Accounting and tax during liquidation
Liquidation is not simply closing a company; it is the process of paying debts, collecting receivables and distributing what remains to shareholders. It has its own accounting and tax rules.
A company entering liquidation does not immediately lose its legal personality; it continues for the limited purpose of liquidation. The trade name is used with the words 'in liquidation'. Management authority passes to the liquidator, and the company's activity is confined to what liquidation requires.
Periods for tax purposes
Liquidation splits the taxation period. The time up to the date of entry into liquidation is one period; from that date to the end of the year is another. Where liquidation spans more than one year, each calendar year is a separate liquidation period.
| Period | Coverage | Filing |
|---|---|---|
| Pre-liquidation | Start of the accounting period – date of entry | Short-period return |
| Liquidation period | Date of entry – end of the calendar year | Liquidation period return |
| Subsequent periods | Each calendar year | Separate return |
| Final period | Start of year – completion of liquidation | Final liquidation return |
What the process requires
- Registration and announcement of the liquidation decision, followed by notification to the tax office.
- Preparation of the opening liquidation balance sheet and determination of assets at their real values.
- Calling on creditors and observing the statutory waiting period.
- Sale of inventory, disposal of fixed assets, and recording the resulting profit or loss.
- Settlement of public debts and social security obligations.
- Where there are employees, termination of contracts and settlement of severance and notice obligations.
- Retention of books and documents for the statutory period; this obligation survives closure of the company.
Frequent difficulties
- The treatment of carried-forward VAT: any balance remaining at the end of liquidation is not refunded, and its treatment as an expense must be assessed separately.
- Whether the liquidation surplus distributed to shareholders is subject to withholding as a dividend is often overlooked.
- The conditions for doubtful receivable provisions still have to be met during liquidation.
- If liquidation is abandoned, the period structure must be re-established.
- The liquidator carries separate liability in respect of public receivables.
Legal basis
- Turkish Commercial Code No. 6102, Articles 536 et seq.
- Corporate Tax Law No. 5520, Article 17 (liquidation)
- Tax Procedure Law No. 213 (retention of books and documents)
- Law No. 6183 (liability of the liquidator)
This article is general information and does not replace professional assessment of a specific matter. Amounts and rates relate to the stated year; please verify the current provisions before acting.
