The Corporate Tax Law has been amended to include new provisions regarding tax rate reductions for export and production activities. Specifically:
- Exporting Companies: A 1 percentage point reduction in the corporate tax rate applies to the income earned exclusively from export activities.
- Production Companies: A 1 percentage point reduction is also available for income earned exclusively from production activities, provided the company has a valid industrial registration certificate and is actively engaged in production. However, this reduction does not apply to the portion of production income related to export.
- Conditions and Scope: Companies must meet specific conditions to benefit from this reduction, including having a valid industrial registration certificate for production activities. Export and production-related incomes must be exclusively collected through a bank account in Turkey. The reduction applies only after other applicable discounts.
- Application Period: The reduction is applicable from January 1, 2022, for companies using the calendar year as their accounting period. Companies with special accounting periods determined by the Ministry of Treasury and Finance can apply the reduction from the start of their special period.
- Examples: Various examples illustrate how the 1 percentage point reduction is applied to export income, considering different scenarios involving other types of income and tax adjustments.
Translation:
32.1.2. Reduction of Corporate Tax Rate by 1 Percentage Point for Exporting and Production Companies
Corporate Tax Law General Implementation Communiqué
32.1.2.1. Legal Regulation
Article 15 of Law No. 7351 added paragraphs seven, eight, and nine to Article 32 of the Corporate Tax Law:
“(7) For institutions engaged in export, the corporate tax rate is reduced by 1 percentage point for income earned exclusively from exports.
(8) For institutions holding an industrial registration certificate and actively engaged in production, the corporate tax rate is reduced by 1 percentage point for income earned exclusively from production activities. The income related to exports from production activities will not receive an additional reduction under paragraph seven.
(9) The reduced rates in paragraphs seven and eight are applied after other applicable reductions have been applied to the corporate tax rate.”
32.1.2.2. Scope and Beneficiaries
Corporate tax payers can apply a 1 percentage point reduction to the corporate tax rate on income earned from both export and production activities.
Income from exports for exporting institutions and income from production for institutions holding an industrial registration certificate can benefit from this 1 percentage point reduction.
32.1.2.3. Conditions for Applying the Reduced Corporate Tax Rate
- For exporting institutions, a 1 percentage point reduction is applicable to income earned from export activities only.
- For production institutions, the 1 percentage point reduction applies to income earned from production activities only, provided they:
- Hold an industrial registration certificate, and
- Actively engage in production.
Institutions that either do not hold an industrial registration certificate despite engaging in production or hold a certificate but do not engage in production will not benefit from the provisions of paragraph eight of Article 32.
32.1.2.4. Period for Applying the Reduction
Taxpayers using the calendar year as their accounting period can benefit from the 1 percentage point reduction on income from production and export activities starting from January 1, 2022, provided they meet the conditions outlined in the communiqué. Taxpayers with special accounting periods set by the Ministry of Treasury and Finance can apply the reduction from the beginning of their special period.
32.1.2.5. Application of the 1 Percentage Point Reduction to Export Income
Exporting institutions can apply the 1 percentage point reduction to the applicable corporate tax rate on income from both goods and services exports. This includes services provided to foreign clients and revenue from international roaming services provided in Turkey.
If a taxpayer has income from export as well as other activities, the reduction applies only to the portion of income from export, with the reduction being determined by the ratio of export income to the commercial balance profit. The reduction cannot exceed the total income from export or the net corporate profit.
Examples: Various examples demonstrate the application of the 1 percentage point reduction to different scenarios of income from export and production activities.
32.1.2. Application of a 1 Percentage Point Reduction in the Corporate Tax Rate for Exporting and Production Companies General Implementation Communiqué on the Corporate Tax Law
32.1.2.1. Legal Regulation
With Article 15 of Law No. 7351, the 7th, 8th, and 9th paragraphs were added to Article 32 of the Corporate Tax Law:
“(7) The corporate tax rate for the profits exclusively derived from export activities of exporting companies will be applied with a 1 percentage point reduction.
(8) The corporate tax rate for profits exclusively derived from production activities of companies holding an industrial registration certificate and engaged in actual production will be applied with a 1 percentage point reduction. For the portion of these profits related to export, the reduction stated in the 7th paragraph will not be applied additionally.
(9) The reduced rates in the 7th and 8th paragraphs will be applied to the corporate tax rate after other reductions within the scope of this article have been applied.”
32.1.2.2. Scope and Beneficiaries
Corporate tax taxpayers will be able to apply a 1 percentage point reduction to the corporate tax rate for profits derived from both export and production activities.
Profits exclusively derived from export activities for exporting companies and profits exclusively derived from production activities for companies with an industrial registration certificate will be subject to the 1 percentage point reduction.
32.1.2.3. Conditions for Applying the 1 Percentage Point Reduction in Corporate Tax Rate
- For exporting companies, it will be sufficient to engage in export activities to apply the 1 percentage point reduction on profits derived from export.
