Accountancy in Turkey

>> Thin Capitalisation in Turkey

Thin capitalisation is regulated in article 12 of the Corporate Tax Law. If the percentage of the going into debts from stockholders or from persons related to the stockholders exceeds 300 % of the shareholders’ equity; the borrowing will be considered as thin capital.

The ratio of the loans from related parties to shareholders’ equity will be considered as three to one. Except for the credits received from financial organizations that provide credits only to related companies, 50 % of the credits received from related banks and similar organizations is to be taken into account when making thin capitalisation calculations. The credits received just from these organizations will not be considered as thin capital until the amount of the borrowing exceeds 600 % of the shareholders’ equity.

The scope of the term “related parties” consists of shareholders and the persons who are related with the shareholders that own %10 or more shares, voting rights or right to receive dividends of the company.

The term “ the related with the Shareholders” is defined as:

  • A corporation whose shares or voting rights or the right to receive dividends are owned directly or indirectly at the %10 by the Shareholder.
  • A corporation or an individual that directly or indirectly owns at least % 10 capital, voting rights or rights or right to receive dividends of the Shareholder or a corporation in relation to the Shareholder.

In the case of the acquisition of shares listed in the Istanbul Stock Exchange, it is stated that at least %10 shareholding will be required for the borrowings from the shareholders or related persons, who become related parties due to acquired listed shares.

The equity capital is the equity of the corporation at the beginning of the fiscal year. The equity capital represents the total amount of the shareholder’s equity. In determination of the rates related to thin capitalisation lending shareholders and the persons related to the shareholders will be jointly taken into account. Not only the interest paid or accrued but also the foreign exchange losses and other similar expenses calculated from the credits which are considered as thin capital; are considered as non-deductible for corporate tax purposes.

The borrowing which will not be considered within the scope of thin capitalisation is also cited as follows;

  • Loans received from third parties based on non-cash guarantees provided by the shareholders or persons related with the shareholders.
  • Loans that are obtained by related parties from banks and other financial institutions or from capital markets and that are wholly or partially onlent by the same with the same conditions.
  • The borrowings of the banks operating in the scope of Banking Law numbered 5411.
  • Financial leasing companies, the financing and factoring companies operating regarding lending operations, and the borrowings of the mortgage financial institutions from the shareholder or the banks that may be related to the shareholders regarding these activities.

The interest paid or accrued and similar payments on thin capital are re-classified at the end of the related tax year as dividend distributed. In order to prevent double taxation, previously calculated taxation for a lender who received interest should be amended.

For a company that uses thin capital, there will be an additional tax assessment with penalty for the interest and similar payments for withholding tax over dividend distribution. In order to make adjustments in the lender company, the assessed taxed at the borrower company are required to be finalised and paid.


Latest version updated 8th April 2019

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