Turkey

Last modified: 09/07/2023 11:12

Corporate taxation

	Rate
Corporate income tax rate	20%(1) (3)
Branch tax rate	20%(1)
Capital gains tax rate	20%(2)

1. The Corporate Income Tax Rate will be applied as 23% in 2022. It will remain at 20% for other years.
2. Capital gains from real estates held for at least 5 year and 75% of gains from the investments(such as equity shares) held more than 2 years are tax exempt. Additionally the gains until the TRY 25.000 is exempt.
3. Incentive programs provide for reduced corporate tax rates for income from the investments supported.

Residence: Companies such as capital companies, cooperatives, public economic enterprises, commercial enterprises belong to associations or foundations and joint ventures, whose registered head office or business head offices are located in Turkey are considered as resident in Turkey. For the purpose of determining tax residency, registered head office refers to an office which is designated in the law of establishment, legislation, charter or contract of the entity subject to corporation tax. And business head office refers to an office in which transactions with respect to business are virtually gathered and conducted.

Basis: Income taxation differs significantly based on the taxpayer’s place in terms of residence. Resident entities are subject to tax on their worldwide income, while non-resident entities are taxed solely on the income derived in Turkey.

Taxable income: All profits derived from the earning of income are recognized as taxable income, except for dividends qualifying under the domestic participation exemption. On the other hand, expenses incurred in the course of the business are generally deductible.

Significant local taxes on income: The taxable income of a company is computed based on its net accounting profits after adjustment for exemptions and deductions and including prior-year losses carried forward, to a limited extent. However, the corporate tax base is determined by deducting expenses from the revenue of an enterprise. However, in some cases, regardless of whether they are related to operations or not, some incomes are not taxable and some expenses cannot be considered as deductible expenses in the calculation of tax base.

Alternative minimum tax: There is no alternative minimum tax in Turkey.

Taxation of dividends: The dividend distrubution between Turkish resident companies, the dividend payer is exempt from WHT and the recipient is exempt from Corporate Income Tax. Dividend income from foreign companies is also exempt from tax if certain conditions are met. The conditions are as follow: – The Turkish company must have owned at least 10% of the paid-in capital of the foreign company, – The foreign company must be a limited or joint stock company, – The foreign company must be subject to corporate tax at an effective rate of at least 15%, – The dividends must be transferred to Turkey by the due date of filing of the annual corporate tax return.

Capital gains: Capital gains derived by all companies, including branches of foreign companies, are included in ordinary income and are subject to corporation tax. Capital gains derived from sales of depreciable fixed assets are not taxable to the extent the gains are reinvested in new fixed assets. Capital gains that will be used for reinvestment are transferred to a special reserve account. If the special reserve is not used to finance the purchase of similar new assets in the following three years, the balance in the reserve is included in taxable income. Capital gains derived from sales of resident companies’ shares by nonresident companies without a permanent establishment in Turkey are subject to corporation tax. 75% of capital gains derived by corporate taxpayers from the disposal of shares owned for at least two years qualify for tax exception until the end of the fifth year following the year of sale, and 50% of capital gains derived from the sales of immovables held in the assets qualify for tax exception for the same period of time. In the event a foreign subsidiary is sold by a Turkish company, a CIT exemption at the rate of 100% is applicable under certain conditions.

Losses: Tax losses may be carried forward for five years. Losses may not be carried back, except where the company is liquidated.

Foreign tax relief: Corporation tax and similar taxes paid abroad on income that is derived abroad and included in the Turkish accounts may be offset against the corporation tax that is assessed on such income in Turkey. Foreign tax paid in abroad does not exceed the rate of tax payable for the same income in Turkey. Foreign taxes that cannot be offset against the corporate tax in Turkey because of insufficient corporate income may be carried forward for a period of three years. The tax credit can also be offset against advance tax payments.

Participation exemption: See above under ‘Taxation of dividends’ and ‘Capital gains’

Holding-company regime: In order to qualify Turkish Company as an international holding Company, the requirements below must be met: • It must be a corporation; • At least 75% of its total assets (excluding cash items) must be comprised of foreign participations that have been held for a continuous period of at least one year; • It must hold at least 10% of the capital of each foreign participation; and • The foreign participation must be in the form of a corporation or limited liability company. Capital gains derived by a Turkish international holding company are exempt from corporate income tax, provided the foreign participation has been held for at least two years.

