any conditions to the profits obtained from participating in companies established in accordance with the relevant country's regulations for construction, repair, assembly work, and technical services outside the country when it is mandatory to establish a separate company.
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Corporate income tax exemption for gains derived from the sale of real estate and subsidiary shares with specific conditions located in the assets of institutions, as well as founder's shares, usufruct certificates, and pre-emption rights.
- Participation income, including taxes paid on profits that constitute the source for profit distribution, shall be subject to a minimum tax rate of 15% according to the tax laws of the country where the participating entity operates; in the case where the participating foreign entity's main activity is providing financing, insurance services, or securities investment, it shall carry a total tax burden similar to the corporate tax rate applied in Turkey, according to the tax laws of the country where the participating entity operates.
- Participation earnings must be transferred to Turkey by the date on which the corporate tax return for the accounting period in which it is earned must be submitted.
- In order to benefit from the exemption for foreign subsidiary earnings, it is essential that all of the conditions mentioned above be collectively met. Even if the shareholding exceeds 10%, if the time condition is not met or if all conditions are met but the tax burden condition is not met, it is not possible to benefit from the exemption.
- For cases where it is mandatory, according to the relevant country's legislation, to establish a separate company for construction, repair, assembly works, and technical services abroad, the exemption for foreign participation gains will be applied without any conditions to the profits obtained from participating in such companies.
- In the second section of the Tax Procedure Law, under Article 4 titled 'Exemptions and Exceptions, institutions exempt from corporate tax are listed in 16 subparagraphs and can be grouped according to their purposes.
- Real estate capital income obtained within a calendar year and not exceeding the total (2,800 TL)
- Profits of institutions meeting the following conditions through their workplaces or permanent representatives abroad;
a) These profits shall bear a total tax burden of at least 15% in accordance with the tax laws of the country of origin, including income and corporate taxes.
b) Until the deadline for submitting the annual corporate income tax return for the accounting period in which the profits were earned, it should have been transferred to Turkey.
c) Entities whose main activities include financial leasing, financing procurement, insurance services provision, or securities investment, shall bear a total tax burden, in accordance with the tax laws of the country where such income is generated, at least equal to the corporate income tax rate applied in Turkey.
