What Is KKEG? Non-Deductible Expenses in Turkish Tax Law

Non-deductible expenses (KKEG, "kanunen kabul edilmeyen giderler") refer to expense items that businesses incur in the course of their commercial activities but that tax legislation does not allow to be deducted from the tax base. In the Turkish tax system, not every expenditure is tax-deductible; certain expenses are classified as legally non-deductible under the Income Tax Law and the Corporate Tax Law. Tracking and recording these expenses correctly is critically important for companies to prepare their tax returns without errors.

In this guide, we will cover in detail what KKEG items are, their tax implications, how they are monitored in the 900-series memorandum accounts, and how Masraff automates these processes.

What Exactly Is KKEG (Non-Deductible Expenses)?

KKEG are expenditures that appear as expenses in a business's accounting records but cannot be deducted when calculating the tax base. These expenses are taken into account when calculating commercial profit, but they must be added back to the tax base in the transition to fiscal profit.

In other words, even if your company has actually made these expenditures and recorded them in its accounting books, the state does not allow these items to be deducted from taxes. This creates a difference between commercial profit and fiscal profit. Managing this difference correctly is indispensable for sound tax accounting.

The Legal Basis of KKEG

The main legal bases of KKEG can be found in the following legislation:

• Income Tax Law (GVK) No. 193, Article 41: Expenses that cannot be deducted in determining commercial income
• Corporate Tax Law (KVK) No. 5520, Article 11: Expenses that cannot be deducted in determining corporate income
• Tax Procedure Law (VUK) No. 213: Provisions on documentation and record-keeping

What Are the Most Common KKEG Items?

Let's examine the KKEG items that businesses encounter most frequently in their daily operations, organized by category.

1. Representation and Entertainment Expenses

Business meals, client entertainment expenditures, and representation expenses are among the most common KKEG items. In particular, undocumented entertainment expenses or those whose business connection cannot be proven are treated directly as KKEG.

• Undocumented meal expenses
• Accommodation expenses that cannot be directly linked to business
• Luxury-grade representation expenditures

2. Fines and Compensation Payments

Tax penalties, traffic fines, administrative fines, and late-payment interest cannot be deducted from the tax base. These have been deliberately placed within the scope of KKEG by the legislature, because the aim is to preserve the deterrent effect of penalties.

• All types of tax penalties and late-payment surcharges
• Traffic fines
• SGK (Social Security Institution) administrative fines
• Contractual compensation payments (with some exceptions)

3. Donations and Aid (Amounts Exceeding Limits)

Donations and aid are tax-deductible within certain limits. However, the portion exceeding 5% of corporate income is treated as KKEG. For donations made to institutions listed in the law, this limit may differ.

• For general donations and aid, the amount exceeding 5% of corporate income
• The entirety of donations made to institutions not specified in the law
• Undocumented aid

4. Financing Expenses

Interest expenses calculated on disguised capital, earnings distributed covertly through transfer pricing, and certain items within the scope of the financing expense restriction are treated as KKEG.

• Disguised capital interest expenses
• Transfer pricing adjustments
• Amounts within the scope of the financing expense restriction

5. Legally Prohibited Expenses

In addition to all monetary fines, tax penalties, and the related late-payment surcharges and interest, the personal expenditures of the business owner or shareholders also fall within the scope of KKEG.

• Shareholders' personal expenditures
• Expenses unrelated to business operations
• Undocumented or unverifiable expenditures

6. Passenger Car Expense Restriction

A defined portion of the leasing cost, depreciation and fuel expenses of passenger cars registered to the company — along with part of the tax paid on purchase — cannot be deducted. The restricted amounts are added back to the tax base and tracked as KKEG. Because the rates and monetary caps are set by legislation and revised annually, verify the current figures each period.

7. Undocumented Expenses

Expenditure that cannot be substantiated with a valid document — an invoice, a receipt or a self-issued expense voucher — is not accepted as a deductible expense. Proper documentation is the most basic condition of deductibility; any undocumented amount goes straight to KKEG.

8. Special Communication Tax and Motor Vehicle Tax

The special communication tax included in mobile phone invoices, and the motor vehicle tax on passenger cars, are tax items that cannot be deducted as expenses and are therefore treated as KKEG.

9. Expenses With No Demonstrable Business Purpose

Expenditure with no direct connection to the company's operations, of a personal nature, or whose business purpose cannot be evidenced, is also treated as non-deductible. The most common form of this item is personal spending on a company card.

What Are Memorandum Accounts and Why Are They Used?

Memorandum accounts are accounts used to record transactions that do not affect the business's actual assets and resources but need to be monitored for informational purposes. In the Turkish Uniform Chart of Accounts, accounts 900-999 are reserved as memorandum accounts.

These accounts are also known as off-balance-sheet accounts and operate under the double-entry system. That is, every memorandum account entry is made with a debit and a credit entry; however, these entries do not affect the balance sheet.

Key Characteristics of Memorandum Accounts

• Off-balance-sheet: They do not affect total assets or liabilities
• Informational: They are used for tracking and control
• Double-entry: The debit-credit balance is preserved
• Used in tax returns: They are indispensable for KKEG tracking

How Is a KKEG Memorandum Account Entry Made?

