Turkish tax law was originally designed under the influence and with the contribution of German tax law professors during World War II. For this reason, there are extensive similarities with German tax law. Since then, however, numerous new taxes, duties and special regulations have been introduced, which have resulted in major deviations.
In addition to income tax (Gelir Vergisi), corporation tax (Kurumlar Vergisi) and value added tax (Katma Deger Vergisi), individual special taxes in Turkey such as stamp duty (Damga Vergisi), special consumption tax (Özel Tüketim Vergisi ÖTV), communication tax (Özel Iletisim Vergisi) etc. are levied. This makes the control system quite complicated. In this respect, the bureaucratic effort for companies to fulfill their tax obligations is high.
The tax law in Turkey was reformed with the reform of the Turkish Corporate Income Tax Law in 2006. This tax law reform has enabled a tax system that is in some cases clearer and better adapted to international standards.
The taxes in Turkey mainly consist of the categories of income tax, expenditure tax and wealth tax. With this guide we aim to provide an overview of each tax in Turkey. This will help future investors to make decisions about investing in Turkey.
Income Taxes (Gelir Vergileri)
1.1. Income Tax (Gelir Vergisi)
The legal basis for the collection of income tax is the Turkish income tax law “Gelir Vergisi Kanunu”. The law obliges income-generating natural persons to pay income tax.
Income tax in Turkey is levied on all domestic and foreign income of an individual. For persons not residing in Turkey but earning income there through work, interest, sale of shares or similar activities (limited taxpayers), the income tax liability is limited to domestic income.
With regard to income tax, a distinction is made between unlimited and limited tax liability. Persons with unlimited tax liability are those who stay in Turkey for more than 6 months or 183 days in a calendar year. Limited tax liability arises for persons residing in Turkey for less than 183 days but earning income from or in Turkey. While the resident taxpayers are taxable in Turkey on their worldwide income, the resident taxpayers are only taxable on their domestic income.
However, with regard to a person’s international income, the provisions of the relevant double taxation treaty must be observed. The income tax rate in Turkey changes progressively between 15% and 40% depending on the amount of income as follows. At the same time, tax rates are regulated slightly differently for income from employment and from other sources.
1.2. Corporate Income Tax (Kurumlar Vergisi)
The corporation tax in Turkey is levied on the basis of the Turkish corporation tax law “Kurumlar Vergisi Kanunu”. Corporate taxpayers are divided into the following 5 groups:
companies
cooperatives
Public economic institutions
Business operations of associations and foundations
business partnerships.
The uniform corporate income tax rate in Turkey is 22% of operating profit. This percentage was increased from 20% to 22% by the 2018 change. There are two different types of liability in corporate income tax, one being full and the other being small. Corporations domiciled within Turkey are fully obligated to pay corporate income tax. Corporations that are represented by liaison offices within Turkey are subject to the low tax liability.
Corporate income tax is imposed according to the taxpayer’s declaration. Corporate taxpayers must file three types of tax returns:
- Corporate Income Tax Return (Kurumlar Vergisi Beyannamesi)
The corporate income tax return is submitted once a year and no later than April 30 of the following year. Payment of the assessed tax must also be made by April 30 at the latest.
- Withholding Tax Return (Muhtasar ve Prim Hizmet Beyannamesi)
The withholding tax return is submitted monthly or quarterly (by January 26, April 26, July 26, October 26). The withholding tax return is submitted monthly by employers who employ employees. The declaration is submitted every three months by employers who do not employ workers.
- Preliminary tax return (Geçici Beyanname)
The provisional tax return must be submitted every three months and by the 17th day of the month following the end of each three-month period. With the provisional tax return, the corporation tax is in fact determined and paid in three-monthly periods. The tax office thus collects the corporation tax in three-month periods early, without waiting for the end of the year.
Expenses Taxes (Gider Vergileri)
2.1. VAT/sales tax (Katma Değer Vergisi – KDV)
Value added tax has been levied in Turkey since 1985, which can be traced back to the Turkish Value Added Tax Act (Katma Değer Vergisi Kanunu – KDVK), which came into force in the same year.
