Tax System

The Turkish tax regime can be classified as:

Income Taxes

Corporate Income Taxes

Individual Income Taxes

Taxes on Expenditure

Value Added Tax

Banking and Insurance Transaction Taxes

Stamp Duty

Taxes on Wealth

Inheritance and Gift Taxes

Property Tax

INCOME TAXES

Income taxes in Turkey are levied upon the income, both domestic and foreign, of individuals and corporations resident in Turkey. Non-residents earning income in Turkey through employment, ownership of property, carrying on a business or from other activities giving rise to income are also subject to tax, but only on their Turkish derived income.

Corporate Income Tax :

For tax purposes, companies are grouped as limited liability companies (corporations and limited companies) and personal companies (limited and ordinary partnerships). Corporate tax applies to limited liability companies. State economic enterprises and business entities owned by societies, foundations and local authorities are also subject to corporation tax.

Whether a company is subject to full or limited tax liability depends on its status of residence. A company whose statutory domicile or place of management are established in Turkey will have full tax liability; in this case, worldwide income is taxable. If a non-resident company conducts business through a branch or a joint venture, it will have limited tax liability; ie. fully subject to corporate tax on profits earned in Turkey on an annual basis. If there is no presence in Turkey, withholding tax will generally be charged on income earned; for example, for services provided in Turkey. However, if there is an avoidance double taxation treaty, reduced rates of withholding may apply.

The basic corporate tax rate 30%; With additional levies amounting to 10% of the tax, the effective tax rate is 33%.

For resident corporations, whose statutory domicile or place of management is established in Turkey, tax is levied on world-wide income, but credit is given for foreign tax payable in respect of income from foreign sources (up to the amount of Turkish corporate income tax, ie. 30%)

Corporate entities having their statutory domicile and place of management outside Turkey, but established in Turkey in the form of a branch are subject to tax on an annual return based on income received from the permanent establishment in Turkey.

Withholding taxes apply on a wide range of types of income received by Turkish resident individuals and corporates, including for individuals; rent receipts from businesses; and for both individuals and corporates; interest on government bonds, bank interest, etc.

From the non-resident's point of view, many payments abroad including those for professional services and technical assistance, royalties and rentals are subject to withholding tax at rates varying between 10% and 25%. In this regard, countries having avoidance of double taxation treaties with Turkey have considerable advantages. These countries can, in general, benefit from a reduction of withholding taxes in certain circumstances.

Royalty agreements including for know-how and patent licences must be registered by the General Directorate of Foreign Investments.

Individual Income Tax :

The limited tax liability covers trade or business income from a permanent establishment, salaries for work done in Turkey (regardless of where paid or whether or not remitted to Turkey), rental income from real property in Turkey, Turkish derived interest, and income from the sale of patents, copyrights and similar intangible assets.

Turkish residents are taxed on worldwide income, but they can receive a tax credit for taxes paid abroad. Personal taxes on income from foreign countries may be deducted from taxes due in Turkey on the same income, but only up to the amount of the Turkish taxes assessed.

The income of non-residents is taxed at the same rate as residents, but non-residents are not entitled to deduct the general allowance and receive no credit for foreign taxes. The range of tax rate for individual taxes is 15-40%

TAXES ON EXPENDITURE

Value Added Tax (VAT):

Deliveries of goods and services are subject to VAT at rates varying from 1% to 26%. The general rate applied is 18%. Intercompany interest charges are subject to VAT at 18%. The VAT rate on most leased assets is 1% with the exception of 23% on leased cars and 8% on other leased land transport vehicles. Lease contracts are exempt from all types of taxes, duties and stamp taxes. VAT is charged on imports t normal rates.

Banking and Insurance Transaction Tax :

Banking and Insurance company transactions remain exempt from VAT, but are subject to a Banking and Insurance transaction tax. This tax applies to income earned by the banks, for example on loan interest.

Stamp Duty :

Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable, capital contributions letters of credit, letters of guarantee, financial statements and payrolls. Stamp duty is levied as a percentage of the value of the document.

TAXES ON WEALTH

Inheritance and Gift Taxes :

Items acquired as gifts or through inheritance are subject to taxes between 4% and 30% of the item's appraised value. Tax paid in a foreign country on inherited property is deducted from the taxable value of the asset. Inheritance tax is payable over the period of five years and in two instalments per year.

Property Taxes :

Property taxes are paid each year on the tax values of land and buildings at rates varying from 0.3% to 0.6%. In the case of the sale of property, a 4.8% levy is paid on the sales value by both the buyer and the seller. The rate is reduced to 2.4% if the property is contributed as capital-in-kind.