A loss-making company where partners inject funds to cover salaries, rent, and taxes is the most common picture among corporate structures established in 2022–2023. Few realize that for tax authorities, these funds can be treated as taxable corporate income. A recent advance tax ruling (özelge) from the Istanbul Tax Office Directorate dated July 7, 2026, made the distinction clear: the outcome is determined not by the payment description, but by the presence of a formal corporate resolution adopted in accordance with the law.
The Rule and the Fork in the Road
Law No. 7394 (effective April 15, 2022) introduced a rule to the Corporate Income Tax Law: amounts transferred by partners to the company to cover losses based on a capital replenishment resolution (sermaye tamamlama fonu) under Article 376 of the Turkish Commercial Code (TTK) are not taken into account when calculating taxable corporate profit. The 2026 ruling confirms the other side of this rule: if no such resolution exists, the amounts transferred by the partners are included in the company's taxable profit. That means they are subject to 25% corporate income tax, and where the domestic minimum corporate income tax applies, they are included in its base as well.
When This Mechanism Can Actually Be Used
Capital replenishment is not a universal method for covering any loss. First, one must calculate what portion of the capital has been eroded by the loss. If half of the sum of share capital and legal statutory reserves is lost, the board of directors (or managers) is required to convene the general assembly and propose remedial measures. If two-thirds is lost, the general assembly must adopt a resolution: either to continue operations with the remaining capital or to replenish the missing capital through partner contributions. Without such a resolution, the company risks termination. It is precisely this resolution, adopted with explicit reference to Article 376, that renders the partners' funds non-taxable. If the company's liabilities exceed its assets (deep insolvency / balance sheet over-indebtedness), a general assembly resolution alone is insufficient: an interim balance sheet is required and, if necessary, the court must be notified.
The Sequence That Decides Everything: Resolution First, Funds Second
The most common practical mistake: money is transferred to the company, and the general assembly resolution is drafted retroactively months later. Tax authorities treat such amounts as corporate income. The correct sequence is: calculate capital loss, then adopt the general assembly resolution specifying the exact loss amount to be covered and each partner's share, and only then execute the transfer. The mere existence of a loss on the balance sheet does not in itself constitute sufficient grounds.
This Is Neither a Loan nor an Advance for a Capital Increase
Capital replenishment is a non-refundable coverage of losses. The partner cannot demand the money back, receives no new shares, and the amount is neither a corporate loan nor an advance payment toward a future capital increase. On the balance sheet, it is reflected not as a corporate liability, but within equity under a separate capital replenishment fund (in practice, a designated sub-account under Account 529 "Other Capital Reserves"), and is used exclusively to offset losses. No VAT arises: the partner is not supplying goods or providing services. However, if the funds are booked as debt, if interest is accrued on them, or if a refund mechanism is stipulated, this ceases to qualify as capital replenishment, and the tax protection no longer applies.
Accounting Loss and Tax Loss Are Different Concepts
Covering prior-year losses through a capital replenishment fund does not eliminate the tax loss reflected in corporate tax returns. Tax losses continue to be carried forward against future profits, tracked separately by year, and subject to the standard five-year carryforward limitation.
Why Not Simply Increase Capital
The first idea that comes to mind is a cash capital increase: the partner contributes funds and receives shares, while the company, provided statutory conditions are met, benefits from the cash capital increase deduction. However, when losses are substantial, the required amount may be prohibitive: under capital replenishment, only the company's net equity increases, while registered share capital remains unchanged; under a capital increase, registered share capital rises, and along with it, the statutory threshold of equity that must be maintained also increases. Therefore, capital replenishment is often a necessary stopgap rather than a preferred choice. If the partners' financial resources allow, a capital increase is more durable. In cases of severe loss, a combined path is also prudent: first a capital decrease, followed by a capital increase for the necessary amount.
If your partners are covering company losses with their personal transfers, verify whether these payments are properly formalized by an Article 376 resolution and executed in the correct sequence. We can help you calculate capital loss, prepare general assembly resolutions, and decide between capital replenishment and a capital increase. Contact us.