Turkey Tax System 2019
Major taxes that are applied to the companies incorporated in Turkey are a corporate tax, VAT, withholding tax, special consumption tax, banking, and insurance transaction tax, and stamp duty. As per the regulations defined for the holding company, no kind of corporate tax or withholding taxes are charged over the dividends on the resident companies as well as 75% of exemption is offered on the capital gains by selling the shares of the Turkish companies; with the flexibility to get full potential of exemption for the disposition of shares from the foreign company. As defined in the Tax Incentive section:
Turkish Resident Company
If the management of the company is in Turkey then it is considered as the resident of Turkey.
Corporate Income Tax
Corporate tax in Turkey was increased from 20% to 22% for the fiscal year of 2018, 2019 and 2020 starting from 1 January 2018.
|Turkish Quick Tax Facts for Companies|
|Rate of company tax on income||22% (since 1st of January 2018)|
|Rate of branch tax||22%|
|Rate of tax on capital gains||20% (certain exemptions are applied in specific cases)|
|Tax on residents||Worldwide|
|Exemption on abroad participation||Yes|
|- Loss relief can be carried forwarded||5 years|
|- Carried back||No|
|Relief on double taxations||Yes|
|Rules of transfer pricing||Yes|
|− Branch remittance tax||15%|
|Capital tax||None. Competition board has to be given at least 0.4% of the total capital amount.|
|Transfer tax on the real estate||None|
|Stamp Duty||0.189% - 0.948%|
|Social Security Contribution||For Employers - 20.5%|
For Employees - 14%
|− Branch remittance tax||15%|
|VAT||The Standard Rate - 18%|
The Reduced Rate - 1%/8%
The withholding tax is not applied on the dividends paid to the corporate entity incorporated in Turkey or the branch office of a foreign company. 15% withholding tax will be applied on the dividends paid to any non-resident companies unless there is a tax treaty signed between the two parties.
0% withholding tax is applied on the interest on loans that are payable to the foreign states, international institutes, foreign banks and foreign corporations that are considered as the financial entities in the country where the company is incorporated and offers loans to the people and not only corporates. If the interest is paid to non-residential companies which do not fall under the segment of financial entities or that offers loans to specific set of companies, it is will charge with 10% of interest.
Withholding tax is not applied on the royalties paid by one resident company to another resident company in Turkey. If the royalty is paid to non-resident entities with respect to the intangible assets like copyrights, trademarks, patents, etc. then it will incur 20% of withholding tax. Otherwise a tax treaty should be signed between the parties to reduce the tax %.
Branch Remittance Tax
15% withholding tax is applied on the remittance of the profit of branch office to the head office. This tax is applied on the taxable profit of branch office after the income tax is deducted.
Wage Tax/Social Security Contributions
The progressive rate of withholding tax (15% - 35%) is applied on the employee’s salary paid by the company incorporated in Turkey. The social security premium amount is calculated based on the specific % of the employee’s gross salary and employer. 14% of the gross salary is shared from the employee’s salary and 20.5% is shared by the employer up to the maximum level of 6961.50 TRY considering the period of 1st January 2014 to 30th June 2014 and 7371.00 from the period of 1st July 2014 to 31st December 2014. The contribution to the unemployment scheme will constitute to 1% of premium from the employee and 2% from the employer.
Value Added Tax
The standard rate of 18% value-added tax is applied on the leasing transactions; 8% of VAT is applied on the goods and stuff like clothes, medicines, devices, books, education services offered by the schools, accommodation providers and similar items; and a 1% rate on the raw materials of newspapers, journals, agricultural products, used cars, houses with 150 square meters area and similar things which are mentioned in the decree. Some of the supplies are exempted.
In case of any payment made to non-resident entities by the Turkish resident for any kind of services or usage of intangible assets like royalties, licenses, or knowhow, etc. or sale of such rights will incur 18% of the withholding tax.
There is no limitation on the registration of VAT in Turkey. If an individual or company is engaged in commercial transactions within the scope of VAT law then it must notify the tax office where the business is conducted or if it has more than one place of business registered within the tax region.
The VAT registration for resident and non-resident business is the same. Companies which are established in Turkey and sell goods in Turkey need not be registered for the VAT if the company does not have a permanent establishment or executive in Turkey. However, the resident company which is importing goods from foreign companies has to make the payment of VAT on the customs clearance.
The reverse mechanism of VAT requires the companies registered in Turkey to calculate VAT on foreign payments. In such a mechanism the resident company pays the VAT to the local tax office on behalf of the non-resident company. The VAT paid by the domestic company is considered as the input VAT and it offsets it the VAT due in the consecutive month. If the VAT amount is not offset in the same month then it is carried forward.
The VAT is paid by the companies on the monthly basis and the VAT returns should be filed at the local tax office on every 24th of the month. The payment should be made by the 26th day of the month on the same very month when VAT return is filed.
The grouping of VAT amount is not allowed in Turkey.
The 4% transfer tax applied on the transfer value of the real estate is split between the seller and the buyer equally. The rate of transfer tax can increase or decrease based on the discretion of the Council of Ministers.
Real Estate Tax
The real estate tax is bifurcated into ‘building tax’ and ‘land tax’ as per which 0.1% of the tax is applied on the housing buildings and 0.2% is applied on other range of houses and 0.3% real estate tax is applied on the blank lands which are set for construction purposes and lands which are out of the municipal areas are charged at 0.1%. If the lands are within the area of municipal limits of large cities like Istanbul, Ankara, or Izmir then the rate of interest will be doubled. The real estate tax can be paid twice in a year. (i.e. 1st in March/April/May and 2nd installment in the November).
Filing and Payment
Once the company’s accounting period is completed, the corporate tax must be filed between the 1st and 25th dates of 4th month. The company income tax should be paid by the end of the month for which the tax return is due. For example, the end of April is the last month of the financial year for the companies.
Based on the quarterly profits of the company, 20% advance corporate tax has to be paid by the company. The advance payments of the corporate tax made during the financial year will be considered at the time of annual company tax return filing. The advance income tax of the company should be submitted by the 14th of every second month in the following quarter and the tax should be paid by the 17th of same month (extension of the deadline for the submission of advance tax returns in the quarter will be done by Ministry of Finance).
The rate of interest charged on the delayed payment of tax is 1.4% per month. The interest or delay charges are calculated on the period between the due date of the tax and date of assessment. Standard penalties are also imposed in case the tax returns are not filed on time or statutory accounts are maintained or standard accounting principles are not followed and if the books of accounts of the company are not notarized within the timeframe. There are certain non-compliance penalties charged fixed amounts in case the required invoices or other documents are not furnished as defined in the tax procedure codes. The penalty of tax loss imposed on tax evasion will be equal to the amount of tax loss.
Accounting, Filing and Auditing Requirements
The valuation rules applied to all the taxpayers is as per the tax procedures code. The authority which defines the standard of book keeping for companies is UCA which is managed by the procedures code. Financial entities other than the banks and insurance companies also follow the UCA. Companies whose shares are traded on the ISE (Istanbul Stock Exchange) or those which are registered at the Capital Market Board should follow the standard accounting process of the board which is similar to the IFRS. Companies falling under these conditions and operating in the standard regulated format should maintain single and comprehensive financial statements according to IFRS.
As per the latest financial reporting standards defined from 1 January 2018, medium to large companies should follow the standard format, especially companies that fall under the independent auditing as per the Turkish commercial code.