From a 75% notional interest deduction for foreign capital to thin capitalization rules, choosing the right structure is key to 2026 tax efficiency.
For multinational corporations setting up entities in Türkiye, the decision of how to fund their venture—via debt or equity—is a critical strategic choice with profound tax implications. In 2026, the Turkish tax system offers highly sophisticated incentives for those who choose to strengthen their local balance sheets through Equity Financing. The “star” of this framework is the Notional Interest Deduction (NID).
The NID allows Turkish companies (excluding those in the financial sector) to deduct a calculated interest amount from their taxable income based on cash capital increases. As of early 2026, the deduction is calculated using the weighted average interest rate for TRY-denominated commercial loans. A major advantage for international firms is that while domestic capital increases qualify for a 50% deduction rate, capital sourced from abroad qualifies for a 75% deduction rate. This “foreign capital premium” is a clear signal that Türkiye values high-quality Foreign Direct Investment (FDI) over short-term borrowing.
On the other hand, Debt Financing remains a popular and flexible tool but is subject to strict Thin Capitalization rules to prevent base erosion. Under Article 12 of the Corporate Tax Law, if loans obtained from related parties exceed a 3:1 debt-to-equity ratio at any point during the year, the portion of the interest and exchange rate differences corresponding to the excess debt is treated as a non-deductible expense. Furthermore, these excess payments are re-categorized as “disguised dividends,” potentially triggering a 10% dividend withholding tax.
Additionally, Türkiye applies a “Financing Expense Limitation” for companies whose total debt exceeds their total equity. In such cases, 10% of the total financing expenses (excluding those capitalized to the cost of an asset) are considered non-deductible. For the 2026 fiscal year, the benchmark interest rate for cash capital discounts was revised upwards, mirroring global trends, which makes the NID even more valuable for equity-rich companies. For the strategic planner, the message is clear: while debt offers flexibility, the Turkish tax regime heavily favors equity-based “patient capital,” offering a long-term fiscal advantage that can significantly lower the effective tax rate for global pioneers.
Citations & Sources:
- Technical Summary: PwC Worldwide Tax Summaries – Corporate Deductions in Turkey 2026
- Newsletter: Taxia – 2025/2026 Tax Newsletter in Türkiye
- Financial Guide: Invest in Türkiye – Financing and Incentives
