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Turkey Introduces Notional Interest Deduction on Equity — Orbitax Tax News & Alerts

On 7 April 2015, the Turkish Parliament enacted Law No. 6637 introducing a notional interest deduction for capital contributions. Under the new rules, companies will be allowed a deduction of up to 50% of their deemed interest expense on capital increases registered with the Turkish Trade Registry. The notional interest deduction will also be available based on capital contributions for newly established companies. However, companies operating in the insurance, finance and banking sectors will not be eligible for the deduction.

The notional rate will be the rate set by the Turkish Central Bank that applies for lira-denominated commercial loans. The rate will be applied from the date of the capital increase until the end of the financial year. For any subsequent capital decrease, the notional amount of interest on the decreased amount will not be deductible. Any unused deduction may carried forward indefinitely.

The new rules apply from 1 July 2015.