CIT Communiqué no:20 is published
in the Official Gazette dated 14.05.2022. The Communiqué explains the
implementation of the CIT rate reduction passed with the Law no:7351. This Law
allows to calculate a %1 reduced CIT rate for the export incomes of exporters
and the incomes derived from manufacturing activities for the eligible
Let’s go through some of the questions that will probably arise in the minds of taxpayers.
If a manufacturer company exports the goods manufactured, can it benefit 1% reduction two times for these manufactured goods that are exported?
No. The 1 % rate reduction will be applied for the profits from manufacturing activity whether these goods are sold abroad or within the country.
Are all manufacturers eligible for this CIT rate reduction of 1%?
Only the companies with industrial registry certificate and who are actually doing the manufacturing activity will be eligible for this reduction.
Can the exporters of service benefit from the CIT rate reduction of 1%?
Service exporters can also benefit from the reduced rate as long as the service is provided for the customers abroad and the service is used/benefited abroad.
In which period will this reduced rate be effective?
The reduced rate will be effective for the earnings beginning 01.01.2022 and onward. If a taxpayer has a taxing period other than the calendar year, the reduced rate will be effective from the beginning of the special taxing period starting in the year 2022.
Can taxpayers producing software/informatics benefit from the 1% reduced rate?
As long as they have an industrial registry certificate and producing software etc. under this certificate, they are eligible for the reduced rate.
Are the exports made to free zones and duty-free shops considered as exports for the application of the 1% reduction?
Yes, these sales will be considered as exports and will benefit from the reduction.
What is the basic formula of the tax base that will be taxed at the reduced rate?
The tax base with 1% reduced CIT rate = Overall Tax Base x Profit from the manufacturing activities
Net Accounting Profits
The tax base with 1% reduced CIT rate = Overall Tax Base x Profit from exports
Net Accounting Profits
If a taxpayer’s profit from the exports/manufacturing is more than the overall tax base, how will the reduction be applied? If the exports/manufacturing profit is bigger than the net accounting profits, what will happen then?
The calculation will be as in the folowing example:
Profits from the manufacturing activity: 600.000-TL
Other Losses 100.000-TL
Net Accounting Profits: 500.000-TL
Non-deductable Expenses: 100.000-TL
Losses from prior years: 300.000-TL
Overall Tax Base: 400.000-TL
The tax base with 1% reduced CIT rate = 400.000-TL x 600.000-TL
Since 600.000 ˃ 500.000, 100% is the rate of the accounting profit that will be taxed with the reduced rate.
However, in this case the overall tax base is smaller than the net accounting profit.
So, the whole amount of the 400.000-TL tax base will be taxed at the 23% - 1% =22 % CIT rate.
If a taxpayer has an investment incentive certificate (IIC) and already has a reduced CIT rate, can it still benefit from this 1% reduction for its manufacturing/export profits?
Yes, a taxpayer can benefit from both reductions. The taxpayer will first apply the reduced rate for the manufacturing/exports. Then it can benefit from the rate reduction as defined in its IIC.
If a taxpayer is doing manufacturing/exports and other facilities (i.e. operations that can not benefit from reduced rate) together, how will the general expenses be treated?
Taxpayers should calculate the revenues and costs of these activities separately. The accounting records should be kept in a detailed manner to differentiate the profits that can be taxed with a reduced rate with the ones that cannot. If some equipments, machines or vehicles are used in both kinds of activities, the costs of these amortizations will be allocated according to the number of days of use.
How will the foreign exchange differences, interests and other revenues be treated?
If the foreign exchange differences, interest gains and other revenues are born out of the receivables of the exports or manufacturing, they will be included in the profit that will be taxed with 1% reduced rate. However, the interest gains, foreign exchange differences, etc.. that arise after these receivables are collected, cannot benefit from the reduced rate.