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New Financial Expense Restriction was Published

08 Feb 2021

The President's Decree No. 3490 on financial expense restriction was published in the Official Gazette dated February 4, 2021 and numbered 31385.

As will be remembered, with the Law No. 6322 published in the Official Gazette dated 15.6.2012, in order to encourage companies to finance their financing needs through their own shareholders equity instead of borrowing, article 41 of the Income Tax Law titled "Payments Not Accepted as Expense" and the Corporate Tax Law, With the amendment made in Article 11 titled “Unaccepted deductions”, the practice known as “financial expense restriction” in the past was re-introduced with some changes. With the Decree No. 3490 published today, this application has been implemented. There are some uncertainties regarding implementation. The Ministry of Treasury and Finance is expected to make a statement on the subject. According to the decision, to be applied to the income of the taxation period starting from 1/1/2021;

  • According to the provisions of subparagraph (9) of the first paragraph of Article 41 of the Income Tax Law No. 193; 10% of the total of expenses and cost elements made under the names of interest, commission, maturity difference, dividend, exchange difference and similar foreign resources used in the enterprise, exclusively for the part that exceeds its shareholders equity, excluding those added to the cost of the investment, will not be accepted as expense,
  • According to the clause (i) of the first paragraph of Article 11 of the Corporate Tax Law No. 5520; Except for credit institutions, financial institutions, financial leasing, factoring and financing companies, 10% of the total of expenses and cost elements made under the name of interest, commission, maturity difference, dividend, exchange rate related to foreign resources used in the enterprise, excluding those added to the cost of the investment, exclusively for the part that exceeds its shareholders equity, will not be accepted as discount in determining the corporate income.

Although the President was authorized to differentiate the expense restriction rate of 10% in terms of sectors in the relevant regulation, no such rate differentiation was made in the Decree No. 3490 published.

In our 2021 tax audits, we will now be doing examinations on this subject. For further explanations please contact with us. (fatih.guven@tr.gt.com).

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