Turkey

Basic taxes (briefly)

Personal tax 15-40%
Corporate tax (in detail) The standard income tax rate is 20% (it has been increased to 22% for the period 2018-2020)
Capital gains tax. Details Capital gains derived by a company are generally taxable as ordinary income
VAT. Details The standard VAT rate is 18%. Reduced rates of 8% and 1% apply to some goods and services
Other taxes Social contributions, Inheritance and gift tax, Property tax
Government fee Yes
Stamp duty from 0.189% to 0.948%

International tax agreement

Tax treaties entered Albania, Algeria, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Czech Republic, Côte d'Ivoire, Denmark, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea (Republic of), Kosovo, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Montenegro, Morocco, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Senegal, Singapore, Slovakia, Slovenia, Somalia, South Africa, Spain, Sudan, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Thailand, Tunisia, Turkey Republic of Northern Cyprus, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Viet nam, Yemen
   
Tax Exchange Information Agreement (TEIA) Bermuda, Gibraltar, Guernsey, Isle of Man, Jersey


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TAXATION

Personal Income Tax

In Turkey residents are taxed on worldwide income; nonresidents are taxed on Turkish-source income only. Individuals who are in Turkey for a continuous period (including temporary absence) of more than 6 months in any calendar year are deemed to be resident for tax purposes. However, foreign individuals who are on assignment in Turkey for a specific business project or mission, or those in Turkey for holiday, health care or educational purposes are not regarded as resident, even if they stay for more than 6 months.
Taxable income is comprised of employment income, business income, income from agricultural activities, professional income, income derived from securities (i.e. dividends and interest), income from immovable property (i.e. rental income from real estate) and other income (capital gains and nonrecurring income).
Individual income tax rates apply on a progressive basis from 15% to a top marginal rate of 35%.
Tax year for individuals is a calendar year or fiscal year. An income tax return must be filed by all individuals that derive business or professional income. For other types of income (e.g. salary, income from securities, income from immovable property, capital gains, etc.), the obligation to file an annual return depends on the type of income, the amount, the exemption limits applicable and whether the income is subject to withholding tax at source.
Individual required to file an annual income tax return must submit the return between the 1st and 25th day of March of the following calendar year. Income tax accrued must be paid in 2 equal installments in March and July.

Corporate Income Tax

A company is resident in Turkey if is legal seat or place of management is in Turkey. Resident companies with unlimited liability are taxed on worldwide income; nonresident companies are subject to tax on Turkish-source income only.
All profits derived from the earning of income are included in taxable income, with the exception of dividends qualifying under the Turkish participation exemption. Expenses incurred in the course of the business are generally deductible.
The standard corporate tax rate is 22%. A reduced rate applies on earnings derived from investments in specified sectors/regions.

Capital Gains Tax

Capital gains derived by a company are generally taxable as ordinary income. However, 75% of capital gains derived from the sale of local participations are exempt from corporation tax if the following conditions are satisfied:
  • the property has been held for at least 2 years;
  • the gains are kept in a special fund account under shareholder equity for 5 years following the year of the sale;
  • the exempt profits are not transferred within the specified period to another account (except the transfers to the capital account by way of a capital injection); and
  • consideration for the sale is collected by the end of second calendar year following the year of the sale.

Capital gains derived from the sale of foreign participation that have been held for at least 2 years by an international holding company resident in Turkey are exempt from corporate income tax.

Dividends

Dividends paid by a resident company to another Turkish company are exempt from corporate income tax in hands of the shareholder. Dividends received from a nonresident company are exempt from corporate tax if:
  • the nonresident payer is a corporation or limited liability company;
  • the Turkish recipient has owned at least 10% of the paid-in capital of the payer for at least one year;
  • the profits out of which the dividends are paid were subject to foreign income tax of at least 15% (20% if the main activity of the payer is the provision of financing, including financial leasing, insurance services or investments in securities); and
  • the dividends are remitted to Turkey by the date the corporate tax return is due.

Losses

Tax losses may be carried forward for 5 years, but may not be carried back except where the company is liquidated.

Tax Year

The tax year is the calendar year or fiscal year. It is also possible to obtain permission from the Ministry of Finance to use a special accounting period.

Withholding Tax

Dividends paid to a nonresident company are subject to a 15% withholding tax, unless the rate is reduced under a tax treaty.
Interest on loans payable to a foreign state, international institution, or foreign bank or foreign corporation that qualifies as a “financial entity” is subject to 0% withholding tax. A 10% rate applies to interest paid on loans from other nonresident entities.
Royalties are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.
Technical service fees are subject to a 20% withholding tax.
Branch remittance tax is levied at a rate of 15%.

VAT

VAT is imposed on the supply of most goods and the provision of services.
The standard rate is 18%, with reduced rates of 8% applicable to basic foodstuffs, pharmaceutical products and other items, and 1% for journals, newspapers, certain farm products and certain machine/equipment acquired under finance leases. Certain supplies are exempt. Reverse-charge VAT at 18% applies to payments made to nonresidents for professional services, the use of intangibles (e.g. royalties, licenses or know-how) and on the sale of such rights.

VAT Registration

There is no turnover threshold for VAT registration in Turkey. Any person or entity engaged in an activity within the scope of the VAT law must notify the local tax office where its place of business , the same tax office at which the business registered for income/corporation tax purposes.
A foreign business with no establishment in Turkey but that sells goods located in Turkey must appoint a tax representative (agent) to register for VAT. Direct registration is not possible. Such a business must use the reverse charge mechanism for charging VAT.

VAT Tax Period and Returns

VAT payments are due monthly. VAT returns must be filed with the local office by the 24th of the following month and VAT is payable by the 26th day of the month in which the return is submitted.

