Subject: The Presidential Decree related to the financing expense restriction promulgated.
The Presidential Decree No. 3490 on financial expense restriction has been promulgated in the Official Gazette dated February 4, 2021, and numbered 31385.
As may be recalled, with Law No. 6322 published in the Official Gazette dated 15.6.2012, in order to encourage companies to meet their financing needs with their own resources instead of borrowing, amendments have been made to Article 41 of the Income Tax Law (Law No.193) and Article 11 of the Corporate Income Tax Law (Law No.5520). These amendments included re-introduction of the practice previously known as "financing expense restriction" however to this day, no Decree on the implementation of this provision has been published.
With the aforementioned Decree, this application has been implemented.
According to the 3490 numbered resolution, the financing expense restriction to be applied in the taxation periods starting from 01.01.2021 was determined as 10%.
- Pursuant to 9th subparagraph of 1st paragraph of Article 41 of the Income Tax Law (Law No.193), for companies with foreign liabilities exceeding their shareholders equity, 10% of interest, commission, delay charge, dividend payment, exchange difference, late payment interest, and similar types of payments in relation to the amount of foreign liabilities exceeding the shareholders equity cannot be deducted from Corporate Tax Base. Financing expenses that are capitalized to the cost of the investment are not treated within the scope of the restriction.
- Pursuant to 1st clause of Article 11 of the Corporate Income Tax Law (Law No.5520) for companies with foreign liabilities (excluding liabilities from financial institutions, financial leasing, financing companies) exceeding their shareholders equity, 10% of interest, commission, delay charge, dividend payment, exchange difference, late payment interest and similar types of payments in relation to the amount of foreign liabilities exceeding the shareholders equity cannot be deducted from Corporate Tax Base. Financing expenses that are capitalized to the cost of the investment are not treated within the scope of the restriction.
On the other hand, there are some uncertainties regarding implementation. The Ministry of Treasury and Finance is expected to make a statement on the subject with a Communiqué.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
These materials and the information contained herein are provided by Deloitte Turkey and are-intended to provide general information on a particular subject or subjects and are not on exhaustive treatment of such subject(s).
Accordingly, the information in these materials is not intended to constitute accounting, tax, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect your personal finances or business, you consult a qualified professional adviser.
These materials and the information contained therein are provided as is, and Deloitte Turkey makes no express or implied representations or warranties regarding these materials or the information contained therein. Without limiting the foregoing, Deloitte Turkey does not warrant that the materials or information contained therein will be error-free or will meet any particular criteria of performance or quality.
Deloitte Turkey expressly disclaims all implied warranties, including, without limitation, warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility, security and accuracy.
Your use of these materials and information contained therein is at your own risk, and you assume full responsibility and risk off loss resulting from the use thereof. Deloitte Turkey will not be liable for any special, indirect, incidental, consequential, or punitive damages or any other damages whatsoever, whether in an action of contract, statue, tort (including, without limitation, negligence), or otherwise, relating to the use of these materials or the information contained therein.
© 2021 Deloitte Global Services Limited