Special Accounting Period in Turkey: A Guide for Foreign Investors
Foreign investors considering establishing a business in Turkey must understand various aspects of Turkish accounting and tax regulations, one of which is the Special Accounting Period in Turkey. Turkey’s tax laws are flexible, allowing companies to adopt a fiscal year other than the traditional calendar year, provided they meet certain legal criteria. This option can be advantageous for businesses, especially multinational corporations, by aligning local operations with the fiscal year of their parent company.
This article will provide a comprehensive explanation of the Special Accounting Period in Turkey, the procedures for applying for one, the advantages it offers, and its implications for foreign investors.
What Is a Special Accounting Period?
A Special Accounting Period is a fiscal year that differs from the standard calendar year (January 1 to December 31). Under Turkish tax law, companies can request a special accounting period that better aligns with their business operations or the fiscal year of their parent company.
Typically, businesses in Turkey use the calendar year as their accounting period, but for various operational, strategic, or administrative reasons, some companies prefer to adopt a fiscal year that begins and ends on different dates. For instance, a company may wish to have a fiscal year from April 1 to March 31, or from July 1 to June 30.
Legal Basis for Special Accounting Periods in Turkey
The Turkish Tax Procedure Law (Vergi Usul Kanunu) provides the legal framework for accounting periods in Turkey. According to Article 174 of the law, the accounting period is the calendar year by default. However, Article 174/2 states that companies can apply for a special accounting period if it is more suitable for their operations. This flexibility is particularly useful for multinational companies that want to synchronize their Turkish subsidiary’s fiscal year with their global financial reporting periods.
The approval of a special accounting period must be granted by the Turkish Revenue Administration (TRA), and businesses must provide valid reasons for their request. Once approved, the company will be obligated to follow the special accounting period until further notice or unless permission for another change is granted.
Who Can Apply for a Special Accounting Period in Turkey?
Any company operating in Turkey, including foreign-owned subsidiaries, branches, and liaison offices, can apply for a special accounting period. However, certain criteria must be met, and the application must demonstrate how the alternative accounting period benefits the company’s operations.
Typical Reasons for Applying for a Special Accounting Period:
- Alignment with Global Operations: Many multinational companies prefer to synchronize the fiscal year of their Turkish subsidiaries with that of their parent company. This ensures that financial reporting, budgeting, and auditing processes occur simultaneously across different locations.
- Seasonal Business Operations: Businesses in sectors like agriculture, tourism, and retail may experience significant seasonal fluctuations. A special accounting period allows such companies to better reflect their financial performance by aligning the fiscal year with the seasonal cycles of their business.
- Acquisition or Merger: After acquiring or merging with another company, businesses often seek to align the accounting periods of both entities. In these cases, applying for a special accounting period can facilitate smoother integration of the companies’ financial records.
- Cash Flow Considerations: Some businesses prefer a fiscal year that better reflects their cash flow cycles. For example, companies with major contracts or revenue peaks at certain times of the year may benefit from closing their books during their most profitable period.
How to Apply for a Special Accounting Period in Turkey
Applying for a Special Accounting Period in Turkey involves several procedural steps, and approval must be granted by the Turkish tax authorities. Here is a step-by-step guide for foreign investors who are considering making this change:
1. Submission of Application
The company must submit a formal application to the Turkish Revenue Administration (TRA), explaining the rationale for requesting a special accounting period. The application should detail the proposed fiscal year dates and demonstrate how this change will benefit the business.
The application must include:
- The company’s tax identification number.
- Information about the company’s activities and sector.
- Justifications for the request (e.g., alignment with a parent company’s fiscal year, seasonal business needs, etc.).
2. Supporting Documents
Companies must submit supporting documents along with their application, which typically include:
- A copy of the company’s articles of association (AoA).
- The current financial statements.
- A document explaining the parent company’s fiscal year (if applicable).
The documentation must be prepared in Turkish, or an officially certified translation must be provided if documents are in a foreign language.
3. Evaluation and Approval by TRA
Once the application is submitted, the Turkish Revenue Administration (TRA) will evaluate the request. The evaluation process involves reviewing the company’s financial situation, business activities, and the justification provided in the application.
Approval is not guaranteed, and the tax authorities may request additional information or documentation before making their decision. The approval process typically takes several weeks, although this can vary based on the complexity of the case and the volume of requests being processed.
4. Notification of Decision
If the application is approved, the company will receive official confirmation from the TRA specifying the approved accounting period. Once approved, the company must adhere to the new accounting period and can only change it again with further approval.
In cases where the application is rejected, the company must continue to use the standard calendar year as its fiscal year.
Benefits of a Special Accounting Period for Foreign Investors
1. Alignment with Global Reporting Standards
For multinational companies operating in Turkey, aligning the accounting period of their Turkish subsidiary with the parent company’s fiscal year simplifies global financial reporting. This alignment reduces discrepancies between reporting cycles and allows for more efficient consolidation of financial statements.
2. Improved Financial Management
Businesses operating in industries with seasonal fluctuations can significantly benefit from a special accounting period. By choosing a fiscal year that reflects their seasonal sales patterns, companies can better manage their cash flow, inventory, and tax planning. This can also help improve the accuracy of financial performance analysis and decision-making.
