Limitation on Financing Expense Deduction is Back

Through the promulgation of the President Decision No. 3490 (“Decision”), published in the Official Gazette dated 4 February, 2021 and numbered 31385, the limitation on financing expense deduction has been regulated.

Pursuant to the Decision, the limitation on financing expense deduction is enforced as follows:

• For Income Taxpayers: For the enterprises whose the foreign liabilities exceed their equity capital, exclusively for the exceeding part and excluding those added to the cost of the investment, it is not accepted to deduct 10% of the total expense and cost elements expended under the items of interest, commission, delay interest, dividend, exchange difference and similar items related to foreign liabilities used in the enterprise as expense.
• For Corporate Taxpayers: For the enterprises whose the foreign liabilities exceed their equity capital, exclusively for the exceeding part and excluding those added to the cost of the investment, it is not accepted to deduct 10% of the total expense and cost elements expended under the items of interest, commission, delay interest, dividend, exchange difference and similar items related to the foreign liabilities used in the enterprise as expense. The regulation is not applicable for credit institutions, financial institutions, financial leasing, factoring and financing companies.
• You may find the full text of the Decision here.