As a foreign investor, you have decided to invest in Turkey and determine the type of company you will establish in Turkey. So, how much do you know about the taxes you will pay and declare in Turkey, and your other responsibilities towards the local authorities?
Let’s roughly categorize the companies in Turkey (without going into detail on all subtypes):
1- Capital Companies
a-) Joint Stock Company
b-) Limited Liability Company
According to these company types, what taxes should we pay and declare in Turkey? Please consider “payment” as the cash flow burden and “declaration” as the obligation to inform the tax office.
TAXES TO BE PAID
Capital companies and sole proprietorship companies generally pay the following taxes, except for sectors, products and business types that are subject to full or partial tax exemption.
FOR CAPITAL COMPANIES
On Income:
1- Corporate Tax [Mandatory]: All capital companies are corporate taxpayers in Turkey. The corporate tax rate in Turkey for 2024 is 25%. On the other hand, banks, companies under Law No. 6361, electronic payment and money institutions, authorized currency institutions, asset management companies, capital market institutions, and insurance and reinsurance companies, and pension companies have a corporate tax rate of 30% on corporate gains. In addition, exporters receive a 5% discount, and companies with an industrial registration certificate engaged in actual production activities receive a 1% corporate tax reduction.
On Expenditure:
1- Value Added Tax [Mandatory]: All service sales and many product sales are subject to the general VAT rate of 20% in Turkey. In addition, some product sales are subject to reduced VAT rates of 10% and 1%. VAT is also paid on imports.
2- Stamp Duty [Mandatory]: Within the tax returns that capital companies are obliged to declare, stamp duty related to the declaration is also paid. In addition, there is stamp duty to be paid on transaction-based items such as contracts or lease agreements. Stamp duty is also paid at customs.
3- Municipal Duties [Mandatory]: There are taxes to be paid to the municipality, such as operating permit fees and Environmental Cleanliness Tax.
4- Banking and Insurance Transactions Tax [Mandatory]: This is a tax type related to bank expenses.
5- Special Communication Tax [Mandatory]: Special Communication Tax is also included in office phone and internet payments, along with mobile phone expenses for employees.
6- Customs Duty [Depending on the Situation]: Companies importing goods pay customs duties at various rates depending on the imported product and the country of import. According to the Customs Union agreement between Turkey and the European Union, there is no customs duty on imports from the European Union.
7- Special Consumption Tax [Depending on the Situation]: Special Consumption Tax is paid on the purchase of new vehicles, some household appliances, mobile phones, and some luxury consumer goods.
8- Accommodation Tax [Depending on the Situation]: The accommodation tax is paid by the employees staying in hotels on behalf of the company.
9- Other Special Taxes [Depending on the Situation]: Depending on the type of expense, other special taxes may be paid.
On Assets:
1- Motor Vehicle Tax [Depending on the Situation]: Motor Vehicle Tax is paid twice a year (under normal circumstances) on motor vehicles registered in the company’s assets.
2- Property Tax [Depending on the Situation]: Property tax is paid twice a year (under normal circumstances) on buildings, land, etc. registered in the company’s assets.
FOR SOLE PROPRIETORSHIPS
On Income:
1- Income Tax [Mandatory]: All sole proprietorships are income taxpayers in Turkey. They pay income tax at rates varying according to various income tax thresholds.
On Expenditure: You can refer to what I mentioned for capital companies above.
On Assets: You can refer to what I mentioned for capital companies above.
TAXES TO BE DECLARED
FOR CAPITAL COMPANIES
On Income:
1- Corporate Income Tax Return [Mandatory]: Corporate income tax is declared once a year in Turkey by a Certified Public Accountant in Turkey. For companies whose fiscal year coincides with the calendar year, it is declared and paid by the end of July. Companies with a special accounting period declare and pay it by the end of the fourth month following the end of the accounting period.
2- Corporate Temporary Tax Return [Mandatory]: This is a type of declaration that enables the advance collection of corporate income tax three times a year (for the 1st quarter, 2nd quarter, and 3rd quarter). The practice of declaring corporate temporary tax for the 4th quarter has been abolished. The declaration and payment period is until the night of the 17th day of the second month following the relevant quarter.
3- Special Consumption Tax Return [Depending on the Situation]: Only companies selling goods subject to special consumption tax are required to declare it.
