Turkey, with its strategic location and rapidly growing economy, is an attractive destination for foreign investors. However, to operate successfully in the Turkish market, it’s crucial to understand the legal obligations associated with record-keeping, as mandated by the Turkish Tax Procedure Law (TPL) and the Turkish Commercial Code (TCC). This article will provide an overview of these obligations, focusing on compliance requirements and their importance for foreign investors looking to establish or expand their business in Turkey.
Since the obligation to keep books in Turkey is 5 years according to the Tax Procedure Law, it’s 10 years according to the Turkish Commercial Code.
1. Overview of the Turkish Tax Procedure Law (TPL)
The Turkish Tax Procedure Law (Vergi Usul Kanunu) sets the foundation for tax-related record-keeping in Turkey. It governs the procedures for tax registration, bookkeeping, tax returns, and the preservation of financial records. The TPL applies to all taxpayers, including individuals, companies, and other entities conducting business within Turkey.
a. Importance of Accurate Bookkeeping
Accurate and comprehensive bookkeeping is a fundamental requirement under the TPL. All taxpayers are obligated to maintain detailed records of their financial transactions. These records serve as the basis for tax assessments, audits, and the preparation of financial statements. Failure to comply with the TPL’s record-keeping requirements can result in significant penalties, including fines and additional tax liabilities.
b. Types of Records Required
Under the TPL, companies must keep a variety of financial records, including:
- Journals and Ledgers: These are essential for tracking day-to-day transactions and summarizing them in financial statements.
- Invoices and Receipts: Companies must issue and retain invoices and receipts for all sales and purchases. These documents are crucial for calculating value-added tax (VAT) and other tax obligations.
- Payroll Records: Businesses must maintain detailed payroll records, including employee salaries, social security contributions, and income tax withholdings.
- Inventory Records: Companies that deal with physical goods must keep accurate inventory records, detailing stock levels, purchases, and sales.
The TPL mandates that these records be kept in Turkish and be prepared in Turkish Lira (TRY). Foreign investors must ensure that their accounting systems are capable of complying with these requirements.
2. Retention Periods Under the TPL
The TPL specifies strict retention periods for financial records. Generally, companies are required to preserve their records for at least five years from the end of the relevant fiscal year. This retention period is crucial for ensuring that records are available for potential audits or tax assessments by the Turkish Revenue Administration (GİB).
a. Exceptions and Extensions
There are exceptions to the general five-year retention rule. For example, records related to real estate transactions must be kept for longer periods, up to 10 years. Additionally, in the case of ongoing tax disputes or audits, the retention period may be extended until the resolution of the issue. Foreign investors should be aware of these exceptions and ensure that their record-keeping practices are aligned with the specific requirements of their industry and business activities.
b. Digital Record-Keeping
Turkey has embraced digitalization in tax administration, and the TPL allows for the electronic storage of financial records. However, companies must ensure that their digital records are secure, easily accessible, and comply with the technical standards set by the GİB. Electronic records must also be maintained in a format that allows for easy conversion to paper if requested by the tax authorities.
3. Compliance with the Turkish Commercial Code (TCC)
The Turkish Commercial Code (TCC) complements the TPL by setting out additional requirements for corporate governance, financial reporting, and record-keeping. The TCC applies to all companies operating in Turkey, and it emphasizes transparency, accountability, and the protection of shareholders’ rights.
a. Financial Reporting and Disclosure
The TCC requires companies to prepare annual financial statements, including a balance sheet, income statement, and cash flow statement. These statements must provide a true and fair view of the company’s financial position and performance. Compliance with Turkish GAAP (Generally Accepted Accounting Principles) is mandatory for preparing these financial statements.
For certain companies, particularly those listed on the stock exchange or meeting specific size criteria, the TCC mandates that financial statements be audited by an independent auditor. The auditor’s report must be disclosed to shareholders and, in some cases, to the public. This requirement ensures that companies maintain high standards of financial transparency, which is critical for investor confidence.
b. Corporate Books and Records
In addition to financial statements, the TCC requires companies to maintain several corporate books and records, including:
- Shareholders’ Ledger: This record details the ownership of shares and any changes in shareholding.
- Board of Directors‘ Meeting Minutes: Companies must document the decisions made by the board of directors in formal meeting minutes.
- General Assembly Meeting Minutes: Records of the general assembly meetings, where key decisions are made by shareholders, must also be maintained.
These corporate books must be kept in Turkish and preserved for at least 10 years. They are essential for resolving disputes, demonstrating compliance with corporate governance standards, and protecting the rights of shareholders.
