Corporate Income Tax General Communiqué (Serial No. 25) Published

As is known, the CIT exemption applicable to investment funds and investment companies established in Türkiye (excluding pension investment funds) is regulated under Article 5/1-d of the CIT Law.

Pursuant to Law No. 7524, effective for income derived as of 1 January 2025, at least 50% of the income generated from immovable properties owned by such funds and companies must be distributed as dividends to shareholders by the end of the second month following the month in which the CIT return for the relevant fiscal year is due. While the initial guidance was provided through the CIT General Communiqué (Serial No. 23), additional clarifications have now been introduced to address practical uncertainties.

Accordingly:

• Advance dividend distributions relating to income earned as of 1 January 2025 will be taken into account in determining compliance with the distribution requirement
• The amount subject to the distribution requirement will be the profit derived from immovable property activities
• Real estate profits will be calculated by deducting expenses and cost elements attributable to such activities from the related revenues
• The distribution requirement will not apply if either the real estate activities or the overall activities result in a loss
• Where real estate activities generate a profit but other activities result in a loss, and the total profit is lower than the profit derived from immovable properties, distribution of 50% of the total profit will be sufficient to satisfy the exemption conditions
• Where real estate activities and other activities are carried out together, common overhead expenses will be allocated based on the ratio of annual costs attributable to each activity. Depreciation of jointly used assets will be allocated based on the number of days used by each activity
• Statutory reserve funds allocated under the Turkish Commercial Code will be taken into account in determining the distributable real estate profit
• Capitalization of profits will not be regarded as a profit distribution

As a general rule, expenses relating to exempt income and losses arising from exempt activities cannot be deducted from taxable corporate income. However, financing expenses incurred for the acquisition of participation shares may continue to be deducted.

The Communiqué distinguishes between activity-based exemptions and transaction-based exemptions and clarifies the treatment of profits and losses under each regime.

Under activity-based exemptions, profits and losses arising from the same exempt activity must be evaluated together. Examples include:

• Exemption for investment funds and investment companies (excluding immovable property income)
• Overseas branch income exemption
• Overseas construction, repair, assembly and technical service income exemption
• Education income exemption
• Cooperative risturn exemption
• Exemption applicable to management companies in the taxation of foreign investment funds
• Industrial property rights exemption
• Exemption for income derived from vessels registered in the Turkish International Ship Registry
• Free zone income exemption
• Technology development zone income exemption, and
• Exemption applicable to R&D and innovation income of research infrastructures

By contrast, transaction-based exemptions relate to gains arising from specific transactions and each transaction must be evaluated separately. Examples include:

• Participation exemption
• Foreign participation exemption
• Exemption for gains from the sale of foreign participation shares
• Share premium exemption
• Exemption for gains derived from the sale of immovable properties, participation shares and fund units
• Exemption for gains arising from the sale of assets by debtors to banks, financial leasing companies, financing companies or the Savings Deposit Insurance Fund
• Sale and leaseback exemption
• Asset leasing exemption, and
• Exemption for gains arising from the disposal of warehouse receipts issued under the Licensed Warehousing Law

The Communiqué clarifies that taxpayers may benefit from the notional interest deduction on cash capital increases not only in the annual CIT return but also during the fourth provisional CIT period of the relevant fiscal year in which the cash capital increase is made.

The Communiqué provides guidance on the treatment of investment contribution amounts arising from investment incentive certificates for domestic minimum CIT purposes.

Accordingly, investment amounts recorded in investment incentive certificates as of 2 August 2024 will be taken into account, whereas increases resulting from revisions made to such certificates after this date will not be included in the calculation.

Taxpayers falling within this scope will be able to determine the amount of tax not collected by taking into account the investment contribution amount attributable to the investment amount existing before 2 August 2024 or by applying an appropriate allocation methodology.