Tax-based incentives: Investments that is made in Turkey may benefit from the incentives upon the meet the criteria explained in regards to the decree. The incentives legislation comprised of the general, regional, strategic investment incentive schemes.

Supporting elements of these incentives generally comprise of the VAT and custom duty exemptions, Corporate Tax reduction, Social Security Premium Support, Interest Rate Support, Land Allocation, Income Tax Withholding Support, VAT refund, Qualified Personnel Support, Energy Support, Capital Contribution, Infrastructure Support, Purchasing Guarantee, Facilitation of Authorization/Permit/License Procedures, Cash Support, Training Support, R&D/Design Discount, Corporate Tax Exemption, Stamp Duty Exemption, Property Tax Exemption, Special Consumption Tax Exemption.

The products to be produced in investments can benefit from more comprehensive incentives according to their technology degrees. Thus, the Republic of Turkey supports the production of high-tech products. Investments to be made within this scope are considered as preferential, strategic, technology-focused and project-based investments and can benefit from wider incentives accordingly. All eligible innovation and R&D or design expenditures made in technology centres, R&D centres (which must employ at least 15* full-time equivalent R&D personnel), design centres (which must employ at least 10 full-time equivalent design personnel), R&D and innovation or design projects supported by governmental institutions, foundations established by law, or international funds can be deducted from the Corporate Income Tax base at a rate of 100%.

These expenditures can also be capitalised and expensed through amortisation over five years in the case of successful projects, whereas failed projects’ R&D and design expenditures can be expensed immediately.

The incentives provided for the R&D activities are as follows: – %80 of income tax computed on the wages for the R&D and design employees, are exempt from the witholding tax(95% for employees with a PhD or master’s degree in fundamental sciences, and 90% for employees with a master’s degree in any field or an undergraduate degree in fundamental sciences) – 50% of the social security premium contributions paid for each R&D and design employee will be reimbursed by the Ministry of Treasury and Finance (up to 10% of the total number of full-time R&D employees) – The import of goods to be used for research as part of a qualifying R&D or design project is exempt from customs duty and documents issued and procedures performed with respect to the imported goods are exempt from stamp duty and fees, In order to benefits from these incentives the R&D and design center must be set up outside the designated technology development zones (TDZs) with at least 15 full-time R&D and 10 full-time design center employees.

For the profits gained through the software, design and R&D activities carried out in the TDZs are exempt from income and corporate income tax through 31 December 2023. The wages of the specified employees who work in these zones are exempt from the taxes until Dec. 31, 2023. In addition, 50% of the social security premium contributions paid for these employees will be reimbursed by the Ministry of Treasury and Finance. Certain deliveries of software applications, etc., developed in the TDZs are exempt from VAT. The import of goods to be used for research as part of an R&D, software, or design project is exempt from customs duty and mandatory contributions to importation funds.

Group relief/fiscal unity: n/a

Small company/alternative tax regimes: n/a

Corporate taxation: compliance

Tax year: The taxable period is the calendar year. But the companies may also use special accounting periods, provided that the permission is obtained by the Ministry of Treasury and Finance.

Consolidated returns: Tax consolidation is not allowed in Turkey. Each company in a group must file their corporate tax return individually.

Filing and payment: The corporate income tax return must be filed until the 30th day of the fourth month after the end of the company’s accounting period. It should be also paid until the same date with filing. The return must be accompanied by the balance sheet, income statement and other required documents Companies are required to pay corporate income taxes as advance on a quarterly basis during the period. Advance payments made during the year are offset against the annual corporate income tax liability, which is determined in the annual corporate income tax return. Advance taxes must be filed until the 17th day of the second month following each quarter, and corresponding tax is payable on the 17th day of the same period. If advance corporation tax exceeds the final tax payable, the excess amount can be offset against the company’s other tax liabilities or it can be refunded.

Penalties: In case the tax is not accrued on time or accrued incompletely, or is not paid on time despite being accrued, the default interest and late fee rate will be 1.6 percent per month. Special irregularity penalties are imposed for failure to submit tax returns on time, failure to properly keep statutory accounts, failure to comply with the statutory accounting principles, and failure to have the statutory books notarized on time. Special irregularity penalties are charged at fixed amounts (subject to change annually) for failure to issue invoices and other documents as specified in the tax procedures code. A tax loss penalty imposed for tax evasion is equal to the tax loss amount. In case the tax loss is caused by the acts mentioned in Article 359 (such as altering or concealing of books, records, making of fraudulent calculation and committing of accounting frauds in books and records, etc.) this penalty is applied three fold to the taxpayer or liable person and one fold to the participants of such acts.

