New tax incentive for Turkish capital companies

New tax incentive for Turkish capital companies

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The Turkish government has introduced a new tax incentive for companies designed to encourage the use of cash capital increases as an alternative to debt financing. This may be an attractive option for companies considering corporate finance structures.

PHILIP REYES

This new incentive was introduced on 7 April 2015 through Article 8 of Law No.6637, which amends Article 10 of the Corporate Tax Law No. 5520, and became effective as of 1 July 2015 (the “Incentive”).

The Incentive enables capital companies to deduct from their corporate tax base 50% of the amount obtained by multiplying the amount of the capital increase by the most recent annual commercial bank loan interest (announced by the Central Bank of Turkey in the year in which the cash capital increase is carried out).

The following is a detailed example of how the Incentive would be applied:

  • Increase in paid-in capital: 1,000,000 TL
  • Last interest rate announced by the Central Bank: 19,62%
  • Monetary amount calculated based on the interest rate (“A”): 196,200 TL
  • Deduction from corporate tax base (A / 2): 98,100 TL
  • Tax benefit (25%): 24,525 TL

Entities engaged in banking, finance and insurance activities will not be eligible for the Incentive.

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