Complete Guide to Taxation in Turkey | Corporate, Income, VAT & More

Taxation in Turkey

Complete Guide to Taxation in Turkey | Corporate, Income, VAT & More

In Turkey, Corporate Tax is calculated on the profits of companies. The standard rate is 25% for non-financial companies and 30% for the financial sector. Companies, excluding banks and similar institutions, that offer at least 20% of their shares on the Istanbul Stock Exchange are taxed at a rate of 23% for the five years following their initial public offering (IPO). This discount is intended to invigorate the capital markets and encourage public offerings.

The taxable income of corporations is calculated from accounting profits with various deductions and adjustments. Tax-exempt incomes, costs, and expenses are deducted to determine the net commercial profit on which calculations are based. Additionally, past year losses can be carried forward within certain limits to future years, thereby reducing the taxable base.

The Corporate Tax base may differ from the accounting profit as the net income figure is adjusted according to tax regulations. These differences arise because tax regulations can differ from accounting standards. For instance, some depreciation expenses may be recognized as expenses in accounting, while they are calculated differently under tax law using different rates and methods. Furthermore, tax laws may restrict certain expenses or exempt some revenues from tax. Therefore, various adjustments must be made to the net profit figure in the accounting records during the calculation of taxable income.

This information is critically important for company managers to accurately understand and plan for their tax liabilities in Turkey.

Value Added Tax (VAT)

VAT is an indirect tax levied on goods and services consumed in Turkey. It is calculated based on the value added at the stages of production, distribution, and consumption, and is collected by businesses that are VAT registered. It is ultimately paid by the final consumer and represents a significant portion of Turkey’s tax revenues.

VAT Rates in Turkey

The general VAT rate in Turkey is 20%, with reduced rates of 10%, 8%, or 1% available for certain goods and services. These reduced rates are determined as part of social and economic policies and are typically applied to basic consumer goods, educational and health services, agricultural products, and cultural activities.

VAT Offset and Refund

Under the VAT system, companies can offset the VAT collected from their sales (output VAT) against the VAT paid on goods and services they purchase (input VAT). If the output VAT exceeds the input VAT in a given period, the difference is paid to the state. Conversely, if the input VAT is greater than the output VAT, the excess can be carried forward to the next period and deducted from VAT due in future periods. VAT refunds are particularly possible for businesses engaged in export activities and those benefiting from investment incentives, which can alleviate their tax burden.

Offsetting VAT Against Tax and Social Security Debts

Additionally, companies can use excess input VAT to offset other tax liabilities and Social Security Institution (SSK) premium debts at the tax office. This process facilitates liquidity management for companies and helps optimize their cash flows.

Offsetting VAT Against Tax and Social Security Debts

Special Consumption Tax (SCT)

The Special Consumption Tax (SCT) is a key element of the tax system in Turkey, targeting the consumption of specific goods and services to generate revenue, influence consumer behavior, and reduce environmental impacts. The operation of the SCT in Turkey is governed by Law No. 4760 on Special Consumption Tax, which specifies the scope of the tax, rates, exemptions, and taxation methods.

The SCT is applied during the production or importation of certain goods and services. The tax is usually paid by the producer or importer but is ultimately collected from the consumer. Tax rates vary depending on the type of product and are determined by lists associated with Harmonized System (HS) codes.

Products with negative impacts on health and the environment are subject to high SCT rates. These include tobacco products, alcoholic beverages, petroleum products, and automobiles.

The implementation of the SCT follows Turkish law, and the procedures related to the collection and enforcement of the tax are conducted within this framework. The tax authority is responsible for ensuring that taxpayers correctly calculate and pay the SCT, and tax audits and penalties can be applied in this process.

In summary, the Special Consumption Tax is a significant part of Turkey’s tax policies and affects the financial conditions of companies and consumer behaviors. Understanding and fulfilling tax obligations accurately is vital for the sustainability of companies.

Income Tax (Withholding)

In Turkey, individuals’ incomes are subject to income tax. Income is defined as the net amount of gains and revenues an individual earns within a calendar year. The components of taxable income include:

Commercial profits,
Agricultural profits,
Salaries,
Professional earnings,
Income from real estate capital,
Income from movable capital,
Other gains and revenues.

Unless otherwise specified by law, the gains and revenues listed above are considered in their actual and net amounts when determining income.

