Under Turkish tax law, the income of cooperatives arising from certain qualifying activities is exempt from corporate income tax, provided that the cooperative does not engage in transactions with non-members and operates in accordance with the principles of mutual assistance and solidarity.
The purpose of this regulation is to preserve the non-profit nature of cooperatives and support their role in protecting the economic interests of their members.
Conditions for the Exemption
- Principle of Solidarity:
The cooperative must operate on the basis of mutual aid and solidarity, without pursuing commercial profit. - Member-Based Transactions:
Income must arise only from transactions conducted with the cooperative’s own members. - No Dealings with Non-Members:
The cooperative must not conduct business with third parties outside its membership base. - Mandatory Clauses in the Articles of Association:
- No profit distribution on capital,
- No profit-based payments to board members,
- No distribution of reserve funds to members,
- Business limited exclusively to members.
- Actual Compliance:
The cooperative must implement these principles in practice, not merely include them in its charter.
Application and Explanation
Cooperatives in Turkey are recognized as non-profit economic entities.
If a cooperative earns income from non-member transactions, it loses the tax exemption and becomes a corporate income taxpayer.
The exemption covers housing cooperatives, workplace construction cooperatives, and agricultural development cooperatives.
Even if the legal entity continues to exist after completing construction, once the cooperative delivers the independent units to its members, its activity is deemed completed and the exemption still applies.
Example
A housing cooperative builds and delivers apartments only to its members, without any sales to non-members.
The income earned is fully exempt from corporate income tax.
However, if the same cooperative sells part of the units to external buyers, the exemption is void, and the entire income becomes taxable.
Legal Basis
This exemption is regulated under Article 5/1-i of the Turkish Corporate Tax Law (Law No. 5520).
The purpose of the provision is to encourage cooperatives to maintain their social-solidarity model and continue operating for the benefit of their members rather than profit.
For professional advice on cooperative taxation, corporate income tax exemptions, and compliance in Turkey, contact ÖzbekCPA.