Rulings: A taxpayer may request an advance ruling on the tax treatment of specific transactions.

Taxation of individuals

	Rate
TRY	Income Tax
Up to 32.000	15%
32.001 to 70.000	20%
70.001 to 170.0001	27%
170.001 to 880.0002	35 %
+ 880.000	40 %

1. for employment income, TRY 70.001 to TRY 250.000
2. for employment income, TRY 250.001 to TRY 880.000
3. Capital gains tax rate are applied same as income tax
   rates

Residence: In general, residency criterion is applied in determining tax liability for individuals who is domiciled in Turkey is liable to pay tax for his/her worldwide income (unlimited liability). Any person who resides in Turkey for more than six months in one calendar year is assumed to be a resident of Turkey. However; foreigners who stay in Turkey for six months or more by the reason of a specific job or business or for particular purposes such as holiday, education or health, are not treated as resident.

Basis: Turkey taxes its residents on their worldwide income, whereas non-residents are taxed on Turkish-source earnings only. Income tax is levied on taxable income at progressive rates after certain deductions and allowances.

Taxable income: Taxable income is comprised of employment income, professional income, business income, income from agricultural activities, income derived from shares, income from immovable property, and other income (capital gains and nonrecurring income).

Capital gains: Capital gains derived from the sale of shares and capital market instruments are subject to income tax, with certain exceptions. Regardless of the holding period, gains derived from the sale of intangible rights, capital gains from the sale of shares/participations in limited liability companies, and gains derived from the alienation of an enterprise that has ceased operations are subject to income tax. Gains on the sale of immovable property within five years from the date of acquisition also are subject to income tax. In determining the taxable gain, the acquisition cost is adjusted for inflation by the increase in the producer price index between the date of acquisition and the date of sale in certain cases.

Deductions and allowances: Generally deductions depend on the type of income. Individuals who render independent professional services or the ones carry out commercial activities may deduct ordinary business related expenses from taxable income, including salaries, rental payments, fees and the cost of utilities. Depreciation on fixed assets is also allowed to deduct but penalties are not deductible. For salaried employees, the deductions generally are limited to social insurance premiums. Premiums paid by the employee for himself or herself, his or her spouse or children with respect to personal insurance policies covering life, death, accident, illness, disablement, unemployment, maternity, birth and education are deductible if some of the the conditions are satisfied.

Foreign tax relief: Residents may deduct foreign taxes assessed on foreign income from their income tax liability. However, the deductions may not exceed the amount of the tax assessed on such income in Turkey. The foreign income tax paid must be documented through foreign tax office receipts approved by the Turkish consulate in the country in which the foreign income tax was paid. The documents must be submitted to the Turkish tax office.

Taxation of individuals: compliance

Tax year: Tax is imposed on a calendar-year basis in Turkey.

Filing and payment: Each individual must file an individual income tax return; joint returns are not permitted. However, certain exemptions are available. An income tax return must be filed by all individuals that derive business or professional income. For other types of income (e.g., salary, income from securities, income from immovable property, capital gains, etc.), the obligation to file an annual return depends on the type of income, in regards to the amount, the applicable exemption limits, and whether the income is subject to withholding tax at source. Individuals whose gross salary income exceeds the amount in the fourth tax bracket (i.e., TRY 800.000 for 2022, subject to annual increases up to the revaluation rate of the previous year) must report their salary income when filing their annual income tax return even where the income tax has been withheld at source. Additionally, individuals who benefit from an income tax exemption on income derived from independent professional services are not eligible for the exemption where their income derived from such activities exceeds the amount in the fourth tax bracket (i.e., TRY 800.000 for 2022, subject to annual increases up to the revaluation rate of the previous year) and they are required to file an annual income tax return. Individuals required to file an annual income tax return must submit the return between 1 and 31 March of the following calendar year. Income tax accrued must be paid in two equal installments in March and July.

Penalties: Penalties apply for late filing, failure to file, or tax evasion.

Rulings: A taxpayer may request an advance ruling on the tax treatment of specific transactions.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends	0	10%	10%	10%
Interest	0	0	0%/10%	0%/10%
Royalties	0	20%	20%	20%
Capital gains	0	0
Fees for technical services		20%	20%	20%

1. xxxxxxxx
2.  

