Some Important Regulations

Tax losses

Tax losses (including foreign source losses, but subject to certain procedures) can be carried forward for 5 years as long as they have been shown in corporate tax returns separately for each year, but they are not carried back except in the case of liquidation.

Reimbursement of taxes paid abroad

Turkey has signed mutual agreements with 77 countries to generate a global network for double taxation relief. Generally, to qualify for tax relief, companies must fulfill their tax duties within the country where income and profit is gained; then, provided the necessary documentation is supplied, a refund can be issued.

Thin capitalization

When the ratio of borrowings from shareholders or related parties to the shareholders exceeds three times the shareholder’s equity of the borrower company at any time within the relevant year, the excess part of the borrowings will be considered as ‘thin capital’. If the borrowing is taken from related party banks or financial institutions, then it is considered thin capital after the amount of borrowings exceeds six times the shareholder’s equity.

The related party is defined as a person or business entity that has direct and indirect shareholding of ≥10% of shares or vote/dividend rights. The amount of equity is determined at the beginning of the accounting period and considered as equity for thin capitalization purposes.

Except for the foreign exchange differences, interest paid over an excess debt/equity ratio is considered as dividend distributed and will be subject to 15% dividend withholding tax. Related expenses, foreign exchange losses and interest payments exceeding the debt/equity ratio are considered as non-deductible expenses.


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