Corporate Income Tax
Corporate income, as adjusted for exemptions and deductions and including prior year losses (tax losses may be carried forward for five years but losses may not be carried back) is subject to corporate income tax at a rate of 20%, irrespective of the legal form (i.e. JSC, LLC, branch office).

Dividend distributions to individual and non-resident corporate shareholders are subject to withholding tax (WHT) at a rate of 15%. This rate may be reduced for foreign shareholders if a tax treaty is present. Please note that dividend distributions to resident entities and branches of non-resident entities are not subject to dividend WHT. For non-resident entities operating in Turkey (i.e. branches, other type of permanent establishments such as permanent representatives/agents) WHT will only be applicable on the portion of the profit that is transferred to the headquarters/principal, in other words repatriated from Turkey. The rate of WHT is 15% but can be reduced by a tax treaty.

Corporate Residence
According to Turkish tax legislation, corporate income taxation differs significantly based on the taxpayer’s place of residence. If both the legal and the business headquarters of a company are located outside Turkey, the company is regarded as a non-resident entity. If either of them is located within Turkey, the company is regarded as a resident entity. Resident entities are subject to tax on their worldwide income, whereas non-resident entities are taxed solely on the income derived from activities
in Turkey.

Advance Corporate
Income Tax
Corporations are required to pay advance corporate income tax based on their quarterly profits at the rate of 20%. Advance corporate income taxes paid during the tax year are offset against the ultimate corporate income tax liability of the company, which is determined in the related year’s corporate income tax return. The balance of advance tax can be refunded or used to offset other tax liabilities.

Tax Returns
Resident and non-resident entities having a permanent establishment in Turkey are obliged to file annual corporate income tax and quarterly advance corporate income tax returns (on a calendar year basis unless permission to the contrary is specifically obtained from the Ministry of Finance The last date of submission of the corporate income tax return is the 25th of the fourth month following the fiscal year end. The advance tax return should be submitted at the latest by the 14th of the second month following the quarter period.

Payment of Tax
Corporate income tax must be paid by 30 April of the year of filing; taxable income is declared on a quarterly basis as advance tax on the 14th of the second month following each quarter, and is payable on the 17th of the same period. Advance corporate tax paid is offset against the final corporate tax calculated in the annual tax return.
Legal Reserves
Under the Turkish Commercial Code, Turkish companies are required to set aside first and second level legal reserves out of their profits. Please note that a branch is not subject to the legal reserve requirements.

• First-level legal reserves
Joint stock and limited companies are required to set aside 5% of their net profits each year as a first-level legal reserve. The ceiling on the first-level legal reserves is 20% of the paid-up capital. The reserve requirement ends when the 20% of paid-up capital level
has been reached

• Second-level legal reserves
The second-level reserves correspond to 10% of profits actually distributed after the deduction of the first-level legal reserves and the minimum obligatory dividend pay-out (5% of the paid-up capital). Second-level legal reserves amount to approximately 1/11th of the profit to be distributed. There is no ceiling for second legal reserves and they are accumulated every year.
According to the Turkish Commercial Code, if the legal reserves exceed 50% of the paid-up capital, they shall be used to cover losses, maintain business activities in the case of poor business conditions, prevent unemployment or offset the negative effects of unemployment.

Calculation of Corporate Income Tax Base
Deductible expenses
In principle, general expenses incurred for the generation and maintenance of commercial income are allowed as deductions for corporate income tax purposes.

Deductible expenses, inter alia, include the following:
• Start-up costs (these costs are to be either expensed or capitalised at the discretion of the taxpayer);
• Previous years’ losses, provided that they have not been carried forward for more than five years (on the condition that loss corresponding to each year is specified in the corporate income tax return);
• All of the donations made for construction of dormitories, nursery schools, rest homes and rehabilitation centres, subject to certain conditions;
• Losses incurred in foreign jurisdictions (subject to certain conditions);
• Depreciation of fixed assets;
• Depreciation and expenses of company cars provided to employees (Please note that company cars are not subject to income tax as they are classified as fringe benefits to employees);
• Social security contributions;
• Compensation paid or losses incurred in line with contracts or court rulings, provided that they are related to the business; and
• Travel and accommodation expenses related to, and commensurate with, the volume of business.