Corporate income tax rate cut for manufacturers/exporters, dividend withholding tax rate reduced
Legislation enacted on 22 January 2022 reduces Turkey’s corporate income tax rate for certain companies, and a presidential decree published in the official gazette on 22 December 2021 reduces the withholding tax on dividends. The changes to the corporate income tax rate apply retroactively as from 1 January 2022 and the withholding tax rate reduction applies from the date the decree was published, i.e., 22 December 2021.
The corporate income tax rate is reduced by 1% for profits derived exclusively from manufacturing activities, and exclusively from export operations. The profits to which the 1% discount will be applied are calculated by deducting relevant expenses derived from qualifying activities.
It should be noted that companies that export products that they have manufactured cannot take a double benefit based on both of their activities, i.e., they can only take a 1% rate discount and cannot take a 2% discount on the same profits.
Turkey’s standard corporate income tax rate dropped from 25% to 23% on 1 January 2022 and will reduce further to 20% in 2023. As a result, the following rates apply to manufacturing and export companies:
- 25% for income generated in FY 2021 (the discount did not apply in FY 2021);
- 22% for income generated in FY 2022; and
- 19% for the income regarding FY 2023.
The Presidential Decree reduced the domestic withholding tax rate on profit distributions by Turkish-resident companies to nonresident companies and to resident and nonresident individuals from 15% to 10%. The rate reduction will be particularly beneficial where dividends are paid to nonresidents in that, if an applicable tax treaty provides for a rate higher than 10%, the 10% rate will apply (if a treaty provides for a rate lower than 10%, the treaty rate will continue to apply).