To print this article, all you need to do is be registered or log in to Mondaq.com.
Turkey has a complex tax system implemented with many separate laws, regulations, releases and subsequent amendments. Accordingly, the main legal texts regulating the Turkish tax system are the Tax Procedure Law No. 213 of January 4, 1961 (Tax Procedure Law), the Corporate Tax Law No. 5520 of June 13, 2006 (Corporation Tax Law), Value Added Tax Law No. 3065 of October 25, 1984 (Value Added Tax Law), Stamp Duty Law No. 488 and dated July 1 1964 (Stamp Act) and Income Tax Act No. 193 of 31 December 1960 (Income Tax Act /ITL).
B. Corporate tax and other taxes applicable to businesses in Turkey
i. Income tax
In this regard, Section 2 of the Income Tax Act No. 193 (ITL) states that business income, income from agriculture, wages, income from self-employment, income real estate and movable capital, other income and income are determining factors for the tax regime in Turkey.
It should further be noted that for individuals, residency and ownership of property and citizenship in Turkey are determining factors for applicable taxes in Turkey. An individual’s tax liability in Turkey mainly depends on their income as an employee or as a professional worker. Residency is the primary qualification required to determine personal tax liability. According to the ITL, persons having their permanent residence in Turkey, or who stay in Turkey continuously for more than six months in a calendar year, are referred to as fully liable taxpayers or residents.
Income tax calculations for 2022 are as follows:
|Amount of income||Tax rate|
|Up to 32.000TL||%15|
|Above 32,000 TL and up to 70,000 TL||20% (tax of 4,800 TL for the initial 32,000 TL)|
|Above 70,000 TL and up to 170,000 TL||27% (12,400 TL tax for the initial 70,000 TL)|
|Above 170,000 TL and up to 880,000 TL||%35 (tax of 39.400 TL for the initial 170.000 TL)|
|Above 880.000 TL||40% (tax of 287,900 TL for the initial 880,000 TL)|
ii. Corporation tax
It should also be noted that income tax applies to both individuals such as employees and corporations separately and the tax rate varies for each taxpayer depending on their nature and aggregate income. Accordingly, corporation tax is levied on corporate income generated by business entities. This is the most significant and characteristic tax applicable to corporate transactions, since this corporate tax is levied only on corporations and not on individuals. Turkish the corporate tax rate is 23% for 2022although it is expected to be lowered to 20% in 2023. Companies in Turkey can be grouped as resident or non-resident taxpayers.
If the registered office and headquarters of a company are located outside of Turkey, the company will be considered a non-resident entity. If one of them is located in Turkey, the company is considered a resident entity. Resident entities are subject to tax on their worldwide income, while non-resident entities are taxed only on income derived from activities in Turkey.
|Example 1 – Corporation tax Your company (Company A) issues invoices totaling 1,000,000 TL net (after tax) in the year 2022 and receives invoices totaling 500,000 TL for purchased products and services. Also suppose Company A had other organizational expenses in the same year totaling 100,000 TL. This means that the total expenditure made by Company A will be 600,000 TL and the profit of Company A will be 400,000 TL for 2022. This means that the profit of 400,000 TL will be subject to 23% CIT (92,000 TL ), which will be paid by March 2023.|
|Example 2 – Quarterly IRS (temporary tax)Company A issues invoices for a total of 1,000,000 TL net (after tax) for the first quarter of 2022 (January, February and March). Company A’s organizational expenses for the same period are 100,000 TL. Scenario 1: Company A does not purchase any products/services and therefore did not receive any third-party invoices during the first quarter. This means that Company A’s quarterly profit is 900,000 TL (1,000,000 – 100,000). This quarterly profit will be subject to a quarterly CIT of 23%, so a total of 207,000 TL will have to be paid as temporary tax by May 2022. Scenario 2: Company A does not issue any invoices for the 1st quarter of 2022, but made expenses totaling 500,000 TL. For the 2n/a quarter of 2022, company A does not incur any expenses but issues invoices totaling 600,000 TL. Since company A had no income during the 1st quarter, it is not possible to deduct expenses of 500.000 TL made during the same period, so these expenses will be transferred to the 2n/atrimester. In the 2n/a quarter, although company A did not make any expenditure and received a profit of 600,000 TL, since there is a transferred expense of 500,000 TL from the previous quarter, this transferred expense will be deducted and only 100,000 TL will be subject to 23% quarterly CIT on 2n/a trimester. .|
iii. Value added tax
VAT is the primary tax applicable to almost all transactions, including any invoice your business will issue for services. There are different levels of VAT applicable depending on the nature of the products and services. However, the main VAT rate is 18%. There are also rates of 8% and 1% which may be applicable depending on the nature of the transaction. VAT declarations are made at the end of each month, through invoices issued and received, and the VAT corresponding to each month must be paid at the end of the following month.