4. Integration of TPL and TCC Requirements
Foreign investors must understand that the record-keeping obligations under the TPL and TCC are interconnected. Compliance with one set of regulations often supports compliance with the other. For example, accurate financial records maintained under the TPL are necessary for preparing the financial statements required by the TCC. Similarly, the corporate books mandated by the TCC may be subject to review during a tax audit conducted under the TPL.
a. Internal Controls and Compliance Programs
To effectively manage their record-keeping obligations, foreign investors should implement robust internal controls and compliance programs. These programs should include:
- Regular Audits and Reviews: Conducting periodic internal audits can help identify potential compliance issues before they escalate.
- Training and Awareness: Ensuring that employees, particularly those in finance and accounting, are aware of their responsibilities under the TPL and TCC.
- Use of Technology: Leveraging accounting software and other digital tools can streamline record-keeping processes and ensure compliance with both the TPL and TCC.
b. Coordination with Local Advisors
Given the complexities of Turkish tax and commercial law, foreign investors are advised to work closely with local tax advisors, auditors, and legal counsel. These professionals can provide guidance on specific record-keeping requirements, help navigate regulatory changes, and ensure that the company’s practices are fully compliant with Turkish law.
5. Consequences of Non-Compliance
Non-compliance with the record-keeping obligations under the TPL and TCC can have serious consequences for foreign investors. These may include:
- Financial Penalties: The Turkish authorities impose fines for late or incomplete record-keeping, failure to retain records for the required period, and other violations.
- Tax Assessments: Inaccurate or incomplete records can lead to tax assessments, where the authorities estimate the company’s tax liability, often resulting in higher taxes owed.
- Legal Risks: Non-compliance with the TCC’s record-keeping requirements can lead to legal disputes, shareholder litigation, and reputational damage.
Foreign investors must take these risks seriously and ensure that their record-keeping practices are in full compliance with Turkish law.
6. Conclusion
Record-keeping is a critical aspect of doing business in Turkey, and foreign investors must navigate the requirements set forth by both the Turkish Tax Procedure Law and the Turkish Commercial Code. Compliance with these regulations ensures that companies can accurately report their financial performance, meet their tax obligations, and protect the rights of shareholders. By implementing robust internal controls, leveraging technology, and engaging local experts, foreign investors can effectively manage their record-keeping obligations and position their businesses for long-term success in Turkey.
[OUR SERVICES] Expert Support for Meeting Record-Keeping Obligations in Turkey
Maintaining thorough and compliant records is a fundamental requirement for foreign businesses operating in Turkey. Turkish regulations mandate specific record-keeping standards to support financial transparency, tax compliance, and legal accountability. Our services help ensure that your business fulfills these obligations efficiently, keeping your records accurate, organized, and accessible.
- Advisory on Turkish record-keeping standards and documentation requirements for full compliance
- Structuring internal controls to secure and manage financial records effectively
- Assistance with document preparation and archiving to meet Turkish regulatory standards
- Customized management reporting to track and review record-keeping compliance regularly
- Training for your accounting team on best practices for maintaining accurate, compliant records
Contact us for professional guidance to ensure your records are aligned with Turkish legal standards, enabling you to focus confidently on growing your business.
FAQ
1. What are the record-keeping obligations for businesses in Turkey?
Answer:
In Turkey, businesses are required to maintain accurate and complete records of all financial transactions, including invoices, receipts, bank statements, and contracts. Records must be kept for at least 5 years, in accordance with Turkish Tax Procedure Law and Turkish Financial Reporting Standards (TFRS).
2. How long must financial records be kept in Turkey?
Answer:
Financial records in Turkey must be kept for a minimum of 5 years. This period starts from the end of the fiscal year to which the records relate, in compliance with Turkish Tax Procedure Law and other relevant regulations.
3. What types of documents are required for record-keeping in Turkey?
Answer:
Required documents for record-keeping in Turkey include invoices, receipts, contracts, bank statements, payroll records, and financial statements. All documents must be accurate and provide sufficient detail to support financial transactions and tax reporting.
4. Are there specific formats or systems required for record-keeping in Turkey?
Answer:
While Turkish regulations do not mandate specific formats, records must be organized and accessible for review. Businesses can use digital or paper systems, but they must ensure that records are kept in a manner that complies with Turkish Tax Procedure Law and allows for easy retrieval during audits.
5. What are the consequences of failing to comply with record-keeping obligations in Turkey?
Answer:
Failing to comply with record-keeping obligations in Turkey can result in penalties, fines, and additional tax assessments. Inadequate or incomplete records may lead to difficulties during tax audits and legal issues related to non-compliance with Turkish tax regulations.
Invest CPA Ltd. Turkey 