THE HIDDEN CAPITAL CONCEPT IN TURKEY AND THE HIDDEN CAPITAL RISK IN COMPANIES WITH FOREIGN CAPITAL

GENERAL DESCRIPTION

No matter which country the limited liability company or joint stock company operates in, its goal is always to make a profit. In addition to making profits, the company also needs to maintain its sustainability year after year. In this study, we will talk about the capital increase requirements of foreign capital companies operating in Turkey, whether they are joint stock companies or joint stock companies, due to the increased exchange rates in the last 5 years and the capital increase of companies in connection with the issue of Covert Capital.

THE HIDDEN CONCEPT OF CAPITAL

The concept of hidden capital is clearly mentioned in the 12th article of the 1st section of the 2nd part of the 2nd chapter of the Corporate Tax Law No. 5520. According to Article 12,

“(1) The proportion of debt that institutions use in their business operations by obtaining them directly or indirectly from their partners or persons related to them and which exceed three times the equity capital of the institution at any time during the accounting period is taken into account as “disguised capital”. the corresponding accounting period.

As can be seen from the article of the law, it is strictly stipulated that the debts of companies to their partners or persons related to them cannot exceed three times the capital.

THE DIFFERENCE BETWEEN EQUITY AND HIDDEN CAPITAL

While equity is the capital that the shareholders pay to their companies within the legal framework, the hidden capital refers to the entirety of the loans or debts that the shareholders or related persons grant to the company in question in foreign currency.

THE HIDDEN CAPITAL DILEMMA

In cases where loans or advances granted by partners or related persons exceed three times the capital amount, losses arising from the appreciation of the exchange rate in the relevant business, loan interest bills and additional borrowing expenses related to the loan or loans received are not subject to deduction the relevant law. For this reason, two types of profit and loss statements are formed in the company’s income and expense accounts: before the hidden capital calculation and after the hidden capital calculation.

THE CONCLUSION

Business partners who ignore this dilemma find themselves faced with serious deviations and unforeseeable problems in their respective company’s planned budgets and goals at the beginning of the year. This situation results in unforeseen additional costs for the company. To prevent this situation, the Smart team does the necessary work for you, our valued investors.