Donations and aid under social responsibility projects have recently become increasingly common. It is possible to deduct donations and aid from tax bases if they are made within the framework of the tax legislation.

Dear Fortune readers,

I would like to hereby share with you my assessments regarding donations and aid which are regarded as deductibles in our tax legislation.

Now and then, real and legal persons can make donations in kind or in cash to the extent they please in consideration of their finances.  

As is known, taxes are mainly collected to finance public expenditures. Various public expenditure items including but not limited to healthcare and education are financed via the collected taxes. Regulations governing donations and aid under the tax legislation mostly aim to incentivize taxpayers to participate in public expenditures voluntarily and directly.

While regulations on donations and aid are usually featured in the income tax law and the corporate tax law, other private laws also impose some regulations to that end. In order for donations to be deducted from the revenues of tax payers subject to income tax and corporate tax, the donation and aid in question must be outright and be stated on a tax return, and there should be sufficient revenues to make such donation and aid.

It is possible to deduct the respective amounts for donations and aid from revenues fully or partially depending on the type of donation and aid. For instance, the deduction rate for donations made to tax-exempt foundations and public associations is limited to 5% of the revenue.  The donated amount can be fully deducted from the revenue if donations are made to incentivize culture and tourism or to the Turkish Red Crescent and the Turkish Green Crescent in cash against receipt. The following donations made in kind or in cash are fully deductible: Donations to universities pursuant to a similar regulation in the Law on Higher Education; schools, healthcare facilities, student dormitories with a minimum bed capacity of one hundred (fifty beds in priority development regions), nursery schools, orphanages, nursing homes, nursing and rehabilitation centers donated to provincial special administrations, municipalities and villages; donations for places of worship built under the approval and monitoring of local authorities, and expenses incurred for the construction of facilities in which non-formal religious education is provided under the supervision of the Presidency of Religious Affairs and for the continuation of the operations thereof.  In order for facilities such as schools, dormitories and healthcare facilities constructed by a company to be considered as deductible donations, the company in question must sign a protocol with the relevant Ministry to which the said facilities will be donated. Furthermore, the said facilities need to be delivered to the related Ministry in return for a delivery report. On the other hand, when goods and services are donated to the aforementioned operational institutions, the invoice indicating that the goods and services in question have been received must be signed by the receiving institution.

In conclusion, whether the revenues are sufficient or not and whether the limits stipulated by law have been exceeded or not as well as the documentation for donations and aid should specifically be taken into account with regard to donations and aid. Furthermore, while the VAT incurred for certain donations and aid are subject to deductions or rebate, VAT deductions mostly need to be adjusted. It is thus important to check VAT calculations depending on the type of donation and aid.

I strongly recommend that the status of a specific donation or aid under the tax legislation be determined in consultation with a specialist

Leon Aslan Coşkun