4- Special Communication Tax Return [Depending on the Situation]: Declared only by companies operating in the field of telecommunications.
5- Banking and Insurance Transactions Tax Return [Depending on the Situation]: Declared only by banks and some other financial institutions.
6- Games of Chance Tax Return [Depending on the Situation]: Declared only by companies operating in the games of chance industry.
7- Other Special Returns [Depending on the Situation]: Depending on your industry and business model, there may be existing or subsequently created taxes. You can contact me for questions.
On Transactions:
1- Value Added Tax Return (VAT1) [Mandatory]: Value Added Tax is declared monthly in Turkey. The deadline for declaration and payment is until the night of the 28th day of the month following the relevant month.
2- Stamp Duty Return [Depending on the Situation]: If you have made a transaction subject to stamp duty in the relevant month, it must be declared; otherwise, there is no need to submit a declaration.
Due to Withholding:
1- Withholding Declaration [Mandatory]: It is submitted every month for transactions involving income tax deductions, including employees’ salaries. The declaration and payment period is until the night of the 28th day of the month following the relevant month.
2- Value Added Tax Return (VAT2) [Depending on the Situation]: If there is withheld value-added tax, this return must be declared (you can contact me for questions).
FOR SOLE PROPRIETORSHIPS
On Income:
1- Income Tax Return [Mandatory]: Income tax is declared once a year in Turkey (by the end of March), but it is paid in two installments (at the end of March and July).
On Transactions:
1- Value Added Tax Return (VAT1) [Mandatory]: Value Added Tax is declared monthly in Turkey. The deadline for declaration and payment is until the night of the 28th day of the month following the relevant month.
Due to Withholding:
1- Withholding Declaration [Depending on the Situation]: If you do not have an employee in your company and there is no other transaction where you deducted income tax, there is no need to submit a declaration for the relevant month. Otherwise, it must be declared and paid until the night of the 28th day of the month following the relevant month.
2- Value Added Tax Return (VAT2) [Depending on the Situation]: If there is withheld value-added tax, this return must be declared (you can contact me for questions).
[OUR SERVICES] Comprehensive Tax Support for Foreign Investors in Turkey
Navigating the Turkish tax system is essential for any foreign investor aiming to establish or grow a business in Turkey. With a variety of tax requirements, from corporate tax obligations to VAT and payroll taxes, staying compliant can be complex. We offer a range of services to ensure your tax affairs are managed accurately and efficiently, allowing you to focus on your core business.
- Preparation and submission of monthly, quarterly, and yearly tax returns to meet Turkish tax obligations
- Customized monthly management reporting for better oversight of tax-related cash flow
- Tax feasibility reports tailored to your sector, providing insights into your potential tax exposure
- Financial statement analysis to ensure your financials align with Turkish GAAP
- Risk management strategies to identify and mitigate tax compliance risks
Feel free to reach out for expert tax guidance that keeps your business compliant and optimized for success in Turkey.
FAQ
1. What is the corporate tax rate in Turkey?
Answer:
The corporate tax rate in Turkey is 25%. However, this rate may vary for certain sectors or under specific circumstances. Companies are taxed on their worldwide income if they are residents in Turkey, while non-resident companies are taxed only on income derived from Turkey.
2. What is the VAT (Value Added Tax) rate in Turkey?
Answer:
The standard VAT (Value Added Tax) rate in Turkey is 20%. There are also reduced rates of 10% and 1% applied to specific goods and services, such as basic food products and medical supplies. Some transactions may be exempt from VAT.
3. Are there any tax incentives for foreign investors in Turkey?
Answer:
Yes, Turkey offers various tax incentives for foreign investors, including tax exemptions, reductions, and investment allowances. Incentives are available for sectors like R&D, technology, energy, and for investments in specific regions or free trade zones.
4. What is the withholding tax rate on dividends in Turkey?
Answer:
The withholding tax rate on dividends in Turkey is 15% for both resident and non-resident companies. This rate may be reduced under double taxation treaties that Turkey has signed with other countries.
5. How does the double taxation treaty work in Turkey?
Answer:
Turkey has signed double taxation treaties with over 80 countries to prevent the same income from being taxed in both Turkey and the investor’s home country. These treaties typically reduce or eliminate withholding taxes on dividends, interest, and royalties, and provide mechanisms for resolving tax disputes.
Related Articles:
Invest CPA Ltd. Turkey 