Branch remittance tax: The branch profit transferred to headquarters is subject to dividend witholding tax rate of 10%, unless the rate is eliminated under a tax treaty.

Anti-avoidance legislation

Transfer pricing: The Corporate Tax Law (CTL) includes transfer pricing regulations, using the OECD’s guidelines as a basis. If a taxpayer enters into transactions regarding the sale or purchase of goods and services with related parties in which prices are not set in accordance with the arm’s-length principle, the related profits are considered to have been distributed in a disguised manner through transfer pricing. Such disguised profit distribution through transfer pricing is not accepted as deductible for Corporate Income Tax purposes. The methods prescribed in the law are the traditional transaction methods described in the OECD’s transfer pricing guidelines. The scope of related party transactions subject to the local documentation requirement varies according to the taxpayer’s tax office. Based on the current Turkish transfer pricing legislation effective as of 1 September 2020, there are four types of documentation requirements for taxpayers: • Annual Transfer Pricing Report (preparation by the deadline of annual CIT return declaration, and submission to Turkish tax authorities upon request within 15 days). • The Transfer Pricing, Controlled Foreign Corporations, and Thin Capitalization Form (‘Appendix 3 Form’, which is presented as an attachment to the annual CIT return) • Master File (preparation by the end of the 12th month following the relevant fiscal year, and submission to Turkish tax authorities upon request within 15 days). • Country-by-Country Report (CbCR) and CbCR Notification (submission to the Turkish tax authorities by the end of the 12th month following the relevant fiscal year and electronically by the end of June of the year following the relevant fiscal year, respectively).

Interest restriction: Thin capitalization rules apply in case of loans from shareholders or related parties exceed a 3:1 debt-to-equity ratio at any time in an accounting period (six times shareholder equity for loans from related party banks or financial institutions). Related parties for these purposes are defined as shareholders and persons related to shareholders that own, directly or indirectly, 10% or more of the shares, voting rights, or rights to receive dividends of the company. The equity at the beginning of the taxpayer’s fiscal year applies for thin-capitalization purposes. Interest paid or accounted for and foreign-exchange differences related to disguised capital are regarded as nondeductible expenses in determining the corporate tax base. Interest related to disguised capital is treated as a dividend distribution and is subject to dividend withholding tax.

Controlled foreign companies: The controlled foreign company (CFC) rules apply if resident individuals and corporate taxpayers jointly or severally have a direct or indirect participation of 50% or more in the shares, dividend rights or voting rights in a foreign company. A CFC also must meet certain conditions (e.g. 25% or more of its gross revenue must be comprised of passive income, it must be subject to an effective income tax rate lower than 10% for its commercial profit in its home country, gross revenue of the subsidiary established abroad must be more than the foreign currency equivalent of TRY 100.000 for the related fiscal year). Where these requirements are met, the profits of the CFC are included in the profits of the Turkish company in proportion to the Turkish company’s share in the capital of the CFC, regardless of whether such profits are distributed, and taxed at the relevant corporate income tax rate.

Hybrid mismatches: There are no specific anti-hybrid provisions in the Turkish tax regulations.

Disclosure requirements: Disclosures must be made in the footnotes to the statutory financial statements submitted to the tax office, together with the corporate income tax return.

Exit taxes: Apart from capital gains taxation, there is no specific exit tax in Turkey.

General anti-avoidance rule: There is no general anti-avoidance rule in Turkey.

Digital services tax and Other significant anti-avoidance legislation: A 7.5% DST applies as from 1 March 2020 to revenue derived from digital services (i.e., advertising services; the sale, access, and download of digital content such as software, applications, music, video, and games; or the provision or operation of a digital platform enabling the interaction of users, including intermediary services for the sale and purchase of goods between users) performed by digital service providers in Turkey.

Value-added tax/Goods and services tax

Type of tax: Value added tax is levied on the supply and the importation of goods and services. Liability for VAT arises in case of commercial, industrial, agricultural or independent professional activities performed within Turkey and goods or services are imported to Turkey. VAT is levied at each stage of the production and the distribution process.

Standard rate: %18 (The standard rate of VAT on taxable transactions is set as 10% in the VAT Law, but based on the authority given by the VAT Law to The Council of Ministers; this rate was increased to 18% as of 15 May 2001.)

