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Turkish Tax System

Turkish taxation system is similar to EU systems. Tax Procedural Code, old Corporate Taxation Code and Individual Income Tax Code come from Germany and VAT comes from Belgium. Also Special Consumption Tax was prepared according to European Union systems.

1. Income Taxes in Turkey

1.1. Turkish Income Tax Code for Individual 

Turkish income taxation system consists of two main taxes which are individual income tax and corporate tax. Individuals are subject to income tax. The Income Tax Law no.193 was passed by the parliament in 1960. New income tax bill is being prepared by Turkish Tax Council, where Deger is represented by president Mr. Fatih Dural (vice president of the Council) and Mr. Ibrahim Özdemir (member of the Council). New income tax code (ITC) is expected to pass in year 2010 or 2011.

In Turkish ITC, taxation criteria are residency and nationality. According to residency criterion, an individual who has his place of residence in Turkey is liable to pay tax for his worldwide income (unlimited liability). Any persons who remain in Turkey more than six months in a calendar year are assumed as a resident of Turkey. However, foreigners who stay in Turkey for six months or more for a specific job or business or particular purposes which are specified in the ITC are not treated as resident and therefore, unlimited tax liability does not apply to them.

In addition to residency criterion, within a limited scope, nationality criterion also applies regardless of their residency status, Turkish citizens who live abroad and work for government or a governmental institution or a company whose headquarter is in Turkey, are considered as unlimited liable taxpayers. Accordingly, they are subject to the income tax on their worldwide income.
Non-residents are only liable to pay tax on their income derived from the sources in Turkey (limited liability). For tax purposes, it is especially important to determine in what circumstances income is deemed to be derived in Turkey. The provisions of Article 7 of the Income Tax Code deal with this issue.

According to Turkish ITC, income is taxed via tariffs in article 103. Year 2010 tariff is below.

Lower end

Upper end

Tax on lower

Tax rate (%)

0

10.000 TL

0

15 %

10.000 TL

25.000 TL

1.500 TL

27 %

25.000 TL

58.000 TL

4.500 TL

27 %

58.000 TL

13.410 TL

35 %

Also some income is taxed by withholding taxation methods. Some withholding tax rates pursuant to article 94 of the Turkish ITC are below.

Type of payment

Withholding tax rate (in November 2012)

Salary payments

(According to tariffs article 103) 15%- 35%

Copyrights and similar rights (in article 18)

17%

Self employed persons payments

20%

Payments to construction work spanning more than one year

3%

Payments to limited liability taxpayers for copyrights and similar rights.

20%

Payments for rents

20%

Dividend payments

15%

Income from governments bonds and bills for foreigners

0%*

Income from other bonds and securities

10%*

* Securities tax rates are very complex. Please contact us any questions.

Turkey has signed more than 74 bilateral tax agreements. (Appendix: Bilateral agreement country list).  If an applicable tax agreement requires lower tax rate or exemption for any individual, tax agreements would be applied.
For example, Germany – Turkey Tax Agreements requires 10% tax rate for copyright payments to source country. Therefore a German resident that gets copyright payment from a Turkish Company faces 10% withholding tax instead of 20%.
Above tax rates are applicable for anybody inside Turkey.
Advance taxation is available in some type of ITC; its rate is 15%.
More information please contact us.

1.2. Turkish Income Tax Code for Corporations 

The Turkish Corporate Tax is levied on income of corporations. The Corporate Tax Code (CTC) number of 5520 was accepted in 2006. The CTC was prepared harmonized with OECD and European Union countries’ tax system. The new CTC consist of several amended and new provisions such as,

  • Transfer pricing,
  • Thin capitalization,
  • Controlled foreign corporations (CFC rules)
  • Anti-tax haven provisions (so far the provisions are not applicable because of lack of cabinet decision)
  • Cost allocation
  • Participation exemption for investment in foreign subsidiaries
  • Capital gains exemption for sales of participation and real estates

The corporate tax rate is 20%. Also advance taxation is available in the CTC advance tax rate is 20% for corporations also.
Profit distribution to individual and foreign corporate shareholders is subject to dividend withholding (income) tax. Its rate is 15%. According to Turkish tax system, maximum income tax burden is 33% of earnings from corporations.

2. Turkish VAT System

The VAT has been effective from 1985 in Turkey. Turkish VAT system is similar to EU system but it has major differences. For example, VAT refund is exclusive for export and special exemptions and reduced tax rate sales, such as food. If a company has lots of inventories, probably it has to carry VAT burden.
The Turkish VAT system levies sales of goods, imports and services. Although VAT is a general tax, there are a lot of exemptions on Turkish VAT system. VAT system has many exemptions that some of them are below.

  • Export exemption,
  • Petroleum and investment made under an investment incentive certificate,
  • Transit transportation,
  • Diplomatic exemption,
  • Social exemptions
  • Other exemptions (for example gold and jewelry sales)

Turkish VAT system has three different tax rates which are;

  • 18 % standard rate,
  • 1 % super reduced rate for delivered and services mentioned in list of I (for example, some agricultural products such as raw cotton, hazelnut exc.)
  • 8% reduced rate for deliveries and services mentioned in list of II (for example some food products, books ext.)

Super reduced rate is used for tax security and social reasons. Reduced rates are used for social reasons.

3. Other Taxes

Turkey has several other taxes which are special consumption tax, stamp tax, customs duty, inheritance and gift tax, real estate tax, motor vehicle tax.