Determination of Taxable Income

Determination of Taxable Income

Net corporate income is defined as the difference between the net worth of assets owned at the beginning and at the end of the fiscal year.

In determining net business profit, expenses such as those listed below may be deducted from revenue:

  • General expenses made for earning and maintaining business profit
  • Food and boarding expenses provided for employees at the place of business or in its annexes
  • Expenses for medical treatment and medicine
  • Insurance and pension premiums
  • Clothing expenses paid for employees (should be appropriate to the nature of the business.)
  • Expenses for travel and lodging relevant to the business
  • Expenses for vehicles that are part of the enterprise and used in the business
  • Taxes in kind such as building, and consumption
  • Stamp and municipal taxes and fees and charges related to the business
  • Losses, damages, and indemnities paid based upon written agreements, juridical decrees, or by order of law
  • Depreciations set aside according to the provisions of the Tax Procedure Law
  • Payments to the unions
  • Expenses related to the issuance of stocks and shares
  • Initial organization and establishment expenses
  • Expenses incurred for general board meeting
  • Expenses made for mergers dissolutions, and liquidations
  • In case of insurance companies, technical reserves required for the insurance contracts still valid at date of inventory
  • Profits shares accrued to active partners of partnerships in commendams limited by shares
  • Profit shares accrued to partners by participation banks for participation accounts
  • Research and development deductions calculated as 40% of new technology and know-how research expenses realized within business.

Law number 7194 brings some limitations on deductible car expenses as of beginning of 2020 which are as follows:

  • 5.500 TRY limit on the monthly car rents. If the rent is above this limit, the exceed amount must be considered as non-tax deductible expense.
  • 300.000 TRY limit on car purchase price. If the purchase price is above this limit (140.000 TRY for Special Consumption Tax & VAT and 160.000 TRY for car price), the exceed amount must be considered as non-tax deductibe expense.
  • 70% limit for expenses related to use of a car (fuel oil, insurance, maintanence and etc.). Other 30% part of expenses will be considered as non-tax deductible expense (including VAT of expenses).

In determining net corporate income, deductions such as those listed below are not allowed:

  • Interest paid or accrued on the basis of equity, interest or exchange differences
  • Other costs paid or accrued on the basis of disguised capital
  • Disguised earnings distributed by transfer pricing
  • Any kind of reserves
  • Corporate tax, fines, tax penalties
  • Late payment penalties and interest
  • Depreciation of leased or registered motor vehicles
  • Other expenses not related to business activities.



The following earnings of corporations are exempted from corporate tax:

  1. Dividend income from other Turkish companies
  2. Dividend income from foreign subsidiaries or branches when certain conditions fulfilled (minimum 10 % of participation and holding minimum 1 year)
  3. 50% of the capital gains from disposal of share certificate and immovable properties that are held over 2 years
  4. Earnings of the following funds and companies that are established in Turkey:
  • Portfolio management earnings of investment funds/companies
  • Real estate investment funds/companies
  • Venture capital funds/companies
  • Pension funds
  • Housing financial funds and assets financing funds.
  1. Income from construction, restoration assembly and technical services completed abroad
  2. Income through selling companies rights or shares which are issued by A.S. companies over nominal prices
  3. 100% of research and development expenditures for new technology and information development.


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