Corporate Tax Rates of Turkey in 2021

By Kardelen Lule (ADMD / MAVIOGLU & ALKAN, Turkey) 

The rate of corporate tax was amended significantly with the Law No.7316 Amending the Law on Collection of Public Receivables and Certain Laws (“Law No.7316”) published in the Official Gazette dated April 22, 2021.

The rate which was earlier determined for 2018, 2019, and 2020 was 22%. Article 11 of the Law No.7316 amended the corporate tax rates by adding Temporary Article 13 to Corporate Tax Law No.5520 (“CTL”) which increased corporate tax rates to 25% for 2021 and to 23% for 2022. For institutions subject to special accounting periods (the regular period is January 1 to December 31), the mentioned rates will be applied to the earnings of these institutions for the accounting periods starting in the relevant year.

According to the CTL, corporate tax shall be declared in March (of the following year) and payments shall be made in (up to) four (4) installments (each installment at the beginning of financial quarters). 

Although the corporate tax rate shall be applied as 25% for 2021 with the amendment made with Law No.7316; the applicable rate for payment periods changed due to the publication date of the amendment. The tax rate will be applied as 20% for the 2021/1 provisional tax period, and 25% for the 2021/2, 2021/3, and 2021/4 periods.

Financing Expense Limitations

With the amendment introduced to Article 11/1 of the CTL with the Law No.6322 Amending the Law on Collection of Public Receivables and Certain Laws published in the Official Gazette dated June 15, 2012; it was determined that in businesses where the amount of external financing of the taxpayer exceeds the taxpayer’s equity, the total of expense and cost elements made such as interest, commission, delay interest, profit share, foreign exchange difference and similar other references related to such external financing used, shall be deemed as non-tax-deductible expenses (“NTDE”) for the exceeding amount of external financing at the rate, which the President shall specify, provided that it should not exceed 10%. It is worth mentioning that such expense and cost elements that are part of the cost of investment are excluded from this provision.

The President specified this ratio as 10% to be applied to taxation period earnings starting from January 1, 2021 (via the Presidential Decree No.3490 published in the -Official Gazette dated February 4, 2021). The Ministry of Treasury and Finance published the Communiqué Serial No.18 Amending the Corporate Tax General Communiqué (Serial No:1) (“Communiqué”) in the Official Gazette on May 25, 2021, that outlined the procedures and principles for the application of this provision.

According to Article 11.13.1. of the Communiqué, this financing expense restriction shall be applied for taxpayers subject to a balance sheet basis. However, taxpayers subject to operation accounts are exempted. These taxpayers are listed in the Communiqué as the following:

  • Pension companies operating within the scope of Individual Pension Saving and Investment System Law No.4632,
  • Deposit banks, participation banks, development, and investment banks established in Turkey operating within the scope of Banking Law No.5411, branches and financing holding companies in Turkey of such organizations established abroad,
  • Insurance and reinsurance companies operating within the scope of Insurance Law No.5684,
  • Financing leasing, factoring, financing companies, and savings finance companies operating per the agreements in the relevant articles of Financial Leasing, Factoring, and Financing Companies Law No.6361,
  • Institutions engaged in capital market activities within the scope of Capital Markets Law No.6362.

Examples are also provided within the Communique: 

Example: (A) Corp.’s total equity is TRY 800,000, while total external financing is TRY 1,000,000 within the same period. The total financing expense for this period is TRY 100,000.

(1) A CORP.’S EQUITY TRY 800.000

Taxpayers subject to financing expense limitations shall determine whether they are subject to this limitation, no later than the last day of the temporary taxation period based on their balance sheets to be issued under Tax Procedure Law No.213 published in the Official Gazette dated January 10, 1961.

According to the General Communique on Income Tax No.217 published in the Official Gazette dated December 27, 1998, temporary (corporate) tax shall be declared in the quarterly periods of the relevant accounting period. Accordingly, there are four (4) separate temporary tax periods for an accounting period. For taxpayers whose accounting period is a calendar year, the temporary tax periods (quarters) are as the following:

  • First (Quarter) Period: January, February, March,
  • Second (Quarter) Period: April, May, June,
  • Third (Quarter) Period: July, August, September,
  • Fourth (Quarter) Period: October, November, December.

Tax declarations can be made until 11:59 PM on the 17th day of the second month following a three-month temporary tax period. Tax payments are made within the same schedule as the declaration. For example, the first temporary tax period’s declaration and payment can be made until 11:59 PM of May 17th. However, according to the announcement on the website of the Ministry of Treasury and Finance regarding Revenue Administration’s Tax Procedure Circular No.134 dated May 3, 2021, the payment deadlines of income and corporate tax for the first temporary tax period of 2021 are extended until the end of May 31st. The reason for the extension was stated as the requests submitted to the Ministry and the curfew measures taken due to the Covid-19 Pandemic.

Although temporary tax periods are quarterly on the 3rd, 6th, 9th, and 12th months, the monthly financial statements shall be taken as a basis in the calculation of the income to be declared. For example, the temporary tax for the third period will be calculated by subtracting the temporary taxes which were paid in the first and second periods from the tax calculated on the income found according to the 9th-month financial statements issued for the January-September period. 

It is worth mentioning that there are no limitations for financing expenses incurred in the previous years. Those who do not meet the financing expense limitation conditions in the temporary taxation periods shall be subjected to these restrictions once the conditions are met by the taxpayer.

Advance Dividend Distribution under Tax Laws

Advanced dividend distribution is defined as the amount that corporations distribute to their shareholders from the profit calculated according to the quarterly interim financial statements and before such annual net profit becomes final. 

The advance profit regime is changed with the Corporate Tax General Communiqué Serial No.6 Amended by the Corporate Tax Communiqué (“Communiqué No.1”) Article 15.6.6 “Advance Dividend Distribution”. Accordingly, the withholding tax deductions will be made over the distributed dividends based on the legal status of the recipient. The deducted taxes will be declared with the withholding tax return of the month in which the advance dividend distribution is made. In this context, this period shall not exceed the end of the accounting period containing the date on which the declaration for the relevant accounting period should be submitted.

In cases of advance dividend distribution, the provisions for disguised profit distribution through hidden income shall not be applied.

Points to consider on divided distributions are: 

  • Distributions are payable proportional to shareholding, 
  • Privileged shares are not included, 
  • If the shareholders owe the company in any way other than their unpaid capital, the said debt shall be primarily deducted from the advance dividend distribution to be paid to such shareholders. 

Consequently, the distribution of advance dividends is possible within the scope of the specific rules stated in the Communiqué No.1 and mentioned above, and if profit is made in the 3rd, 6th, and 9th-month periodic financial statement terms (first, second or third quarter) and the general assembly of the company may take a decision regarding the distribution of dividend advances.

Corporate Tax Rate of Turkey in 2021


The author is with ADMD / MAVIOGLU & ALKAN, Istanbul, Turkey.

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