Turkey has continued legislative developments to give effect to a tax incentive for share capital increases which are made in cash. The incentive encourages use of equity capital and strengthens capital structures in equity companies. The Communiqué to Amend the General Corporate Tax Communiqué (Serial No: 1) (“Communiqué”) was published in Official Gazette number 29643 on 4 March 2016. The incentive was introduced by legislative amendments in July 2015 (more). The latest Communiqué outlines details about the incentive’s scope, limits, procedures and principles.

When calculating corporate tax, using the Central Bank’s weighted annual average interest rate for commercial loans, 50% of the following amounts can be deducted from the company’s profits:

  • Amounts registered as paid and issued cash capital increases in an existing company. To be eligible in this first year, the amounts must have been registered with the trade registry by 1 July 2015. In future years, the increases must be registered by the end of the relevant accounting period.
  • Amounts paid in cash as capital in companies formed after 1 July 2015.

The tax incentive is not available to public economic enterprises, or entities operating in finance, banking and insurance.

Capital increases caused by the following events are excluded from the incentive calculations:

  • Asset transfers other than cash.
  • Mergers, demergers or transfers.
  • Adding equity capital items which are already on the balance sheet to the capital.
  • Loan or debt by a shareholder (or related person).
  • Introducing instruments such as stock certificates, bonds and notes.
  • Offsetting items on the balance sheet.

Equity companies are not eligible for the tax incentive if they have more than 25% passive income, or more than 50% of total assets as long term securities and shares of affiliates and subsidiaries.

The tax incentive percentage will be taken as 0% for:

  • Cash capital injected in other companies as capital or as a loan.
  • Cash capital corresponding to land and premises investments.
  • Decreased capital in companies which decreased their capital between 9 March 2015 and 1 July 2015.

Please see this link for full text of the Communiqué (only available in Turkish).

Information first published in the MA | Gazette, a fortnightly legal update newsletter produced by Moroğlu Arseven.