- For companies engaged in production activities, to apply the 1 percentage point reduction on profits derived from production, the following conditions must be met:
- Possess an industrial registration certificate, and
- Be engaged in actual production activity.
Therefore, companies that have an industrial registration certificate but are not engaged in actual production activity or companies engaged in production activity but do not have an industrial registration certificate will not benefit from the provision in the 8th paragraph of Article 32 of the Law.
32.1.2.4. Period of Application for the Reduction
Taxpayers using the calendar year as their accounting period will be able to benefit from this 1 percentage point reduction for profits derived from production and export activities starting from January 1, 2022, provided they meet the conditions specified in the Communiqué.
On the other hand, taxpayers for whom the calendar year does not align with the nature of their activities and who have been assigned a special accounting period by the Ministry of Treasury and Finance will be able to apply the 1 percentage point reduction from the beginning of their special accounting period starting in the 2022 calendar year. For example, a company using the special accounting period from April 1 to March 31, and holding an industrial registration certificate, will not benefit from the 1 percentage point reduction for the period from April 1, 2021, to March 31, 2022, but will start benefiting from April 1, 2022, to March 31, 2023.
32.1.2.5. Application of a 1 Percentage Point Reduction in Corporate Tax Rate for Profits from Export Activities
Exporting companies can apply a 1 percentage point reduction on the corporate tax rate for profits exclusively derived from both goods and services exports. Service exports include services rendered to foreign customers and enjoyed abroad. Additionally, earnings from roaming services provided in Turkey for foreign customers, under mutual agreements, will also qualify for the 1 percentage point reduction.
If taxpayers have profits from other activities besides export activities, the portion of profit subject to the 1 percentage point reduction will be determined by the ratio of export profits to the commercial balance profit.
Moreover, the profit amount eligible for the 1 percentage point reduction cannot exceed the export profits or the taxable corporate profit for the relevant period.
Therefore, if the export profit exceeds the commercial balance profit, the 1 percentage point reduction will be applied to the entire export profit, provided it does not exceed the taxable corporate profit.
Additionally, profits from goods exported without entering Turkey and sales in free zones or duty-free stores will also qualify for the 1 percentage point reduction.
Reduced Rate Application Calculation:
Profit x (Export Profit / Commercial Balance Profit)
Example 1: (B) Inc., which exports figs purchased from producers in Aydın, earned a profit of 900,000 TL from this export in 2022. The 1 percentage point reduction can be applied to this profit as the company does not benefit from any other deductions or exemptions.
Example 2: (C) Inc., engaged in wholesale and retail trade, has the following information for 2022:
Commercial balance profit: 2,000,000 TL
- Profit from export activities: 1,200,000 TL
- Other profits (not subject to the 1 percentage point reduction): 800,000 TL
Taxable Profit: 2,000,000 TL
The reduced rate application calculation for (C) Inc. will be:
Reduced rate application profit:
2,000,000 TL x (1,200,000 / 2,000,000) = 2,000,000 TL x 60% = 1,200,000 TL
Thus, (C) Inc. will apply a 22% corporate tax rate to the 1,200,000 TL portion of the 2,000,000 TL taxable profit and the general rate to the remaining 800,000 TL.
Example 3: (Ç) Inc., engaged in export activities, earned a profit of 600,000 TL from exports in 2022, while other activities resulted in a loss. (Ç) Inc.’s information for 2022 is:
Commercial balance profit: 500,000 TL
- Profit from export activities: 600,000 TL
- Other loss: 100,000 TL
Taxable Profit: 800,000 TL
(Ç) Inc. will apply the 1 percentage point reduction to the entire export profit of 600,000 TL, as it does not exceed the taxable corporate profit of 500,000 TL.
Example 4: (D) Inc., which earned a profit of 1,000,000 TL from exports in 2022, has a taxable profit of 200,000 TL due to past year losses. The company’s information is:
Commercial balance profit: 950,000 TL
- Profit from export activities: 1,000,000 TL
- Other loss: 50,000 TL
- Past year losses: 750,000 TL
Taxable Profit: 200,000 TL
(D) Inc. will apply the 1 percentage point reduction to the portion of the export profit up to the taxable corporate profit of 200,000 TL.
Example 5: (E) Inc., which operates in telecommunications in Turkey, provides roaming services for foreign users. For 2022, (E) Inc.’s information is:
Commercial balance profit: 50,000,000 TL
- Profit from export activities (roaming services): 5,000,000 TL
- Other profits (not subject to the 1 percentage point reduction): 45,000,000 TL
Taxable Profit: 40,000,000 TL
The reduced rate application calculation for (E) Inc. will be:
Reduced rate application profit:
40,000,000 TL x (5,000,000 / 50,000,000) = 40,000,000 TL x 10% = 4,000,000 TL
Thus, (E) Inc. will apply a 22% corporate tax rate to the 4,000,000 TL portion of the 40,000,000 TL taxable profit and the general rate to the remaining 36,000,000 TL.
Source: Istanbul Chamber of Certified Public Accountants
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