Extension of the tax incentive for companies that convert their foreign currencies to Turkish lira

In detail

In December 2021 Turkey introduced a “foreign currency protected lira deposit” scheme with the aim of keeping deposit accounts in Turkish Lira. The scheme promises to compensate the depositors for any loss in the value of the lira that may be incurred during the time the funds are held in the lira account. Initially the scheme was available for individuals, then it was expanded to corporate accounts in January 2022. Subsequently, a tax incentive was introduced for companies to further encourage the switch: law number 7352, published on 29 January 2022, added a temporary provision to the Corporate Income Tax Law, establishing a tax exemption for gains derived under the concerned scheme. (for details, please see our tax bulletin of 31 January 2022)

Law 7404, published on 28 May 2022, extends the tax incentive to conversion of foreign currencies available at the end of the first quarter of 2022. Originally the tax exemption applied to FX available on the balance sheet of 31 December 2021 only. With this new provision, if the foreign currencies available on the balance sheet of 31 March 2022 are converted into TRY by year-end and if these amounts remain in a TRY deposit account for at least 3 months, then interest, profit shares and other earnings (including the gains from restatement at period-ends) derived from the TRY deposit account will be exempt from corporate income tax. The president is authorized to extend the tax incentive to foreign currencies available on the balance sheets of 30 June 2022 and 30 September 2022.

Additionally, the tax incentive will apply to income derived from renewal of these TRY deposit accounts (after the maturity date) until the end of 2022.