Comprehensive Guide to Domestic Minimum Corporate Tax in Turkey
Domestic Minimum Corporate Tax is a significant addition to Turkey’s Corporate Tax Law, introduced by Law No. 7524, which came into force on August 2, 2024. This regulation aims to ensure that corporate tax paid by businesses is not less than a minimum threshold, promoting fairness and transparency in the taxation system.
This guide covers everything you need to know about the Domestic Minimum Corporate Tax, its implementation, taxpayer obligations, and exemptions.
What is the Domestic Minimum Corporate Tax?
The Domestic Minimum Corporate Tax mandates that the corporate tax liability of a company must be at least 10% of the corporate income before specific deductions and exemptions. It ensures a minimum tax payment, even after applying legally acceptable expenses and certain tax benefits.
How is it Calculated?
The tax is calculated based on the corporate income before deductions, which includes:
- Legally unacceptable expenses added to the commercial balance sheet profit.
- Subtraction of specific exemptions and deductions outlined in the Corporate Tax Law.
Key Exemptions and Deductions
Exemptions Included in the Calculation
The following exemptions can be subtracted when calculating the Domestic Minimum Corporate Tax:
- Participation income from full taxpayer corporations (KVK Art. 5/1-a)
- Earnings from emission premiums (KVK Art. 5/1-ç)
- Income from investment funds and partnerships (KVK Art. 5/1-d)
- Other notable exemptions include R&D deductions, asset leasing transactions, and Free Zone Law benefits.
Exemptions Not Deductible
Certain exemptions, such as foreign participation income (Art. 5/1-b) and foreign branch earnings (Art. 5/1-g), are not deductible from the Domestic Minimum Corporate Tax base. For a full list, refer to Article 5520 of the Corporate Tax Law.
Who is Subject to Domestic Minimum Corporate Tax?
Taxpayers subject to this tax include:
- Limited liability companies
- Joint-stock companies
Effective Dates
The regulation applies to earnings starting from January 1, 2025. For companies operating on a special accounting period, it applies to earnings obtained in the accounting period beginning in 2025 and subsequent periods.
Special Considerations
Start-Ups
Newly established companies are exempt from the Domestic Minimum Corporate Tax for the first three accounting periods. However, this exemption does not apply to entities formed through mergers, spin-offs, or similar reorganizations.
Prior Year Losses
The law does not allow the deduction of prior year losses from the Domestic Minimum Corporate Tax base, limiting tax planning flexibility.
Provisional Tax Periods
The tax is calculated during provisional tax periods, ensuring compliance throughout the year.
Taxpayer Benefits and Deductions
- Advance Tax Payments: Advance taxes and withholding taxes for the accounting period can be deducted from the calculated minimum tax.
- Compliant Taxpayer Discounts: Eligible companies can utilize their tax deduction rights under Article 121 of the Income Tax Law.
Key Scenarios
- Liquidation, Merger, or Transfer: Companies undergoing liquidation, mergers, or transfers must include Domestic Minimum Corporate Tax in their declarations.
- Publicly Listed Companies: Corporations offering shares on BIST for the first time, exporting corporations, and registered industrial producers benefit from reduced corporate tax rates. These reductions are factored into the Domestic Minimum Corporate Tax calculation.
Conclusion
The Domestic Minimum Corporate Tax, introduced under Article 32/C of the Corporate Tax Law, ensures that companies contribute at least 10% of their corporate income to tax. Starting from January 1, 2025, this regulation represents a significant shift in Turkey’s corporate tax framework, encouraging transparency and equitable contributions.
Stay Updated on Tax Changes
To ensure compliance, corporations should consult tax professionals and stay informed about updates to tax legislation.
Frequently Asked Questions (FAQs)
1. What is the minimum rate for the Domestic Minimum Corporate Tax?
The rate is 10% of the corporate income before certain deductions and exemptions.
2. Are start-ups exempt from this tax?
Yes, start-ups are exempt for the first three accounting periods, unless formed through mergers or spin-offs.
3. Can prior year losses be deducted?
No, prior year losses cannot be deducted when calculating this tax.
Reach us to find out more.
