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TAXATION IN TURKEY

By 8 December 2022No Comments

In this article, our colleague from Gurcan Partners İstanbul Office, Tax Advisor Özen Şahinoğlu Özdemir will mention Company Taxation in Turkey with all details.

CLASSIFICATION OF THE TAXES

We can explore Turkish Tax System in terms of direct-indirect classification.

DIRECT TAXES

The direct taxation system is based on income, earnings, and property/ownership. Taxes on income and earnings are:

  • Personal Income Tax
  • Corporate Income Tax

An individual is subject to the personal income tax on his income and earnings while a company is subject to corporate tax on its income and earnings. Also known as income-based taxes.

TAXES ON PROPERTY/OWNERSHIP ARE:

  1. Motor Vehicles Tax
  2. Property Tax
  3. Inheritance and Gift Tax

These taxes are also known as wealth-based taxes.

INDIRECT TAXES

  1. There are several indirect taxes but most important indirect tax is VAT (Value Added Tax).

OTHER INDIRECT TAXES ARE SUCH AS:

  1. Stamp Tax,
  2. Banking and Insurance Transaction Tax (BITT),
  3. Customs Duty Tax, Special Communication Tax,
  4. Special Consumption Tax, etc.

These taxes are based on expenditures.

The most common types of capital companies in Turkey are joint-stock companies (Anonim Şirket/A.Ş) and  Limited liability companies (Limited Şirket/Ltd. Şti.) companies. Therefore we will focus on these type of companies’ tax issues.

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BRIEF LOOK FOR TAX CONSIDERATIONS

CORPORATE TAX

Corporations with legal or business centers located in Turkey are qualified as residents and are subject to tax on their income derived in Turkey and other countries. If both the legal and business centers are not located in Turkey, then these corporations are qualified as non-residents and subject to tax only on their income derived in Turkey.

The rate for corporate income tax is 22% for the FYs 2018a and 2019 which was 20 % before.

Resident and non-resident entities that have a permanent establishment in Turkey are obliged to file annual corporate income tax and quarterly advance corporate income tax.

WITHHOLDING TAX

Under the Turkish tax system, certain taxes are collected via withholding such as:

  1. Income tax on the salaries
  2. Lease payments to individual landlords
  3. Independent professional service fee payments to resident individuals
  4. Royalty
  5. License and service fee payments

Dividend distributions to individual and non-resident corporate shareholders are subject to the withholding tax (WHT) at a rate of 15%.

Dividend distributions to resident entities and branches of non-resident entities are not subject to the dividend WHT. For non-resident entities operating in Turkey (such as branches, other types of permanent establishments such as permanent representatives/agents) the WHT will only be applicable on the portion of the profit that is transferred to the headquarters principal.

PAYROLL TAXES

Payroll payments (salary payments to employees) necessitate income tax, social security premiums, and stamp tax on gross payments to employees. Income tax brackets are announced at the beginning of each year by the Ministry of Finance.

PROPERTY TAXES

Buildings, apartments, and land owned in Turkey are subject to real estate tax ranging at a rate between 0.1% and 0.6%.

Please read our article on the Buying Property in Turkey to learn more about the process and other taxes on the process of the purchasing property in Turkey.

VAT (VALUE ADDED TAX)

All commercial activities such as a supply of goods or services have a value-added tax (VAT) in Turkey.

VAT rates in Turkey are %18, %8, and %1.

These rates are mentioned in VAT Law.

If the foreign entities are not tax registered in Turkey, the Turkish entity is liable to account for VAT on behalf of the foreign company (reverse charge mechanism). 

The reverse charge mechanism is applied in the case where the recipient of payment (that is the service provider) is not tax registered entity in Turkey. The reverse charge mechanism is not applicable for the delivery of the goods; the importer will be liable to pay import VAT. Note that only tax registered companies can import goods into Turkey.

STAMP TAX

According to Stamp Duty Law, if legal documents signed in Turkey, or signed abroad but the beneficial interest of the parties exist in Turkey stamp duty arises.

Stamp duty ranges from 0.189% to 0.948% or is collected as a fixed price (a pre-determined price) for some documents.

BANKING AND INSURANCE TRANSACTION TAX

There are four main product groups that are subject to SCT at different tax rates;

  1. Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvents
  2. Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
  3. Tobacco and tobacco products, alcoholic beverages
  4. Luxury products

BANKING AND INSURANCE TRANSACTION TAX

Banking and insurance company transactions exempt from VAT but they are subject to a Banking and Insurance Transaction Tax. Although the general rate is 5%, some transactions, such as interest on deposit transactions between banks, are taxed at 1%.

So far we have assisted over 400 companies. Check out our experiences.

TRANSFER PRICING REGARDING RELATED PARTY TRANSACTIONS

There are also significant transfer pricing risks about related party transactions and it will be necessary to feel safe that related party transactions are undertaken on an arm’s length basis. 

BOOKING REQUIREMENTS

Based on the Turkish Tax Procedural Code, companies who keep their records according to the balance sheet method should prepare legal boOks below, and these books are subject to public notary certification:

  1. Journal ledger
  2. General ledger
  3. Inventory ledger

Legal books must be kept:

  1. In Turkish (duo language can also be used),
  2. In Turkish Lira, and
  3. In line with the Turkish Uniform Chart of Account.

Legal books should be printed as hard copies if the company is not registered via e-invoicing/e-ledger procedure.

Taxation in Turkey 

Özen Şahinoğlu Özdemir – Tax Advisor

All rights reserved. All rights of the Taxation in Turkey article belong to Gurcan Partners International Law Firm. The author has no responsibility for the information in this article. This article is prepared just to inform.

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Our Tax Advisor Özen Şahinoğlu Özdemir will mention Company Taxation in Turkey with all details. VAT in Turkey, Corporate Tax in Turkey and other taxes...

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