Evren Özmen
Serbest Muhasebeci Mali Müşavir
Bilirkişi
evrenozmen@ozmconsultancy.com
www.ozmconsultancy.com

Domestic Minimum Corporate Tax -New Alternative Minimum Tax Rules Turkey

Domestic Minimum Corporate Tax (DMCT) Definition and How It Works

 

1-What Is the Domestic Minimum Corporate Tax?

• The domestic minimum corporate tax, in simple terms, is based on the principle that a company’s corporate tax calculated under general rules should not be less than 10% of the company’s profit before deductions and exemptions specified by law

2-How does the Domestic Minimum Corporate Tax Work and What is the rate of Domestic Minimum Corporate Tax?

• Under the DMCT, companies operating in Turkey must pay at least 10% of their gross income (before applying deductions and exemptions) as corporate tax.

Corporate Profit on Which 10% Tax Will Be Calculated

=

Commercial Balance Sheet Profit

+

Non-Deductible Expenses

-

Exemptions and Deductions Specified by Law

3- Who is Subject to the Domestic Minimum Corporate Tax? Which Companies Should Pay Domestic Minimum Corporate Tax?

• Limited and C-Corporations have to pay the Domestic Minimum Corporate Tax. Individual companies are not in the scope.
• The taxpayers of the minimum corporate tax are those specified in the Corporate Tax Law.
• Non-resident companies that are required to declare their income earned in Turkey through a corporate tax return will also be subject to the minimum corporate tax.
• Additionally, the declaration of income and earnings that are subject to withholding tax, as outlined in Article 30 of the Corporate Tax Law, is optional for non-resident companies. If these non-resident companies choose to submit a tax return for such income and earnings, they will also be subject to the minimum corporate tax.
• The minimum tax provisions will not apply to corporate tax-exempt entities

The Domestic Minimum Corporate Tax applies to:

• Resident corporations operating in Turkey.
• Non-resident companies earning income in Turkey.

Some companies are exempt:

• New companies for their first three fiscal periods.
• Companies exempt from corporate tax

4- Key Points to Note

Before delving into the rates and calculation of Minimum Domestic Corporate tax in Turkey, there are some key points to keep in mind:

• Minimum Domestic Corporate tax is not applicable to individuals or Companies exempt from corporate tax . It is exclusively applicable to companies.
• Minimum Domestic Corporate tax is calculated on the "book profits" of a company, which is different from the taxable profits computed under the regular provisions of the  Tax Act.
• The Domestic Minimum Corporate Tax will also be applied to quarterly provisional tax periods.
• The Domestic Minimum Corporate Tax will be applied to the income earned in the 2025 tax year and onwards.

5- Deductions and Exemptions from the Domestic Minimum Corporate Tax Base

While calculating the Domestic Minimum Corporate Tax, the following exemptions and deductions will be subtracted from the minimum corporate tax base:

• Participation Earnings (Corporate Tax Law, Article 5/1-a)
• Share Premium Income (Corporate Tax Law, Article 5/1-ç)
• Investment Fund and Partnership Portfolio Management Income (Corporate Tax Law, Article 5/1-d) (Excluding income obtained from owned real estates)
• Cooperative Rebate Exemption (Corporate Tax Law, Article 5/1-i)
• Exemption for Sale-Lease-Back Transactions (Transactions involving financial leasing companies, participation banks, development and investment banks, and asset leasing companies; Corporate Tax Law, Articles 5/1-j and k)
• Income Earned in Free Zones
• Income Earned in Technology Development Zones
• Income from the Operation and Transfer of Ships Registered with the Turkish International Ship Registry
• R&D and Design Deduction
• Amounts Allocated as Venture Capital Fund (Corporate Tax Law, Article 10/1-g)
• Protected Workplace Deduction (Corporate Tax Law, Article 10/1-h)

6-Non-collected Taxes" Deductible from Calculated Minimum Corporate Tax

The following "non-collected taxes" can be deducted from the calculated minimum corporate tax, and the payable domestic minimum corporate tax will be determined accordingly:

• 2-point Reduction Applied to the Earnings of Institutions for Five Fiscal Periods, whose shares are publicly offered at least 20% for the first time in the Borsa Istanbul Equity Market.
• 5-point Reduction Applied to the Earnings Exclusively Derived from Exports by exporting institutions.
• 1-point Reduction on Tax Not Paid Due to Production Activities, for institutions with an industrial registration certificate and engaged in actual production activities.
• Corporate Tax Not Paid Due to Reduced Corporate Tax Application Based on Article 32/A of the Corporate Tax Law, limited to the investment contribution amounts under incentive certificates received from the Ministry of Industry and Technology before 2/8/2024, on their own declarations.

Conclusion

The Domestic Minimum Corporate Tax is a critical provision in Turkey's tax system, aimed at ensuring that profitable companies do not escape tax liability through various exemptions and deductions during corporate income tax e-filing.
As tax laws are subject to change with each Budget, it's vital for companies to stay updated on the latest provisions related to The Domestic Minimum Corporate Tax. 

07.10.2024

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