Turkey is a country with a developed economy and a unique geographic position. It is attractive for foreign investment and entrepreneurship. However, before starting a business or moving to live in the country, it's important to understand its tax system.
General information about Turkey's tax system
The country's tax system includes:
- Direct taxes: income tax for individuals, and profit tax for companies.
- Indirect taxes: value-added tax (VAT), property tax, and excise duties.
List of taxes levied in the country:
- Income tax.
- Corporate profit tax.
- VAT.
- Excise duties.
- Property tax.
- Motor vehicle tax.
- Consular and customs fees.
Corporations registered in a free economic zone - of which there are 18 in Turkey - are exempt from the tax burden.
Taxes in Turkey for individuals
Turkish law requires citizens to make contributions on various types of income:
- Salary.
- Income from self-employed and sole-proprietor activity.
- Income from renting or selling property.
- Income in the form of dividends, interest, gifts, or inheritance.
- Pension.
The employer is required to withhold tax from wages on a progressive scale. For other sources of income, the individual pays the obligation themselves.
Income tax
Tax residents of Turkey are individuals who live in the country for more than 183 days in a calendar year. They are required to pay income tax on all types of income received both at home and abroad, while non-residents pay tax only on income related to business activity within Turkey.
Tax rates for individuals range from 15% to 40%, depending on income level:
- Up to 32,000 TL - 15%.
- 32,000 to 70,000 TL - 20%.
- 70,000 to 250,000 TL - 27%.
- 250,000 to 880,000 TL - 35%.
A rate of 40% applies above this amount.
Property tax
Citizens who own houses, apartments, or other real estate are required to make annual tax payments, ranging from 0.1% to 0.6% of the assessed value. For property used for commercial purposes, the rate can reach 1%.
By reaching out to us, you can get clarity on the complexities of individual taxation in Turkey. We'll advise you on how and where to choose the most liquid property and what taxes apply when you buy it. We'll also walk through all the details with you and explain the important nuances of preparing the documents.
Vehicle owners are also required to pay a tax calculated based on the type and age of the car.
Individuals registered as entrepreneurs are also required to pay VAT, just like companies, at the standard rate of 18%, with certain exceptions where a reduced rate of 8% or 1% applies.
The following are also subject to tax:
- Capital gains (from selling real estate) - 15-40%.
- Interest (from deposits, bonds) - 0-15%.
- Dividends - 10%.
Individuals are also charged a levy on inheritance received (1-30%) and on gifts (1-10%).
Taxes in Turkey for legal entities
Doing business in Turkey offers many opportunities, but it also comes with obligations, including the tax burden. As in any other country, legal entities in Turkey are required to pay dues to the state in the form of corporate tax, property tax, VAT, and excise duties. These payments make up a significant part of the state budget and are used to fund public needs. They are made up of the tax obligations of legal entities.
Companies with a governing body or head office in Turkey are considered tax residents and pay corporate profit tax calculated on income earned both in Turkey and abroad, while non-residents pay it only on business activity within the country. The standard rate is 20%.
VAT is an indirect tax levied on the sale of goods and services. Companies are required to pay it at the standard rate of 18%, with certain exceptions where a reduced rate of 8% or 1% applies. The preferential rate is used for legal entities and sole proprietors.
Excise duty in Turkey applies to certain types of goods, including alcoholic beverages, tobacco products, cars, and petroleum products. Rates vary by product type.
Property tax in Turkey is paid by legal entities that own property. The rate ranges from 0.1% to 0.6% for land plots and from 0.1% to 1% for buildings, depending on location. The property purchase tax is 4% of the assessed value and is paid once at the time of the transaction.
Motor vehicle tax is levied on car owners. The rate is determined based on engine power and the age of the vehicle.
It's worth noting that Turkey offers various benefits and preferences for investors. For example, certain regions and industries offer tax holidays or reduced rates to encourage investment.
By reaching out to us, you can get clarity on the complexities of taxation for legal entities in Turkey. We value your time, so we'll help you calculate the tax burden if you decide to go into business.
How to pay taxes in Turkey: 8 steps
Paying taxes in Turkey is a process that requires strict compliance with rules and deadlines. To help you understand it, we've prepared a detailed guide to the stages of paying taxes.
