Domestic Minimum Corporate Tax: New Regulations and Implementation
With the law numbered 7524, which came into force on July 28, 2024, a new provision, titled Domestic Minimum Corporate Tax, was added to the Corporate Tax Law under Article 32/C. According to this new regulation, the corporate tax calculated in line with Articles 32 and 32/A of the Corporate Tax Law cannot be less than 10% of the corporate profit before deductions and exemptions.
Key Provisions of the Domestic Minimum Corporate Tax
The Domestic Minimum Corporate Tax requires that, regardless of exemptions and deductions, the calculated corporate tax should be at least 10% of the gross profit of the entity. This aims to ensure a minimum level of tax is paid by corporations, even if they benefit from various incentives or deductions.
Under this new tax regime, companies are required to calculate their corporate tax according to the provisions in Articles 32 and 32/A, then apply the Domestic Minimum Corporate Tax by ensuring the resulting tax is no less than 10% of their gross earnings before any deductions or exemptions.
Taxpayers Covered by the Domestic Minimum Corporate Tax
Taxpayers Subject to the Domestic Minimum Corporate Tax:
All entities, including non-resident companies earning income within Turkey, that are required to submit a corporate tax return fall under the scope of the Domestic Minimum Corporate Tax.
Additionally, companies that have the option to declare income subject to withholding tax may also be subject to the Domestic Minimum Corporate Tax.
Exemptions from the Domestic Minimum Corporate Tax:
- Companies exempt from corporate tax, and newly established companies during their first three fiscal periods, are not subject to the Domestic Minimum Corporate Tax. However, companies formed through mergers, acquisitions, or restructurings are not considered newly established and will be subject to this tax immediately.
Application and Calculation of the Domestic Minimum Corporate Tax
Corporate taxpayers are required to:
Calculate their corporate tax liability on their provisional and final corporate tax returns in line with Articles 32 and 32/A of the Corporate Tax Law.
After adjusting their commercial profit/loss with non-deductible expenses, they will then deduct the applicable exemptions and incentives not subject to the Domestic Minimum Corporate Tax.
If there is a remaining taxable income, the Domestic Minimum Corporate Tax will be applied at a rate of 10%.
Important Considerations for Domestic Minimum Corporate Tax:
Past Year Losses: Losses carried forward from previous years cannot be deducted when calculating the taxable base for the Domestic Minimum Corporate Tax.
Inflation Adjustments: During periods where financial statements are subject to inflation adjustments, the resulting adjusted values will be considered when calculating the Domestic Minimum Corporate Tax.
Deductions and Exemptions for Domestic Minimum Corporate Tax
The regulation outlines which exemptions and deductions are considered when calculating the Domestic Minimum Corporate Tax. Some key provisions include:
Public Offering Incentives: Corporations whose shares are publicly offered for the first time on the Borsa Istanbul Stock Exchange, with at least 20% of their shares being publicly traded, will benefit from a two-point reduction in their applicable tax rate.
Export Income: A five-point reduction in the tax rate applies to profits derived from export activities.
Manufacturing Activities: A one-point reduction is applied to profits derived from manufacturing activities.
Other Important Aspects of the Domestic Minimum Corporate Tax
For companies holding investment incentive certificates obtained before August 2, 2024, the investment contribution amounts can continue to be used in accordance with the provisions of Article 32/A.
Corporate taxes paid via withholding and advance tax payments will be deducted from the calculated Domestic Minimum Corporate Tax.
Corporations eligible for tax reductions under Article 121 of the Income Tax Law may also apply these reductions to the Domestic Minimum Corporate Tax.
Domestic Minimum Corporate Tax: Allowable and Non-Allowable Deductions
The official communiqué specifies allowable and non-allowable deductions for the calculation of the Domestic Minimum Corporate Tax. For instance:
Conclusion
The introduction of the Domestic Minimum Corporate Tax marks a significant shift in Turkey’s corporate tax framework, ensuring that all corporations, regardless of the incentives they receive, contribute a minimum amount of tax based on their gross income. This regulation aims to broaden the tax base and reduce tax avoidance through excessive use of deductions and exemptions.
For corporations operating in Turkey, compliance with the Domestic Minimum Corporate Tax is essential, as failure to meet the minimum threshold of 10% of gross profit could result in penalties. Tax planning and financial management strategies must now take into account this new tax requirement to ensure all obligations are met under the Domestic Minimum Corporate Tax framework.
The new Domestic Minimum Corporate Tax regulation represents a critical step toward improving tax compliance and ensuring fair taxation of corporations operating within Turkey.
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