|Example 3 – VAT Company A wants to issue a net charge invoice of 10,000 TL with 18% VAT. In this case the VAT will be 1.800 TL while the actual invoice will have to be issued for a total of 11.800 TL. This 11,800 TL will be collected in full from the customer and the amount of VAT will be declared to the tax office at the end of the month. Since company A has already collected the VAT amount, company A will have to pay this VAT to the tax office before the end of the following month.|
|Example 4 – Deduction of VAT Using the above example as a baseline, suppose Company A issues a total invoice of 11,800 TL with 1,800 TL noted as VAT. In this case, company A will have to pay 1,800 TL to the tax office. However, this VAT can be deducted if company A also receives invoices from third parties for any service or product purchased. Scenario 1: Company A issues an invoice for 11,800 TL to company X in May and again purchases a product worth 5,000 TL + VAT in May (VAT will be 900) with an invoice from company Y. Since the invoices issued and received are on time in the same month, the VAT of 900 TL paid by company A to company Y will be deducted from the VAT of 1,800 TL charged by company A to company X , which will bring the total VAT to be paid by company A to 900 TL. Scenario 2: Company A does not issue any invoices in
Maybut buys a product worth 5.000 TL + VAT in May (VAT will be 900) with invoice from company Y. Since there are no invoices issued by company A in
May, there is no VAT declared, and although company A received an invoice with 900 TL of VAT, there is no VAT declared to deduct this 900 TL. Since excess VAT cannot be claimed from tax offices in cash, this excess VAT will be transferred to the following month (or until company A issues an invoice). Now suppose Company A issues an invoice for 5000 TL + VAT in
June to company Z in June, for 11,800 TL (1,800 TL including VAT). Under normal circumstances, Company A is liable to pay a total of 1,800 TL in VAT for the month of June due to this invoice. However, since there is an excess VAT of 900 TL transferred from May, this 900 TL will be deducted and company A will only be liable to pay the remaining 900 TL of VAT.
iv. Withholding tax
The withholding tax is a particular type of tax, different from the others mentioned in this thesis. It does not apply to all transactions, so it is an exceptional tax. It is essentially a prepaid income tax or corporation tax, which is generally recognized directly when invoices are issued (for example, invoices issued by lawyers). The rate is 20%.
C. Concluding remarks
The legal framework regarding taxation (and in particular corporate tax) in Turkey is very complex. There are multiple pieces of legislation covering different applicable taxes, as well as hundreds of secondary regulations (regulations, releases, internal tax memos, etc.) that govern the rules and procedures for tax deductions, returns, and penalties. In this regard, it is important to note that this article is not intended to be a complete guide to all matters relating to taxation in Turkey, but rather a brief introduction to corporate tax for foreigners wishing to invest in Turkey.
Continue reading with CORPORATE TAX LAW 102 –
Tax identification number, cycles, declaration submission and invoicing in Turkey
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
POPULAR ARTICLES ON: Turkey Tax