Monitoring KKEG items in the 900-series memorandum accounts ensures that these expenses are correctly added to the tax base when preparing the tax return. Here is the step-by-step process:

Step 1: Identifying an Expense as KKEG

First, it is determined whether the expenditure falls within the scope of KKEG. This determination is made according to the relevant tax laws.

Step 2: Standard Accounting Entry

The expense is recorded in the relevant expense account (7XX group) with a standard accounting entry. This entry is included in the commercial profit calculation.

Step 3: Memorandum Account Entry

Simultaneously, an entry is created in the memorandum accounts for the same expense:

Step 4: Period-End Procedures

At the end of the accounting period, the KKEG total in the memorandum accounts is transferred to the "Non-Deductible Expenses" line of the corporate tax return, providing the transition from commercial profit to fiscal profit.

Sample Accounting Entry

Suppose a business pays a traffic fine of 5,000 TL:

Standard entry:

Memorandum account entry:

How KKEG Affects the Tax Base

The most consequential effect of KKEG is on the tax base. Commercial profit is the profit calculated from the company's accounting records. Fiscal profit is the profit the tax is actually assessed on. The main difference between the two comes from non-deductible expenses.

The mechanism works like this: KKEG amounts accumulated during the period are added back to commercial profit, deductions and exemptions are subtracted, and fiscal profit is arrived at. The higher the KKEG total, the higher the tax payable.

The practical consequence: having booked something as an expense does not mean you obtained a tax benefit. If that expense falls within KKEG, it is added back to the tax base and directly increases the tax burden. This is why the assessment has to happen before the spend, not after it — a period-end finding measures the damage rather than preventing it. A well-defined expense policy reduces KKEG surprises by settling up front which expenses get approved and how they must be documented.

Why Is KKEG Tracking So Important?

Failing to track KKEG items correctly can have serious tax consequences:

• Risk of underreporting: Not adding KKEG to the tax base leads to tax loss
• Tax penalties: Penalties and late-payment interest apply to the tax difference arising from underreporting
• Audit risk: Tax inspectors scrutinize KKEG items in particular
• Financial statement reliability: Incorrect KKEG tracking undermines the reliability of financial statements

Especially in growing businesses, as expense items multiply, tracking KKEG with manual methods becomes increasingly difficult. The likelihood of errors rises in spreadsheet- or paper-based systems, and these errors typically surface during tax audits.

How Does Masraff Automate KKEG Tracking?

Masraff, as a smart expense management platform, automates KKEG processes end to end. Here are the advantages Masraff offers in KKEG management:

Automatic KKEG Categorization

Thanks to its artificial intelligence-powered OCR technology, Masraff automatically reads receipts and invoices and classifies expense items into the relevant categories. In this process, expenses that qualify as KKEG are automatically flagged and tracked in a separate category.

Real-Time KKEG Reporting

With Masraff, you can view all your KKEG items on a single screen, generate periodic reports, and pass them directly to your accounting team when preparing the tax return. This eliminates the risk of period-end surprises.

Policy-Based Spend Control

By defining your company spend policies in Masraff, you can automatically detect expenditures that exceed KKEG limits. For example, the system issues an automatic alert when donation limits are exceeded or undocumented representation expenses are entered. If you want to build an effective policy for your company, take a look at our expense policy guide.

ERP and Accounting Integration

Masraff works integrated with popular ERP and accounting software, ensuring that KKEG records are automatically transferred to memorandum accounts. Manual data entry is eliminated and the risk of error is minimized.

Frequently Asked Questions

What is the difference between KKEG and legally deductible expenses?

Legally deductible expenses are expenditures that can be deducted from the tax base and reduce taxable profit. KKEG, on the other hand, cannot be deducted from the tax base even though they appear as expenses in the accounting records. The fundamental difference is whether or not the right to a tax deduction exists. While legally deductible expenses reduce fiscal profit, KKEG are added back to commercial profit in the fiscal profit calculation.

Which expenses are definitively within the scope of KKEG?

Tax penalties, late-payment interest and surcharges, traffic fines, undocumented expenditures, disguised capital interest, transfer pricing adjustments, the business owner's personal expenditures, and the other items listed in the law are definitively within the scope of KKEG. The entirety of these items must be added to the tax base without any exception or exemption.

Do memorandum accounts affect the balance sheet?

No, memorandum accounts are off-balance-sheet accounts and do not affect the business's asset-liability balance. These accounts, coded 900-999, are used solely for informational and tracking purposes. However, since the KKEG total in the memorandum accounts is used directly when preparing the tax return, they indirectly affect the tax liability.

What happens if KKEG tracking is not performed?

If KKEG tracking is not performed or is performed incompletely, the tax base is calculated lower than it should be. This leads to tax loss, and when detected by the tax office, a tax loss penalty and late-payment interest are applied along with the underpaid tax. Furthermore, deliberately concealing KKEG can give rise to charges of tax evasion.

How does Masraff help with KKEG tracking?

Masraff classifies expense items as KKEG or deductible expenses through artificial intelligence-powered automatic categorization. With OCR reading of receipts and invoices, a policy-based alert system, real-time reporting, and accounting software integration, it digitizes KKEG processes end to end. This reduces the accounting team's workload and minimizes the risk of error.

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KKEG tracking and memorandum account management, when done correctly, is a critical process that protects your business from tax risks. Automate this process with Masraff to save time and secure your tax compliance. Try Masraff for free and start your digital transformation in expense management today.