How Will the Minimum Corporate Tax Be Calculated?

The legislative proposal numbered 7524, which was accepted in the General Assembly of the Parliament, contains significant regulations aimed at increasing justice and efficiency in taxation. It is expected to be published in the Official Gazette soon. One of the most notable provisions in this law is undoubtedly the implementation of the minimum corporate tax. In today's article, we will try to convey the regulations regarding the minimum corporate tax.

Before we begin, we hope that the necessary regulations will be made by the Financial Administration this week regarding the annual implementation of inflation adjustment.

Returning to our topic:

What Are the Minimum Corporate Tax Regulations in the Law?

The primary regulations aimed at ensuring tax security include the application of a minimum corporate tax on multinational companies in line with international model rules and local minimum corporate tax regulations.

What is the Global Minimum Corporate Tax Regulation?

The global minimum corporate tax applies a supplementary tax in countries where the effective tax rate is below 15% on profits generated in those countries. An additional taxation system is created, aiming to equalize the total tax calculated on the earnings of large multinational enterprises to the minimum corporate tax rate of 15%.

What is the Domestic Minimum Corporate Tax Regulation?

The domestic minimum corporate tax stipulates that the corporate tax calculated based on articles 32 and 32/A cannot be less than 10% of the corporate income before deductions and exemptions.

On What Amount Will the Domestic Minimum Corporate Tax Be Calculated?

The corporate income subject to a 10% corporate tax will be calculated by adding non-deductible expenses to the commercial balance sheet profit or loss and subtracting the exemptions and deductions specified in the article.

What Exemptions and Deductions Can Be Made When Calculating the Domestic Minimum Corporate Tax?

The following exemptions and deductions can be subtracted from the corporate income specified in the first paragraph when calculating the domestic minimum corporate tax:

• Exemptions listed in the first paragraph of article 5 (a), (ç), (i), (j), and (k) subparagraphs, excluding income from real estate (subparagraph (d)).

• Exemptions for participation gains, emission premium, returns, sale-leaseback transactions, income from the sale of assets to asset leasing companies for the issuance of lease certificates, and income from portfolio management of investment funds and partnerships (excluding gains from real estate).

• Deductions specified in the first paragraph of article 10 (g) and (h) subparagraphs.

  • Amounts allocated as venture capital funds not exceeding 10% of the declared income according to article 325/A of the Tax Procedure Law.

  • Deductions for employing persons in sheltered workplaces established under the Disabled Persons Law.

• Income exempted from tax under Law No. 4490 on the Turkish International Ship Registry and the amendment of Decree Law No. 491.

• Income from technology development zones, R&D, and design exemptions for micro and small enterprises.

What Taxes and Amounts Can Be Deducted from the Domestic Minimum Corporate Tax Base?

• Corporate tax not collected due to a two-point reduction applied to the earnings of companies publicly traded at least 20% for the first time for five fiscal periods.

• Corporate tax not collected due to a five-point reduction applied to income exclusively from exports.

• Corporate tax not collected due to a one-point reduction applied to income from production activities of companies with industrial registration certificates.

• Corporate tax not paid due to reduced corporate tax applications on investment contribution amounts under incentive certificates obtained from the Ministry of Industry and Technology before the effective date of the relevant article.

An Example of Domestic Minimum Corporate Tax Calculation

For example, (A) A.Ş.'s commercial balance sheet profit is 1,000,000 TL, and the participation share sale gain exemption is 800,000 TL.

Upon (A) A.Ş.'s declaration, the corporate tax at the rate of 25% on the base of 200,000 TL (1,000,000 - 800,000) is calculated as 50,000 TL. However, 10% of the corporate income before deductions and exemptions (1,000,000 x 0.10) is 100,000 TL. In this case, the corporate taxpayer will have to pay an additional corporate tax of 50,000 TL.

How Will the Domestic Minimum Corporate Tax Be Calculated for New Taxpayers?

For new taxpayers, the provisions of this article will not be applied for three fiscal periods from the beginning of the fiscal period in which they start their activities. Thus, it ensures that taxpayers starting their investments after the establishment phase are not affected by this regulation.

Will the Domestic Minimum Corporate Tax Be Applied in Provisional Tax Periods?

Yes, the minimum corporate tax will also be applied in provisional tax periods.

From Which Fiscal Period Will the Domestic Minimum Corporate Tax Be Applied?

This regulation will enter into force on the date of its publication, to be applied to the earnings obtained in 2025 and subsequent taxation periods, and for companies subject to a special accounting period, to the earnings obtained in the special accounting period starting in the 2025 calendar year and subsequent taxation periods.

Conclusion

The domestic minimum corporate tax regulation appears as a harbinger of a significant change in Turkey's tax system. This regulation aims to establish a link between declared income and tax base, ensuring more equitable fulfillment of tax obligations in cases where corporate tax paid is low due to deductions and exemptions.

Understanding the effects of changing rules for investors and businesses and adapting to these new regulations is of great importance for future tax planning. Following the law and considering current regulations, managing tax obligations more effectively is undoubtedly vital for businesses.

For further information and detailed guidance, feel free to contact us at info@ozmconsultancy.com.