How does the Turkish tax system operate regarding individuals and companies? Find out everything you should know in this article.
If you are moving to Turkey, whether to work or to set up a business, you will probably have queries on its taxation system. Note that the country has one of the Middle-East's most competitive tax systems, which is however inspired from many European countries. Hence, both individuals and companies are concerned. You are advised to inquire on the tax system before moving to Turkey so as to avoid being surprised.
Income tax applies both to foreigners and Turkish individuals and companies. Non-residents are subject to tax according to income which is generated in Turkey. Moreover, individual income tax is deducted at different rates varying from 15% to 35% as follows:
- up to TL 10,700 - 15%
- TL 10 701-26 000 - 20%
- TL 26 001-60 000 - 27%
- More than TL 60,001 - 35%.
If your income tax is deducted at source, that is from your salary, you are not required to fill in an annual return. In fact, your employer will transfer the corresponding amount to the tax office each month after deduction from your salary. However, Turkish and foreign entrepreneurs have to make four quarterly payments referring to a temporary tax at a rate of 15% of their net income. This sum must be paid in advance. Entrepreneurs must also submit their tax return at the end of March of the year following the end of the fiscal year.
In the case of a limited liability company, you are required to submit its financial documents on the 30th of April at latest. Advances are paid for the quarter. Any delay of the annual report beyond the date set is liable to a fine.
Value added tax (VAT)
VAT is generally applied at a rate of 1, 8 or 18% to the following: imported goods and services, trade, industry and agriculture, independent professionals and other activities providing goods and services.
The Special Consumption Tax (SCT) applies to four major product groups at different rates. These are:
- petroleum products, natural gas, lubricating oil, solvents and derivatives of solvents
- motor vehicles
- tobacco, tobacco products and alcoholic beverages
- luxury goods.
Unlike VAT, which applies to each stage of the supply, TSC is due once.
As regards banking and insurance companies, these are VAT exempt but are taxed under a specifically designed system for banking and insurance. This applies to bank incomes, such as interest earned on loans. The general rate is fixed at 5% while interest on bank transfers is taxed at a rate of 1%. However, VAT does not apply on foreign currency transactions.
There are three types of wealth taxes in Turkey: the inheritance and gift tax, the property tax and the tax on motor vehicles. Tax on Turkish buildings, apartments and lands belonging varies between 0, 0.1 to 0.06 % while the contribution to the conservation of the cultural heritage is levied at a rate of 10%.
Tax on motor vehicles is levied according to fixed amounts, age and engine capacity every year.
Finally, inheritance and gift taxes are levied at a rate varying between 1 and 30%.
Tax incentives apply to the following:
- priority development areas
- technological development zones
- organized industrial zones
- research and development
- private education corporations
- cultural investment projects
- allocation of funds
- international Turkish maritime sector incentives.
Tax exemptions and derogation
Here are few examples of transactions which are VAT exempt:
- export of goods and services
- roaming services in Turkey for non-resident clients, in accordance with international roaming agreements where reciprocity requirements apply
- oil exploration
- international transport
- goods and services provided to diplomatic, consular and international representatives who are tax exempt, as well as to their employees
- provision of machinery and equipment, including imports for individuals or corporations liable for VAT and having an investment certificate issued by the competent authority
- services provided to ships and aircraft in ports and airports.
- social and other exemptions for the sale of goods or provision of services to government and affiliated organizations for cultural, educational, health or similar purposes
- VAT exemption on banking and insurance if they are subject to tax on banking and insurance at the rate of 5%.
- corporate income tax exemption originating from domestic or foreign branches and foreign joint ventures under certain conditions
- exemption for research and development
- corporate tax deduction according to certain donations, grants and sponsorship, sporting activities, etc.