- Taxpayer registration. The first step for any individual or legal entity planning to do business in Turkey is to register as a taxpayer with the local tax authority. During registration you're assigned a number (tax ID), which is used to calculate and record the payment of obligations.
- Determining tax obligations. Depending on the type of activity and business structure, you may need to pay various types of taxes. It's important to correctly identify the full list.
- Calculating payments. Each tax has its own base. For example, for income tax it's annual income, and for VAT it's the value of goods and services sold.
- Filing a return. After calculating your taxes, you must file a tax return. Filing deadlines can vary depending on the type of obligation. Tax returns are usually filed annually, but in some cases they may need to be submitted more often.
- Paying obligations. After filing your tax return, you must pay your taxes. This is usually done through banks or via electronic payments.
- Monitoring and audit. After paying your obligations, your tax return may be reviewed by the tax authorities. In the event of discrepancies or underpayment of taxes, you will be issued a fine and interest will be calculated. It's important to keep all documentation related to fulfilling tax obligations for a certain period (usually 5 years) so you can provide evidence in the event of a review or audit.
- Tax planning. To optimize your obligations to the state, it's recommended to carry out tax planning. This can include using benefits available for certain types of activity or investment, as well as developing a risk-minimization strategy.
- Consulting with professionals. Since Turkey's tax system can be complex and subject to change, it's recommended to consult an auditor to get accurate information about your tax obligations and possible benefits. We provide our clients with a full range of services related to tax planning and paying taxes in Turkey.
In short, paying taxes in Turkey requires knowledge of the local tax system as well as strict compliance with deadlines and procedures. With the right approach and the use of professional services, like ours, you can optimize your obligations to the state and avoid potential problems and fines.
Tax planning in Turkey: common mistakes
Tax optimization is an important part of managing personal finances or running a business in any country, including Turkey. Here are a few tips to help you better understand Turkey's tax system and avoid common mistakes.
Understand your tax obligations. The first thing to do is draw up a list of likely contributions. This is important for understanding which taxes you'll have to pay in Turkey, how and when, and for identifying deferrals and benefits.
Consult professionals. Tax law can be complex, and many people rely on the help of professional tax consultants and lawyers. This can be especially useful if your tax situation is unclear or you're running a business.
Pay taxes on time. It's important to meet your obligations on time to avoid fines and interest. If you run into problems, consult a tax advisor for guidance.
Plan your taxes. Optimization is another important aspect of managing income. It can include planning your investments and other financial decisions with tax consequences in mind.
Stay educated and up to date. Tax laws can change, so it's important to stay on top of the latest changes. This can include reading financial news, attending seminars or webinars about taxes, or talking with professional consultants.
Keep records. Properly organized accounting and storage of all necessary documents is a key aspect of managing your taxes. This can help you avoid problems with audits and make the return-filing process easier.
It's important to remember that Turkey has tax treaties with many countries to avoid double taxation. If you're a resident of one of these countries and work or run a business in Turkey, you may be eligible for certain tax benefits or exemptions.
Understand the differences between residents and non-residents. In Turkey, tax rates and obligations can differ for residents and non-residents. Understanding these differences can help you optimize your tax burden.
Account for inflation. When planning taxes, it's important to take inflation into account. It can affect the real value of taxes and the benefits that apply.
Understand local taxes. In Turkey, in addition to national taxes, local taxes may also be levied. Make sure you know which taxes apply in the region where you plan to live or do business.
Account for taxes when buying property. Here it's important to take into account the various taxes that may be levied, including the property transfer tax and other fees.
Key takeaways
Turkey's tax system has its own features and nuances that are important to know for successfully running a business or living in the country. Keep in mind the various rates, the procedures for calculating and paying taxes, and comply with the taxpayer obligations set out for residents and non-residents.
Possible conclusions or recommendations for those planning to live or do business in Turkey include the following:
- Study Turkey's tax system and legislation before you start doing business or living in the country.
- Seek help from tax-consulting professionals who can help you understand the intricacies of tax law.
- Keep in mind that obligations can differ for residents and non-residents, as well as for individuals and legal entities.
Plan your tax strategy ahead of time to avoid potential problems and unexpected costs.
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