Turkish Tax System

The Turkish taxation system is similar to EU systems. Tax Procedural Code, old Corporate Income Tax Code, and Individual Income Tax Code come from Germany, and VAT comes from Belgium. Also, the Special Consumption Tax was prepared according to European Union systems. Even though source tax laws coming to Europe, there are significant differences from the original tax codes.

Income Taxes in Turkey

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 the income tax code. The parliament passed the Income Tax Law no.193 in 1960.

In Turkish ITC, the taxation criteria are residency and nationality. According to the 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 for 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 purposes which are specified in the ITC are not treated as a 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 the 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 obtained 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. The year 2020 tariff for ordinary income is below.

Lower End	Upper End	Tax on Lower	Tax Rate (%)
0	22.000 TL	0 TL	15 %
22.001 TL	49.000 TL	3.300 TL	20 %
49.001 TL	*120.000 TL	*8.700 TL	27 %
120.001 TL	600.000 TL	27.870 TL	35 %
600.001 TL		195.870 TL	40 %

* Salary income between 49.001 TL – 180.000 TL is taxed 27%, 180.001 TL – 600.000 TL is taxed 35%, and salary income more than 600.000 TL is taxed by 40% tax rate.

Type of payment	Withholding tax rate (in 2020)
Salary payments	(According to tariffs article 103) 15%- 40%
Copyrights and similar rights (in article 18)	17 %
Self-employed person 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 %*
Internet advisory payment	15 %

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

Turkey has signed 85 bilateral tax agreements. (Appendix: Bilateral agreement country list). If an applicable tax agreement requires a lower tax rate or exemption for any individual, tax agreements would be applied.

For example, Germany – Turkey Tax Agreements require a 10% tax rate for copyright payments to the source country. Therefore, a German resident that gets copyright payment from a Turkish Company faces a 10% withholding tax instead of 20%.

The above tax rates apply to anybody inside Turkey.

Advance taxation is available in some type of ITC; its rate is 15%.

For more information, please contact us.

Also, Turkey ratified the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information Agreement of OECD.

Turkish Income Tax Code for Corporations
The Turkish Corporate Tax is levied on the income of corporations. The CTC was prepared harmonized with OECD and European Union countries’ tax systems. 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 22% for the year 2020. Also, advance taxation is available in the CTC advance tax rate is 22% for corporations also. The tax rate will be 20% in the yar 2021.

Profit distribution to individual and foreign corporate shareholders is subject to dividend withholding (income) tax. Its rate is 15%. According to the Turkish tax system, the maximum income tax burden is 37,6% of earnings from corporations.

	Taxes
Total Taxes	376
The offset of withholding tax on dividend	117
Profit Distribution Tax (15%) (780 * 15%=)	117
Net Income Tax payment	39
Net Income after-tax payments	624
Income Tax on Dividend (40%)*	156
Dividend payment	663
Dividend Income Tax Base (Income after CIT * 50%=)	390
Corporate Income Tax (22%)	220
Company profit	1000
%	62,40 %
	780

*Dividend income is taxed according to the tariff in article 105 of Income Tax Law. 40% is the maximum rate in the income tax tariff.

Turkish VAT System
The VAT has been valid since 1985 in Turkey. The Turkish VAT system is similar to the EU system, but it has significant differences. For example, the VAT refund is exclusive for exemptions, reverse charge mechanism, and reduced tax rate sales, such as food. If a company has lots of inventories, probably it must carry a VAT burden forever.

The Turkish VAT system levies sales of goods, imports, and services. Although VAT is a general tax, there are a lot of exemptions on the Turkish VAT system. VAT system has many exceptions 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,
• 8% reduced rate for deliveries and services mentioned in the list of II (for example some food products, books ext.)
• 1 % super-reduced rate for delivered and services specified in the list of I
(for example, some agricultural products such as raw cotton, hazelnut exc.)

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

VAT Refund System
VAT (Value Added Tax) is a multi-stage indirect tax. In the case of one of the following three reasons in tax practices in Turkey, a VAT refund may occur.

• In the exception delivery and services: Most of exception delivery and services provide VAT refund to taxpayers. For example, VAT refunds may occur in export deliveries, sales to people with investment incentive certificates.

• In the reverse charge in VAT: The practices of reverse charge are widespread in Turkish VAT legislation. It is possible to get a VAT refund if there is a reverse charge application. For example, reverse charge is applicable for junk metal deliveries, and some construction works to the public.

• In the reduced (8%) and super-reduced VAT rate (1%) is applicable: VAT refunds may occur for taxpayers selling at 1% & 8%.

Our expert team analyze your activity and tax returns and share with you whether your company can receive VAT refunds, and if so, how it will happen. Depending on the situation, application forms or VAT return reports are prepared, and VAT return is provided.

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Çayır Cad. Nehir Plaza No:9/25 34752 İçerenköy, Ataşehir – İstanbul / TURKEY

Our office is located in one of the business districts in the Asian part of Istanbul. It is on the line Kozyatağı Station (exit 4) in the M4 metro line.

Contact

Phone: +90 216 213 0550
Fax: +90 216 213 0551
E-mail: ecc@eccdenetim.com

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