ARTICLE
24 April 2015

Turkey Grants New Tax Benefit For Capital Increases Paid In Cash

EA
Esin Attorney Partnership

Contributor

Esin Attorney Partnership, a member firm of Baker & McKenzie International, has long been a leading provider of legal services in the Turkish market. We have a total of nearly 140 staff, including over 90 lawyers, serving some of the largest Turkish and multinational corporations. Our clients benefit from on-the-ground assistance that reflects a deep understanding of the country's legal, regulatory and commercial practices, while also having access to the full-service, international and foreign law advice of the world's leading global law firm. We help our clients capture and optimize opportunities in Turkey's dynamic market, including the key growth areas of mergers and acquisitions, infrastructure development, private equity and real estate. In addition, we are one of the few firms that can offer services in areas such as compliance, tax, employment, and competition law — vital for companies doing business in Turkey.
Effective July 1, Turkey will introduce a new tax benefit for companies that increase their share capital in cash.
Turkey Tax

Effective July 1, Turkey will introduce a new tax benefit for companies that increase their share capital in cash.

Under the new rule, 50% of the deemed interest on a capital increase paid in cash as paid-in or issued capital, as well as contributions paid in cash to the share capital of newly-established companies until the end of the fiscal year, can be deducted from the corporate income tax base. The Central Bank of Turkey's most recent "annual average weighted interest rate applied to commercial loans in Turkish lira extended by banks" is used to calculate the amount of deductible deemed interest.

Companies operating in the banking, finance and insurance sectors and public economic enterprises, however, are ineligible for this tax benefit.

Companies are permitted to deduct 50% of the interest amount from the corporate income tax base each financial year, starting with the financial year in which the capital increase decision or, in the case of a newly-established company, the articles of association are registered.

The deduction is calculated for the remaining months in the financial year after the capital increase, including the whole month in which the cash capital is paid. Amounts that cannot be deducted due to an insufficient tax base are rolled over to the following year.

Capital increases through the transfer of non-cash assets, merger, acquisition and spin‑off, or by adding the shareholders' equity items to the share capital, or by shareholder loans or related-party loans, are not included in the deduction calculation.

If a company later decreases its capital, the amount of the decrease is excluded from the calculation of the deduction.

The Council of Ministers is entitled to make certain amendments to this rule, e.g., to change the percentage of interest which may be deducted.

Actions to consider

As this provision will enter into force on July 1, companies planning to increase their share capital may wish to consider postponing a capital increase until after this date.

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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