01.10.2024/51
Exemption for Foreign Subsidiary Earnings if the Company Owns at least 50% of the Paid-in Capital of the Foreign Subsidiary
Paragraph (b) of the first subparagraph of Article 5 of the Corporate Tax Law regulates the exemption conditions for the earnings derived by corporations from their subsidiaries located abroad.
Accordingly, the participation gains derived by the corporations participating in the capital of joint stock and limited liability companies whose legal and business centers are not located in Turkey are exempt from corporate tax.
1) The company holding the subsidiary share holds at least 10% of the paid-in capital of the foreign subsidiary,
2) As of the date of the gain, the subsidiary share is held for at least one year without interruption (For the subsidiary shares acquired by exercising the pre-emptive right or due to capital increases made from the internal resources of the foreign subsidiary, the date of acquisition of the old subsidiary shares is taken as basis),
3) The earnings of the foreign subsidiary, including the taxes paid on the earnings that are the source of dividend distribution, bear a total tax burden of at least 15% of the income and corporate tax-like total tax burden in accordance with the tax laws of the country in which the subsidiary company operates; if the main activity of the subsidiary company is the provision of financing including financial leasing or the provision of insurance services or securities investment, the subsidiary company bears a total tax burden of at least 15% of the income and corporate tax-like total tax burden in accordance with the tax laws of the country in which the subsidiary company operates,
4) Transferring the affiliate income to Turkey until the date of filing the corporate tax return for the accounting period in which it is obtained.
For the earnings that do not meet the conditions in the article, with the regulation made by Law No. 7491, 50% exemption can be applied provided that the company holding the participation share owns at least 50% of the paid-in capital of the foreign subsidiary and the earnings are transferred to Turkey until the date of filing the corporate tax return for the accounting period in which the earnings are obtained.
Explanations on the subject are given in the Corporate Tax General Communiqué Serial No. 23 published in the Official Gazette dated 28.09.2024 and numbered 32676.
In order to benefit from this exemption;
– The subsidiary company has the status of a joint stock or limited liability company resident abroad,
– Ownership of at least 50% of the paid-in capital of the associate company,
– Transferring the gain to Turkey until the date of filing the corporate tax return for the accounting period in which the gain is obtained,
is a must. No other conditions will be required to benefit from the exemption.
In terms of the requirement of having at least 50% of the paid-in capital for the exemption application, the rate valid as of the date of the subsidiary income will be taken into consideration.
The aforementioned exemption will not be utilized for the part of the earnings that is not transferred to Turkey until the date of submission of the annual corporate tax return for the accounting period in which the said earnings are obtained.
Corporate tax and similar taxes paid abroad due to the participation income obtained from foreign resident corporations, which correspond to the exempt income, cannot be deducted from the corporate tax levied on the earnings in Turkey. On the other hand, corporate tax and similar taxes paid abroad for the 50% portion of the participation income not considered within the scope of the exemption can be deducted from the tax calculated on the corporate tax return of the relevant accounting period.
You can access the relevant Communiqué here .
Sincerely,
BİLGENER