3. Simplified Auditing Process
Aligning the fiscal year across all subsidiaries of a multinational company simplifies the audit process. Auditors can review financial records for the entire group simultaneously, reducing duplication of effort and minimizing the risk of errors or inconsistencies.
4. Flexibility in Tax Planning
Having a special accounting period can offer foreign investors more flexibility in managing their tax obligations. For instance, companies with higher revenue or expenses at certain times of the year can optimize their fiscal year to ensure tax efficiency. By adjusting the fiscal year to coincide with periods of lower revenue, businesses can potentially reduce their taxable income during the fiscal year-end, improving cash flow.
Implications for Corporate Tax Filing and Compliance
Once a company has received approval for a special accounting period, it must adhere to that fiscal year for all corporate tax filings, VAT declarations, and other regulatory obligations.
Key Considerations for Compliance:
- Corporate Income Tax: The company must file its corporate tax return according to the new fiscal year-end date. The standard deadline for filing corporate tax returns in Turkey is the last of the fourth month following the end of the fiscal year.
- VAT Declarations: Monthly VAT declarations must still be submitted by the 28th day of the following month, regardless of the company’s special accounting period.
- Financial Statement Audits: Companies subject to independent audits must ensure that their financial statements are prepared and audited according to the special accounting period. Audited financial statements must be submitted to the relevant authorities as required by Turkish law.
- Changes to Articles of Association: The company’s Articles of Association (AoA) must be updated to reflect the change in the accounting period. This amendment must be registered with the Turkish Trade Registry.
Challenges and Risks of a Special Accounting Period
While there are many benefits to adopting a special accounting period, foreign investors should also be aware of the potential challenges:
1. Complexity in Implementation
The application process can be time-consuming, and approval is not guaranteed. Companies must provide clear and well-documented reasons for their request, and the TRA may require additional information before making a decision.
2. Compliance Risks
Once the special accounting period is approved, companies must ensure that all future tax filings, financial statements, and audit requirements are aligned with the new fiscal year. Failure to comply with these obligations could result in penalties or fines.
3. Potential Misalignment with Local Partners
If the special accounting period differs significantly from the fiscal year of local partners, suppliers, or customers, it could create complications in financial reporting, cash flow management, or business planning.
Promoting Our Services: Expert Financial Advisory for Foreign Investors
Navigating the complexities of Turkish tax law, especially when considering a special accounting period, can be challenging. As experienced financial advisors in Turkey, we offer tailored services to help foreign investors optimize their financial operations, ensure compliance with local regulations, and maximize profitability.
How We Can Assist:
- Special Accounting Period Applications: We can guide you through the entire process of applying for a special accounting period, ensuring that your application is well-prepared and increases your chances of approval.
- Tax Planning: With extensive knowledge of Turkish tax laws, we can help you develop tax strategies that align with your global operations and improve your cash flow.
- Corporate Compliance: We will ensure that your business remains fully compliant with Turkish accounting and tax regulations, including corporate income tax, VAT declarations, and auditing requirements.
Feel free to reach out if you need expert guidance on adopting a special accounting period in Turkey or any other aspect of doing business in this dynamic market.
Conclusion
Adopting a special accounting period in Turkey can offer significant advantages for foreign investors, particularly those operating multinational businesses or industries with seasonal fluctuations. While the application process can be complex, the potential benefits in terms of global financial alignment, tax planning, and cash flow management make it a valuable option to consider.
For expert assistance in navigating Turkey’s tax landscape and maximizing the benefits of a special accounting period, don’t hesitate to contact us for tailored financial advisory services.
FAQ
1. What is a special accounting period in Turkey?
Answer:
A special accounting period in Turkey refers to a fiscal year different from the calendar year (January 1 – December 31). Companies may apply to the Turkish tax authorities to use a different 12-month period for accounting and tax purposes, tailored to their business cycle or operational needs.
2. How can a company apply for a special accounting period in Turkey?
Answer:
To apply for a special accounting period in Turkey, companies must submit a formal request to the Turkish Revenue Administration. This request must include justification for the change and be approved by the authorities. The company can only begin using the new period after receiving approval.
3. Why do companies use a special accounting period in Turkey?
Answer:
Companies in Turkey may opt for a special accounting period to better align their financial reporting with their business cycles, industry practices, or parent company’s fiscal year. This helps improve financial planning and reporting accuracy, especially for multinational companies.
4. What are the tax implications of a special accounting period in Turkey?
Answer:
Using a special accounting period does not affect the corporate tax rate in Turkey, but it changes the timeline for filing tax returns. Companies must file their tax returns based on the newly approved accounting period, with tax filing deadlines adjusted accordingly.
5. Can a company revert to the regular calendar year after adopting a special accounting period in Turkey?
Answer:
Yes, companies in Turkey can revert to the regular calendar year, but they must apply for approval from the tax authorities to make this change. The process is similar to the application for a special accounting period, and justification must be provided for the request.
Invest CPA Ltd. Turkey 