Turkey's Revenue Administration has announced the publication of Corporate Tax General Communiqué No. 20, which amends Corporate Tax General Communiqué No. 1 in relation to the corporate tax reduction for exporting and production companies as introduced by Law No. 7351. As previously reported, this includes a 1% reduction (discount) in the corporate tax rate on:

• Profits derived by exporting companies exclusively from export activities; and
• Profits derived by companies holding an industrial registration certificate exclusively from production activities.

Some of the main points of Communiqué No. 20 are summarized as follows:

Conditions for the Rate Reduction

The Communiqué clarifies that exporting companies only need to be engaged in export activities to apply the 1% reduction. For production companies, the 1% reduction may be applied if the company holds an industrial registration certificate and is actively engaged in production activities. If a company holds an industrial registration certificate but does not actually engage in production activity, or vice versa, the 1% reduction may not be applied.

Initial Accounting Period for the Rate Reduction

The Communiqué clarifies that taxpayers using the calendar year as their accounting period are able to benefit from the 1% rate reduction for their earnings from production and export activities as of 1 January 2022, provided that they meet the relevant conditions. For taxpayers using a special (non-calendar) accounting period, the 1% reduction applies from the beginning of the special accounting period that began in the 2022 calendar year. For example, if a taxpayer's accounting period is 1 April to 31 March, the taxpayer is able to benefit from the 1% rate reduction for their earnings from production and export activities as of 1 April 2022.

Application of the Rate Reduction

With regard to export activities, it is clarified that the 1% rate reduction may be applied for earnings from exporting both goods and services. In addition, it is provided that if goods purchased from abroad are "exported" by being sold to a customer in another country without entering Turkey, the 1% rate reduction can be applied. Domestic sales of goods to be sold in free zones and duty-free shops are also considered exports eligible for the rate reduction.

Where a company has earnings from activities other than exports, the tax base eligible for the 1% rate reduction is determined by dividing the earnings exclusively from exports by the commercial balance sheet profit. The same approach applies for companies with earnings from activities other than production activities, in which case the eligible tax base is determined by dividing the earnings exclusively from production by the commercial balance sheet profit. If a taxpayer's earnings from export or production activities are more than the commercial balance sheet profit, due to losses from other activities, the 1% rate reduction can be applied to the entire income obtained from the export or production activities, provided that it does not exceed the net corporate income.

Rate Reduction with Other Deductions, Exemptions, and Rate Reductions

Lastly, Communiqué No. 20 addresses certain cases where a taxpayer's income is eligible for deductions, exemptions, or other rate reductions under other provisions of the law. This includes the 50% deduction for income from the export of certain services to non-residents that are exclusively used abroad, including architectural, engineering, design, software, medical reporting, accounting, data storage, and call center services, as well as approved education and health services. In this case, the 1% rate reduction may be applied on the remaining amount (tax base) after applying the 50% deduction. Further, where a company is exempted from corporate income tax, the 1% rate reduction is not applicable.

Where a company qualifies for the 2% rate reduction for listing at least 20% of its shares on the Istanbul Stock exchange in an initial public offering (applies for 5 years), the 2% rate reduction is first applied on the entire tax base and the 1% rate reduction is then applied in addition to the 2% rate reduction for earnings from export or production activities. Similarly, a reduced corporate tax may be applied to earnings from investments within the scope of an investment incentive certificate in addition to the 1% rate reduction for earnings from export and production activities.