Corporate - Deductions

Last reviewed - 16 October 2020

Turkish CIT legislation allows a deduction for all the 'ordinary and necessary expenses paid or incurred for the generation and sustenance of income during the taxable year in carrying on any trade or business'.

The general principle for tax deductibility is that the payment should be a necessary business expense and it should be properly documented in accordance with the relevant provisions of the Turkish transfer pricing regulations and those in the local tax procedural law.

Depreciation and amortisation

Fixed assets are subject to depreciation at rates determined by the Turkish Ministry of Finance (MoF), based on their useful life.

Intangible assets (i.e. licence, franchise, copyright, etc.) and goodwill are depreciated over 15 years and five years, respectively. Additionally, leasehold improvement is depreciated based on lease period.

Depreciation can be calculated by applying either the straight-line or declining-balance method (limited to 50%), at the taxpayer’s discretion. The taxpayer may also change the option from declining-balance to straight-line (but not vice versa) at any time during the life of the asset. The applicable rate for the declining-balance method is twice the rate of the straight-line method, subject to certain limitations. Furthermore, in special cases, the tax authorities may determine higher depreciation rates.

Intangible assets are amortised by the straight-line method over their estimated useful lives, if objectively determinable.

Profits or losses on disposal of fixed assets (i.e. the difference between the proceeds and the written-down values) are included in taxable income in the year of disposal. If the renewal of disposed-of assets is considered necessary by the owners of the business concern, the profit accrued may be retained for a certain amount of time. After the purchase of new fixed assets, the profits may be offset against the depreciation of the new assets.

A limitation has been introduced with the introduction of Communique No.311 on Income Taxation and Law No.7194, limiting the deductibility of expenses relating to personal automobiles to 70% of these expenses, a maximum of TRY 5,500 for rental expenses of personal automobiles (with an exemption of financial leasing) in determining commercial and professional earnings.  

Start-up expenses

Start-up expenses are considered as deductible expenses as incurred. Also, the taxpayer has the option to capitalise such expenses and to depreciate them over five years at equal amounts.

Interest expenses

Deemed-interest deduction on cash injection as capital

The Law No: 6637, which has been published in the Official Gazette dated 7 April 2015, introduced a concept of tax incentives where Turkish resident companies are allowed a deemed-interest deduction on cash injection as capital from the corporate tax base of the relevant year.

Turkish resident companies, except for those that operate in banking, finance, and insurance sectors, will be able to benefit from such incentive.

According to the incentive, the deductible interest amount is calculated as follows:

  • The latest ‘annual weighted average interest rate applied to loans provided by banks’ that is announced by the Central Bank of Turkey (12.02% for 2019) will be applied to the capital increases paid in cash and cash part of initial capital for newly established entities.
  • Only 50% of the calculated amount can be deducted from the CIT base.

In order to benefit from this deduction, the company should have taxable profit (i.e. the companies that have carryforward tax losses or current year tax losses are not able to benefit from this deduction).

The following capital increase alternatives are not included on the calculation or determination of the deduction amount:

  • Capital increase made from capital in kind items (e.g. via real estate).
  • Capital increase made during mergers, acquisitions, or spin-offs.
  • Capital increase made from internal sources (e.g. legal reserves) that are booked under shareholders’ equity.
  • Capital increase made via borrowing from shareholders.

By the Decree of Council of Ministers (no: 2015/7910), the Council of Ministers has re-determined the deemed interest deduction rate for the following cases:

  1. Publicly traded companies (listed in Borsa Istanbul [BIST]): For the companies that are publicly traded in BIST at the last day of the year in which the 50% interest deduction is benefited, the rate would be increased by:
    • 25 points if the publicly traded rate of nominal/value or the amount of registered shares of the company is 50% or less (totally 75%).
    • 50 points if more than 50% of the nominal/registered shares of the company is traded in BIST (totally 100%).
  2. Capital increase for investments with investment incentives: In case the capital increase made in cash has been used for investments on manufacturing or industrial plants, purchase of machines or equipment required for such plants, or lands or states for building of such plants, the 50% rate has been increased by 25 points.
  3. Other companies: Any company that is not subject to 0% or falls under category (a) and (b) will benefit from a 50 points deduction.

The Decree reduced the rate to 0% for the capital increases made for the following cases:

  • The income of the company consists at least 25% of passive income (e.g. interest, dividends, rental income, license fees, capital gains obtained from sales of marketable securities).
  • At least 50% of the total assets of the company consists of affiliate marketable securities, shares, and subsidiary companies.
  • Invest capital or provide a loan to another company, which are limited only with the corresponding capital increase made in cash amount.
  • Investment in real estate companies (limited only with the corresponding investment amount).

Bad debt

Bad and doubtful accounts receivable are deductible under certain conditions. Amounts of the receivables collected afterwards are added to the profits of the year in which they are collected.

Charitable contributions

Donations to listed charities and for construction of schools, hospitals, and scientific research organisations are deductible at up to 5% of the company’s gross profit.

Pensions and employee termination benefits

Payments for pensions and employee termination benefits are deductible for CIT purposes under certain conditions.

Fines and penalties

In principle, fines and penalties incurred due to the wrong-doings of the taxpayer or its employees are not tax deductible.


Essentially, the CIT itself and VAT are, subject to certain exceptions, not deductible for CIT purposes.

Fees and duties paid in relation to assets of the company are, in principle, deductible in determining taxable corporate income.

Net operating losses

Corporate losses may be carried forward for five years. Losses cannot be carried back.

Payments to foreign affiliates

Charges for royalties and interest by foreign affiliates may be deductible for CIT purposes, provided that transfer pricing and thin capitalisation rules are followed (see the Group taxation section for more information).