What is the Financial Expense Restriction?
Financing expense limitation refers to the non-deductibility of a certain portion of the financing expenses related to the external resources used by businesses from the tax base. Under this regulation implemented in Turkey, 10% of the interest and similar financing expenses related to the loans used by companies are not accepted as deductible expenses. Thanks to the financing expense limitation calculator, businesses can easily calculate the non-deductible expense amount within the scope of this practice.
How to Calculate Financial Expense Limitation?
When calculating the financial expense restriction, it is checked whether the enterprise's liabilities exceed its equity. If liabilities exceed equity, a certain portion of the financial expenses cannot be deducted from the tax base.
The general calculation logic is as follows:
The company's liability and equity status is determined
Financial expenses are identified
10% of the relevant expenses are considered non-deductible
As a result of this practice, the determined amount is added to the tax base, and the tax to be paid by the company is calculated.
Which Companies Are Affected by the Financial Expense Restriction?
Financing expense limitation can especially affect companies with high credit or debt utilization. If the enterprise's liabilities exceed its equity, a certain portion of the financing expenses is not accepted as a deductible expense in the tax calculation.
For this reason, the financing expense limitation practice can directly affect the tax base of companies and, consequently, the corporate tax payable.
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Frequently Asked Questions
What is the financial expense limitation?
Financial expense restriction is a tax regulation that prevents businesses from deducting a specific portion of the financing expenses related to their borrowed funds from their taxable income.
What is the financial expense restriction rate?
The financing expense restriction rate applied in Turkey is 10%. This means that 10% of the designated financing expenses cannot be deducted from the tax base.
Under what conditions does the financial expense restriction apply?
Finance expense limitation is applied when a business's debt-to-equity ratio exceeds one. In this case, a portion of the financing expenses is added back to the taxable income.
Which tax is affected by the financial expense restriction?
This application directly impacts the corporate tax base. Non-deductible financing expenses may be added to the tax base, potentially increasing the tax liability.