Turkey

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

Capital gains derived by a company are generally taxable as ordinary corporate income. However, 50% of capital gains derived from the sale of domestic participations is exempt from CIT where: 

• The participation has been held for at least two years.
• The gains are kept in a special fund account under shareholders' equity for five years following the year of the sale.
• The exempt gains are not transferred within the specified period to another account (except for transfers to the capital account by way of capital contribution).
• The consideration for the sale is collected by the end of the second calendar year following the year of the sale.
• The company does not hold the participation for the purpose of an ordinary business involving the trading of participations.

A 25% exemption applies to capital gains derived from the sale of immovable property that has been held for at least two years, provided that the immovable property was acquired before 15 July 2023. 

Capital gains derived by a Turkish international holding company from the sale of foreign participation are exempt from CIT, provided the foreign participation has been held for at least two years. To qualify as an international holding company, a Turkish company must meet the following requirements:

• It must be a corporation.
• At least 75% of its total assets (excluding cash items) must be comprised of foreign participations that have been held for a continuous period of at least one year.
• It must hold at least 10% of the capital of each foreign participation.
• The foreign participation must be in the form of a corporation or limited liability company.

Dividend income

Dividends received by a resident company from another Turkish company are exempt from CIT in the hands of the shareholder. Dividends received from a non-resident company are fully exempt from CIT where:

• The non-resident payer is a corporation or limited liability company.
• The Turkish recipient has owned at least 10% of the paid-in capital of the payer for at least one year.
• The profits out of which the dividends are paid were subject to foreign income tax of at least 15%.
• The dividends are remitted to Turkey by the date the CIT return is due.

In addition, the recently introduced law number 7491 has brought tax exemption on 50% of the dividends from non-resident companies. The only requirements to benefit from the 50% exemption are:

• a minimum holding of 50% in the share capital of the foreign company, and
• the dividends must be remitted to Turkey by the date the CIT return is due.

Turkish companies that previously could not benefit from the full tax exemption (i.e. because the foreign subsidiary did not meet the requirement of being subject to 15% taxation) now may have possibility to claim a partial (50%) exemption on their dividend income from foreign companies.

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

Royalty income derived by a Turkish company is taxable as ordinary corporate income. 

Foreign-sourced income

In principle, foreign-sourced income is taxable in Turkey. However, foreign-sourced dividend income may be subject to participation exemption if certain conditions are met (see Dividend income above). 

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.