Procedures subject to VAT are recorded under the following points:
- Services and supplies rendered in the context of commerce, agriculture and professional activity
- Any type of import of goods and services
- Deliveries of goods and services resulting from other activities
The tax liability arises for all persons who carry out these activities. The amount of the respective VAT is measured between 1% and 18%, depending on which list is used.
2.2. Special consumption tax (Özel Tüketim Vergisi – ÖTV)
In Turkey, the special consumption tax was introduced in 2002 due to harmonization with EU legislation. This tax is levied on certain goods and services at a flat rate or proportionately. The aim is primarily to fulfill social purposes. For this reason, the special consumption tax is rather levied on luxury goods, harmful products such as alcohol, cigarettes, etc. and on environmentally harmful products such as petrol, etc.
Unlike VAT, the special consumption tax does not arise every time the goods are passed on, but only when they are delivered to the first customer after manufacture or after import. The tax obligations of the special consumption tax are therefore the importers and the manufacturers.
The products to be taxed are defined in four different, constantly updated lists. These include:
2.3. Taxes on Banking and Insurance Services (Bankacılık ve Sigorta Muameleleri Vergisi BSMV)
1.List: petroleum products, natural gas, lubricating oil, solvent, and the like,
2nd list: automobiles and other means of transport with engines, motorcycles, airplanes, helicopters, yachts,
3.List: Tobacco, alcoholic beverages and carbonated beverages,
4th list: luxury items.
There is no VAT on transactions by banks and insurance companies. However, these are subject to the so-called bank and insurance tax (BSMV). This tax is levied on income from banks and insurance companies. The standard tax rate is 5%.
2.4. Stamp Duty (Damga Vergisi)
Turkish Stamp Duty is levied on all written contracts, receipts, documentation and legal papers. As a rule, both parties to the contract are jointly and severally obliged to pay the stamp duty. The stamp tax return must be submitted by the 15th of the following month.
In Turkey, stamp duty is payable as a percentage of the declared value on the document at various tax rates ranging from 0.189% (one hundred eighty-nine per thousand) to 0.948% (nine hundred and forty-eight per thousand) (as of 2021). Stamp duty rates are adjusted annually.
The papers issued abroad by the foreign authorities are only subject to stamp duty in Turkey if they are used in Turkey. Those persons who submit these documents to the Turkish authorities in Turkey are liable for tax.
Wealth Taxes (Varlık Vergileri)
3.1. Inheritance and Gift Tax (Veraset ve İntikal Vergisi)
The transfer of property of a Turkish national or Turkish resident owner through inheritance or gift is subject to inheritance and gift tax. The taxpayer is the person who acquires property through inheritance or gift. The tax rates range from 1% to 30%.
3.2. Property Tax and Real Estate Purchase Tax (Emlak Vergisi ve Tapu Harcı)
3.2.1. property tax
Turkey levies property taxes on buildings and land. The proceeds go to the community. The taxes on the building are subject to the building owners who own a building within Turkey. The tax rate is 0.1% for residential buildings and 0.2% for other buildings.
Property tax is imposed on building plots and land. The tax liability falls on the owner. The amount of the tax is 0.1% for building plots and 0.2% for other plots of land (as of 2020).
3.2.2. real estate transfer tax
In Turkey, when buying or selling a property, there is a real estate transfer tax to be paid by both the seller and the buyer. This is currently divided into 2% for the seller and 2% for the buyer. The assessment basis is the actual purchase price, which may not be lower than the guideline values set by the municipality (Rayic Bedel). In practice, however, the municipality’s minimum reference value is often declared as the assessment basis in order to pay less tax, even if this is improper and risky.
3.3. Motor Vehicle Tax (Motorlu Taşıtlar Vergisi)
Vehicle tax in Turkey is levied on motor vehicles registered within Turkey. All vehicle owners are subject to tax as natural or legal persons.
Motor vehicle tax is based on the displacement and age of the vehicle. For vehicles with a larger displacement, the tax increases significantly. This causes cars with weak engines to be preferred.
The motor vehicle tax is payable in two equal installments in January and July each year.
You can also obtain more information on the economy in Turkey through our selection of articles available on this link.
