Turkey

Corporate - Income determination

Last reviewed - 22 January 2020

Inventory valuation

The weighted average and first in first out (FIFO) methods are allowed for calculating the value of year-end stock or goods sold. Last in first out (LIFO) is not permitted. Stock-count deficits are recorded as disallowable expenses, whereas stock-count surpluses are treated as income at year-end for CIT purposes. Necessary VAT adjustments should also be made accordingly.

Capital gains

No separate rules exist with respect to capital gains taxation in Turkey. Capital gains and losses are included in the determination of taxable corporate income.

See Capital gains exemption in the Tax credits and incentives section for information about an incentive that can reduce the effective CIT rate on capital gains in certain instances.

Dividend income

In dividend distribution’s between Turkish resident companies, the dividend payer is exempt from WHT and the recipient is exempt from CIT.

Interest income

In principle, all interest income is subject to tax. Interest income on bank deposits denominated in both Turkish lira and foreign currency is subject to WHT. Interest income is recorded at gross, and any WHT incurred on this income is offset against CIT calculated.

Royalty income

In principle, royalty income (e.g. on patents, copyrights, licence) derived by non-resident individuals or corporations not constituting a PE in Turkey is subject to WHT at the rate of 20%. However, the bilateral tax treaty between Turkey and the country of residence of the foreign company may reduce the local tax rate.

Foreign income

In principle, foreign-sourced income is taxable in Turkey. However, foreign-sourced dividend income may also be subject to a participation exemption if certain conditions are fulfilled. A participation exemption for capital gains generated from a foreign subsidiary may also be available in Turkey, under certain conditions.

Other foreign-sourced income, such as royalties and interest, is fully taxable in Turkey. Partial relief from taxation is granted insofar as the foreign tax paid does not exceed the rate of tax payable for the same income in Turkey.

Although undistributed income of foreign subsidiaries should not be taxable in Turkey, controlled foreign company (CFC) rules should also be taken into consideration in this respect. See Controlled foreign companies (CFCs) in the Group taxation section for more information.