Although it has been long time to have CFC regulation in Turkey,
in parallel with the increasing rate of growth of Turkish economy,
many major entrepreneurs making Turkey related businesses required
to focus on management of their taxation policies in consideration
of CFC regime in Turkey.CFC rules of Turkey have came into effect
with 5520 numbered Corporate Tax Law ("CTL") of Turkey by
being published in 26205 numbered Official Gazette dated 21 June
2006. According to the article 7 of CTL, in some circumstances, the
profit of Turkish company or the share capital of the legal person
is subject to taxation in Turkey for the foreign company's
profit even not paid any dividend.
Consistent with this regulation it has been aimed to prevent the
tax inequality in non-commercial and non-industrial investments
between the taxpayers investing in Turkey and forwarding the third
Accordingly, the presence of the foreign controlled company is
accepted as it is subject to presence of the following
Unlimited taxpayer Turkish company and/or real persons should
directly or indirectly, joint and/or severally control at least %50
of foreign company.
Minimum 25% or more of the gross income of the control foreign
company is comprised of passive income such of the interest,
royalty, dividend, profit, rent and sale of security.
CFC shall bear income and corporate tax ( total tax burden not
tax rate) lower than 10%. Taxes other than income or corporate
income tax does not count towards the tax burden.
The annual total gross revenue of the CFC exceeds the foreign
currency equivalent of TRY 100,000.
In practice and the detection of controlled foreign company, in
cases where indirect participation's comprised in several
stages, the relationships with shareholders are be considered as a
whole, to the final indirect participation and it is not necessary
either real persons are related with legal persons or not.
On the other hand commercial or industrial activities of foreign
companies that derive the dividend of another foreign company does
not change the nature of passive income of the company.
However, in cases where all the income of a foreign company is
derived by commercial, agricultural or professional activity (even
the other conditions occurs), this company is not deemed as a
All of the above conditions take place, the unlimited taxpayer
Turkish resident company's attributed income must be included
in taxable income as of the month of the closing of the accounting
period of the foreign subsidiary. In case of dividend distribution
provided by foreign company, the previously taxed portion is not
subject to corporate taxes again.
The corporate tax, income tax or similar taxes that are paid in
the residing country of foreign company, will be deducted from the
corporate tax that shall be calculated on earnings of CFC will be
taxed in Turkey in accordance with the provisions of article 33 of
Corporate Tax Law.
The provisions of double taxation avoidance agreements do not
preclude taxation of CFCs. In other words, CFCs shall be subject to
taxation regardless of such agreements. According to the provisions
double taxation avoidance agreement; only in case of exemption of
dividend in Turkey, the only amount corresponds to the distributed
dividend that has been taxed and distributed by CFC shall be
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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