Reduced rates: 1% and 8% (for 1% the products and services comprise of the wholesale supply of some agricultural products, livestock and meat; certified seeds; bread; supply of houses with net area is up to 150m²; funeral services; leasing of machinery and equipment covered by the Investment Incentive Certificate pursuant to the financial leasing legislation; etc.) (for 8% the products and services comprise of basic food stuffs, clothing products; some furniture; health care services; pharmaceuticals and medical devices; care services for the young, elderly, sick or disabled provided by nursing homes and orphanages; educational services and related services; admission charges for cinema, theatre, opera, operetta, ballet, museum; restaurant and catering services; accommodation services, etc.)

Registration: Any person or entity perform activities within the scope of the VAT law must notify the local tax office where its place of business is located. A foreign business with no establishment in Turkey but that sells goods located in Turkey must appoint a tax representative (agent) to register for VAT. Direct registration is not possible. Such a business must use the reverse charge mechanism for charging VAT. Under this mechanism, VAT is calculated and paid to the related tax office by the Turkish company or customers on behalf of the non-resident company. VAT payable on local purchases and on imports is regarded as ‘input VAT’, and VAT calculated and collected on sales is considered ‘output VAT’. Input VAT is offset against output VAT in the VAT return filed at the related tax office. If output VAT is in excess of input VAT, the excess amount is paid to the related tax office.

Filing and payment: VAT payments are due monthly. VAT returns must be filed with the local tax office by the 26th day of the following month, and VAT is payable by the 26th day of the month in which the return is submitted.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Social Security Premium	20,5%(1)	14%
Unemployment Insurance Premium	2%	1%
Band 3	0	0

1. If certain conditions are satisfied, the rate is reduced by 5%. 

Self-employed

Progressive rate applies for self-employed. The detail of the rates is explained above in the ‘’taxation of individuals’’ section.

Other taxes

Capital duty: No duty is imposed on share capital, but there is a mandatory contribution to the competition board equal to 0.04% of the capital amount committed when the company is established, and 0.04% of any subsequent increase in capital.

Immovable property taxes: Property taxes are calculated annually by related municipality based on the tax values of land and buildings at rates varying from 0.1% to 0.3%. The square meter rates for valuing buildings depend on the location of the property. Additionally, an environmental tax is imposed by the municipalities on buildings used, inter alia, as a place of business. Tax is imposed in fixed amounts that change annually based on defined categories. The resident of the building (either the landlord or the tenant) is liable for the environmental tax. The landlord is responsible for making a compulsory contribution to the municipality at a rate of 10% of the annual accrued real estate tax for the protection of immovable cultural property.

Transfer tax: During the transfer of real estate, a tax of 4% is incurred on the sales value of the real estate. The amount is split equally between the buyer and the seller

Stamp duty: Stamp duty applies at rates ranging from 0.189% to 0.948%, depending on the type of document. (Salary payments are subject to stamp tax at a rate of 0.759%)

Net wealth/worth tax: No net wealth or net worth tax is applicable in Turkey. However, residences located in Turkey with a value of more than TRY 5 million (TRY 6,173,000 for 2022) (This limit is subject to annual increases based on the revaluation rate of the previous year.), a new type of tax was introduced in 2019 to be calculated on the excess value of the residence. The applicable rates vary between 0.3% to 1.0%, depending on the value of the residence. The tax must be reported annually and paid in two installments, by the end of February and August in the relevant year. Where a taxpayer has a single residence potentially liable to HVRHT, no liability arises; where a taxpayer has more than one residence within the scope of HVRHT, the residence with the lowest value is exempt from HVRHT.

Inheritance/gift taxes: Assets acquired as gift or through inheritance are subject to a progressive tax rate ranging from 10% to 30% and from 1% to 10%, respectively, calculated on the value in accordance with the TPL

Other: Banking and insurance transaction tax; A banking and insurance transaction tax applies at a general rate of 5% on bank and insurance charges. Banks are required to withhold a contribution to the resource utilization support fund (RUSF) on the principal amounts of foreign denominated loans with an average maturity period of three years or less. The rate is 3% for loans with an average maturity period of less than one year, 1% for loans with an average maturity period of at least one year but less than two years, and 0.5% where the average maturity period is between two and three years. No RUSF applies where the average maturity exceeds three years. A 1% contribution applies to the interest accrued on TRY-denominated loans with an average maturity of less than one year, and 0% applies to TRY loans with an average maturity of one year or more.

Tax treaties

Turkey has a broad double tax treaty network that allows for the avoidance of double taxation. Individuals and companies that produce income both in Turkey and in the other signatory country benefit from reduced tax rates and withholding taxes.