The terms “full taxpayer” and “limited taxpayer” are commonly used in tax law to define the tax status of individuals or institutions, particularly in the context of income and corporate taxes:

Full Taxpayer: An individual or institution is considered a full taxpayer if they are resident in Turkey. Being resident means having a center of life or continuously residing in Turkey. Full taxpayers are taxed in Turkey on their global income.
Limited Taxpayer: An individual or institution that is not resident in Turkey but has income derived from Turkey is considered a limited taxpayer. Thus, limited taxpayers are taxed in Turkey only on their income earned within Turkish borders.

This distinction is especially important for internationally operating companies and individuals as it directly affects their tax liabilities and planning.

Income tax in Turkey is calculated on a progressive rate system for individual incomes. The rates are applied based on different income brackets. For the year 2024, the income tax brackets and rates in Turkey are as follows:

Up to 110,000 TL at 15%
For the portion exceeding 110,000 TL up to 230,000 TL, 16,500 TL plus 20% of the excess over 110,000 TL
For the portion exceeding 230,000 TL up to 580,000 TL, 40,500 TL plus 27% of the excess over 230,000 TL
For the portion exceeding 580,000 TL up to 3,000,000 TL, 135,000 TL plus 35% of the excess over 580,000 TL
For the portion exceeding 3,000,000 TL, 982,000 TL plus 40% of the excess over 3,000,000 TL

These tax brackets are applied when filing the annual income tax return. When calculating income, necessary deductions such as insurance premiums and donations are first made from the gross income to arrive at the net income, which is then taxed according to the above brackets.

Income tax is typically withheld by employers during salary payments for salaried employees and directly deposited to the tax office. At the end of the year, individuals file an annual declaration of their income and compare it with the tax already paid through withholding. If there has been an overpayment of tax, a refund may be claimed; if there has been an underpayment, the difference must be paid.

This tax system is based on the principle that as income levels increase, so do tax rates, aiming to create a fairer tax system.

Stamp Tax

Stamp Tax in Turkey is a tax levied on documents rather than transactions. The term “document” refers to papers that are legally valid and enforceable, carry a signature (or a mark or electronic signature in place of a signature), and are prepared to prove any legal matter. In this context, stamp tax applies to a wide range of documents including contracts, letters of credit, guarantee letters, and payroll slips.

Letters and annotations that amend, renew, extend, change, transfer, violate, or alter documents subject to Stamp Tax also trigger the tax.

Stamp tax is calculated as a percentage rate based on the measurable tax base on the document. (The maximum amount of stamp tax to be calculated for each transaction is published at the beginning of each year by the tax authority.) The standard rate for taxable contracts is 0.948%, with the exception of lease agreements, which are taxed at a rate of 0.189%.

In Turkey, the triggering event for stamp tax on a document is its signing. For documents drafted outside of Turkey, stamp tax arises in the following situations:

When the document is presented to Turkish official authorities (state institutions, provincial administrations, municipalities, or courts),
If transferred or endorsed in Turkey,
Or if any benefit is derived from its terms within Turkey.

Those who sign a document subject to stamp tax are jointly and severally liable for the payment. However, it is possible to include a clause in the contract specifying who (or in what proportions) is responsible for the stamp tax. In this case, while all parties remain severally liable before the tax office, they may later reimburse each other according to the terms of the specified clause.

Digital Services Tax (DST)

The Digital Services Tax Double Taxation (DST) is a type of tax applied to revenues generated from services provided through digital platforms. Enacted on March 1, 2020, this tax covers activities such as advertising services, sales, access and downloads of digital content like software, apps, music, videos, games, and intermediary services for the buying and selling of goods among users. DST is collected by digital service providers operating in Turkey.

Tax liability is not dependent on whether digital service providers are individual or corporate tax residents, or whether they have a physical business location or permanent representative in Turkey. Service providers with revenues in Turkish Lira published in Turkey, or global revenues not exceeding 750 million Euros, are exempt from DST. However, monitoring revenues on a quarterly and cumulative basis is crucial to determine eligibility for this exemption. If the relevant threshold is exceeded, the DST liability begins from the fourth month following the tax period in which the threshold was surpassed.

Digital service providers must regularly review and monitor DST requirements and their tax obligations. Ensuring compliance with tax regulations and timely filing of declarations and payments is essential.

Resource Utilization Support Fund (RUSF)

The Resource Utilization Support Fund (KKDF) is designed to control external borrowing and limit the use of foreign currency loans. KKDF rates vary depending on the loan’s duration and currency:

Foreign Currency Loans:
- Loans with an average maturity of up to 1 year: A 3% RUSF deduction is applied on the principal.
- Loans with an average maturity between 1 and 2 years: A 1% KKDF deduction is applied on the principal.
- Loans with an average maturity between 2 and 3 years: A 0.5% KKDF deduction is applied on the principal.
- Loans with an average maturity of 3 years and above: No KKDF deduction is made (0%).
Domestic Currency (TL) Loans from Foreign Sources:
- Loans with an average maturity of less than 1 year: A 1% KKDF deduction is applied on interest payments.
- Loans with an average maturity of 1 year and longer: No KKDF deduction is made (0%).

