Turkish Tax Regime
Source: Prime Ministry,
Undersecretariat of Treasury; Classification of the Turkish Tax Regime
Income Taxes
Taxes on Expenditure
Taxes on Wealth
Income Taxes
Income taxes in Turkey are levied upon the
income, both domestic and foreign, of individuals and corporations resident
in Turkey. Non-residents earning income in Turkey through employment,
ownership of property, carrying on a business or from other activities
giving rise to income are also subject to tax, but only on their Turkish
derived income.
1. Corporate Income Tax
For tax purposes, companies are grouped as
limited liability companies (corporations and limited companies) and
personal companies (limited and ordinary partnerships). Corporate tax
applies to limited liability companies. State economic enterprises and business
entities owned by societies, foundations and local authorities are also
subject to corporation tax. Whether a company is subject to full or limited
tax liability depends on its status of residence. A company whose statutory
domicile or place of management are established in Turkey will have full
tax liability; in this case, worldwide income is taxable. If a non-resident
company conducts business through a branch or a joint venture, it will have
limited tax liability; ie. fully subject to corporate tax on profits earned
in Turkey on an annual basis. If there is no presence in Turkey,
withholding tax will generally be charged on income earned; for example,
for services provided in Turkey. However, if there is an avoidance double
taxation treaty, reduced rates of withholding may apply.
The basic corporate tax rate 30%; With additional
levies amounting to 10% of the tax, the effective tax rate is 33%. For
resident corporations, whose statutory domicile or place of management is
established in Turkey, tax is levied on world-wide income, but credit is
given for foreign tax payable in respect of income from foreign sources (up
to the amount of Turkish corporate income tax, ie. 30%). Corporate entities
having their statutory domicile and place of management outside Turkey, but
established in Turkey in the form of a branch are subject to tax on an
annual return based on income received from the permanent establishment in
Turkey.
Withholding taxes apply on a wide range of types
of income received by Turkish resident individuals and corporates,
including for individuals; rent receipts from businesses; and for both
individuals and corporates; interest on government bonds, bank interest,
etc. From the non-resident's point of view, many payments abroad including
those for professional services and technical assistance, royalties and
rentals are subject to withholding tax at rates varying between 10% and
25%. In this regard, countries having avoidance of double taxation treaties
with Turkey have considerable advantages. These countries can, in general,
benefit from a reduction of withholding taxes in certain
circumstances. Royalty agreements
including for know-how and patent licences must be registered by the
General Directorate of Foreign Investments.
2. Individual Income Tax
The limited tax liability covers trade or
business income from a permanent establishment, salaries for work done in
Turkey (regardless of where paid or whether or not remitted to Turkey),
rental income from real property in Turkey, Turkish derived interest, and
income from the sale of patents, copyrights and similar intangible
assets. Turkish residents are taxed
on worldwide income, but they can receive a tax credit for taxes paid
abroad. Personal taxes on income from foreign countries may be deducted
from taxes due in Turkey on the same income, but only up to the amount of
the Turkish taxes assessed. The income of non-residents is taxed at the
same rate as residents, but non-residents are not entitled to deduct the
general allowance and receive no credit for foreign taxes. The range of tax
rate for individual taxes is 15-45%.
Taxes on Expenditure
1. Value Added Tax (v.a.t.)
Deliveries of goods and
services are subject to VAT at rates varying from 1% to 18%. The general
rate applied is 18%. Intercompany interest charges are subject to VAT at
18%. The VAT rate on most leased assets is 1% with the exception of higher
rates on leased cars and on other leased land transport vehicles. Lease
contracts are exempt from all types of taxes, duties and stamp taxes. VAT
is charged on imports at normal rates.
2. Banking and Insurance Transaction Tax
Banking and Insurance company transactions remain
exempt from VAT, but are subject to a Banking and Insurance transaction
tax. This tax applies to income earned by the banks, for example on loan
interest.
3. Stamp Duty
Stamp duty applies to a wide range of documents,
including contracts, agreements, notes payable, capital contributions
letters of credit, letters of guarantee, financial statements and payrolls.
Stamp duty is levied as a percentage of the value of the document.
Taxes on Wealth
1. Inheritance and Gift Taxes
Items acquired as gifts or through inheritance
are subject to taxes between 4% and 30% of the item's appraised value. Tax paid
in a foreign country on inherited property is deducted from the taxable
value of the asset. Inheritance tax is payable over the period of five
years and in two instalments per year.
2. Property Taxes
Property taxes are paid each year on the tax values of
land and buildings at rates varying from 0.3% to 0.6%. In the case of the
sale of property, a 4.8% levy is paid on the sales value by both the buyer
and the seller. The rate is reduced to 2.4% if the property is contributed
as capital-in-kind. Top