Stamp Duty

Stamp duty applies at rates ranging from 0.189% to 0.948%, depending on the type of document.

Government Fee

Other Taxes and Duties

Capital duty there is no duty on share capital, but there is a compulsory contribution to the Competition Board equal to 0.04% of the capital amount committed when the company is established, and 0.04% of any subsequent increase in capital.
Payroll tax income withholding tax is levied at source by the employer on salaries at progressive income tax rates ranging from 15% to 35%.
Real property tax levied based on the value of land or buildings at rates of 0.2% for buildings in general, 0.1% for dwellings, 0.1% for land in general and 0.3% for building sites. The rates are increased by 100% for buildings and land located within larger cities.
Transfer tax the registration of a transfer of real estate is subject to real estate transfer tax. The tax is calculated as 4% of the acquisition/transfer value and is split equally between the buyer and the seller.
Social security contribution both the employer and the employee are required to make social security contributions at a rate depending on the risk category of the job. The general rates are 19.5%-25% for the employer and 14% for the employee.

Anti-Avoidance Rules

Transfer pricing: When a transaction between related parties (domestic or foreign) is not carried out on arm’s length terms, profits arising from the transaction will be deemed to be “constructive dividends” subject to both corporate income tax and dividend withholding tax. The transfer pricing rules provide for the comparable uncontrolled price, cost-plus and resale price methods as well as profit-based methods (e.g. profit-split and transactional net margin methods). However, a taxpayer may adopt another method based on its particular circumstances. Taxpayers are required to maintain documentation to support their transfer pricing.
Thin capitalization: Thin capitalization rules apply when loans from shareholders or related parties exceed a 3:1 debt : equity ratio at any time in an accounting period. Related parties for these purposes are defined as shareholders and persons related to shareholders that own, directly or indirectly 10% or more of the shares, voting rights or the right to receive dividends of the company. The amount of equity is determined under the Tax Procedures Code at the beginning of accounting period.
Controlled foreign companies: The CFC rules are triggered where a Turkish resident company controls, directly or indirectly, at least 50% of the share capital, dividends or voting power of a foreign entity, and (1) 25% or more of the gross income of CFC is comprised of passive income, such as dividends, interest, rents, license fees or gains from the sale of securities that are outside the scope of commercial, agricultural or professional income; (2) the CFC is subject to an effective tax rate lower than 10% in its country of residence; and (3) the annual total gross revenue of the CFC exceeds the foreign currency equivalent of TRY 100,000. If these requirements are met, the profits of the CFC are included in the profits of the Turkish company in proportion to the Turkish company’s share in the capital of the CFC, regardless of whether such profits are distributed, and will be taxed currently at the 20% corporation tax rate.
Disclosure requirements: Certain disclosures must be made in the footnotes attached to the statutory financial statements submitted to the tax office, together with the corporate tax return.

Double Tax Agreements

Turkey has exchange of information relationships with 109 jurisdictions through:
  • 87 DTCs: Австралия, Австрия, Азербайджан, Албания, Алжир, Бангладеш, Бахрейн, Беларусь, Бельгия, Болгария, Босния и Герцеговина, Бразилия, Великобритания, Венгрия, Вьетнам, Германия, Греция, Грузия, Дания, Египет, Израиль, Индия, Индонезия, Иордания, Иран, Ирландия, Испания, Италия, Йемен, Казахстан, Канада, Катар, Китай, Косово, Кот дЁИвуар, Кувейт, Кыргызстан, Латвия, Ливан, Литва, Люксембург, Македония, Малайзия, Мальта, Марокко, Мексика, Молдова, Монголия, Нидерланды, Новая Зеландия, Норвегия, ОАЭ, Оман, Пакистан, Польша, Португалия, Республика Корея, Российская Федерация, Румыния, Саудовская Аравия, Сенегал, Сингапур, Сирия, Словакия, Словения, Сомали, Судан, США, Таджикистан, Узбекистан, Украина, Филиппины, Финляндия, Франция, Хорватия, Черногория, Чехия, Швейцария, Швеция, Эстония, Эфиопия, ЮАР, Япония;
  • 5 TIEAs: Bermuda, Gibraltar, Guernsey, Isle of Man, Jersey.

Foreign exchange control

There are no foreign exchange controls in Turkey.

ACCOUNTS

Financial Statements

Turkish companies are obliged to prepare financial statements annually and submit it to the annual shareholders’ meetings. Financial statements shall be kept in accordance with the Turkish Commercial Code and comply with Turkish Accounting Standards.
It is not required to file the statements with the Registry.

Audit

LTD companies exceeding at least two (2) of the three (3) following criteria below for two (2) successive fiscal periods are subject to independent audit:
  • Total Assets: TRL 150 million +
  • Net Sales: TRL 200 million +
  • Employees: 500+

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

Turkish companies are not required to prepare and file annual return.

Tax Returns

The corporate tax return must be filed between the 1st and 25th day of the month after the end of the company’s accounting period. Corporate income tax is payable by the end of the month in which the tax return is due (i.e.by the end of April for companies using the calendar year). Tax returns are required to be filed even if there was no activity in company.
Delay interest (currently 1.4%) is charged for the period between the date the tax was due and the date of assessment. Procedural penalties are imposed for failure to submit tax return on time, failure to properly keep statutory accounts, failure to comply with statutory accounting principles and failure to have the statutory books notarized on time.

    Taxes of Turkey

    Min. rate for corporate tax 20%
    Capital gains tax Regular rate
    VAT 18%
    Withholding tax 15%/20%/0-18%
    Exchange control No
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