This legislation is established to manage Turkey’s external debt and prevent imbalances in borrowings made in foreign currencies. The implementation of KKDF is managed by the Ministry of Treasury and Finance, and these funds can be used for Turkey’s external debt payments or set aside for other financial needs.

These regulations carry significant cost and obligations for companies and financial institutions in Turkey, particularly for those planning to borrow in foreign currency. It’s an essential consideration for financial planning and compliance.

Taxes on Wealth in Turkey

In Turkey, there are three main types of taxes on wealth:

Property Tax:
- Buildings, apartments, and lands in Turkey are subject to property taxes ranging from 0.1% to 0.6%. Additionally, 10% of this property tax is allocated as a contribution to the Conservation of Immovable Cultural Assets.
Motor Vehicle Tax:
- This tax is collected annually based on the age and engine capacity of the vehicle. The rates are fixed amounts that vary depending on these factors.
Inheritance and Gift Tax:
- These taxes are levied at rates ranging from 1% to 30% depending on the value of the inherited or gifted estate.

Deed Fee:

During the transfer of immovable property, a deed fee is paid, which amounts to 2% of the sale price and is equally shared between the buyer and the seller.

What is Withholding?

Withholding, or “tevkifat” in Turkish, is a crucial mechanism in tax law, referring to the process where a party other than the taxpayer itself is responsible for remitting part or all of a tax payment. This process is particularly important across various tax types, such as VAT, income tax, and corporate tax, facilitating efficient tax collection and compliance. Here’s a detailed look at how withholding applies to different taxes:

VAT Withholding (KDV Tevkifatı)

VAT withholding occurs especially in transactions involving specific goods and services, where a part or all of the VAT due to the seller is directly paid to the state by the buyer. This is common in sectors considered risky or where tax evasion is more likely. In cases of full withholding (10/10), the buyer pays the entire VAT amount, whereas in partial withholding scenarios (like 2/10, 5/10), only a percentage of VAT is paid by the buyer.

Income Tax Withholding (Gelir Vergisi Tevkifatı)

This withholding is implemented at the source of income, such as salaries, professional fees, rental incomes, and investment earnings. By deducting the tax at the source, this ensures that the income tax is promptly and accurately paid to the state. The responsibility of withholding lies with the payer (e.g., employer), who deducts the tax based on legally specified rates before transferring it to the tax authorities. This mechanism helps simplify the year-end tax return process, where pre-paid taxes are adjusted against the actual tax liability.

Corporate Tax Withholding (Kurumlar Vergisi Tevkifatı)

Withholding under the Corporate Tax Law (Law No. 5520) applies to certain payments made to both full and limited taxpayers. This helps in pre-collecting taxes due on various corporate transactions.

Inheritance and Gift Tax Withholding (Veraset ve İntikal Vergisi Tevkifatı)

This type of withholding applies to the transfer of assets through inheritance or gifts. If the beneficiaries do not present the required documentation to the appropriate authorities, withholding can be applied as a preemptive tax collection measure.

Entities Required to Implement Withholding

Entities that are required to implement VAT withholding include:

Government departments and affiliated administrations
Revolving fund organizations
Banks
Professional organizations with public institution status
Retirement and aid funds established by law or with legal personality
Public economic enterprises
Organized industrial zones and all types of exchanges, including securities and futures exchanges
Entities within the scope of privatization
Enterprises owned by administrations, institutions, and establishments holding more than 50% of their shares
Companies traded on the Istanbul Stock Exchange.

Who Pays the Withheld VAT in Withholding Invoices?

In cases of full withholding (10/10 ratio), if the service provider is VAT-registered and the recipient is not, the real VAT payer not registered under the normal VAT regime pays. In partial withholding scenarios, the burden is shared according to the specified ratio.

Entities Authorized to Withhold Income Tax

Entities that can perform income tax withholding include:

Public administrations and institutions
Other organizations, commercial companies
Public economic institutions
Business partnerships
Foundations
Associations
Cooperatives
Economic enterprises of associations and foundations
Investment fund managers
Traders and professionals obligated to declare actual income
Farmers recording their agricultural earnings according to agricultural enterprise accounts or balance sheet principles.

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