Temporary (Provisional) Tax in Turkey: A Comprehensive Guide for Foreign Investors
Turkey’s tax system is well-structured, ensuring that both local businesses and foreign investors contribute fairly to the economy. One of the key aspects of this tax system is the Temporary (Provisional) Tax, which helps regulate corporate and personal taxes throughout the year. For foreign investors looking to establish or expand their business presence in Turkey, understanding how the provisional tax works is essential for efficient tax planning and compliance.
In this article, we will break down Temporary (Provisional) Tax in Turkey, focusing on its purpose, calculation, deadlines, and implications for businesses and foreign investors. This guide will help you understand the tax system and how it affects your financial operations in Turkey.
What is Temporary (Provisional) Tax in Turkey?
The Temporary (Provisional) Tax is a tax installment paid in advance on a quarterly basis by taxpayers in Turkey. Its purpose is to align tax collection more effectively with the income cycle of businesses, preventing a large tax burden at the end of the fiscal year.
Provisional tax is essentially an advance payment towards the final corporate or individual income tax liability. It applies to both corporate taxpayers and individuals with business income, and it helps regulate tax payments by distributing them over the year. The advance payments are offset against the final tax due at the end of the year.
Who is Subject to Temporary (Provisional) Tax in Turkey?
Both corporate taxpayers and individual taxpayers with commercial, agricultural, or professional income are subject to provisional tax payments. The main groups affected by this tax include:
- Corporate taxpayers (companies, branches, and subsidiaries)
- Individual taxpayers with commercial or agricultural activities
- Self-employed professionals such as consultants, engineers, and lawyers
For foreign investors, this is important as it affects companies incorporated in Turkey, including subsidiaries and branches of foreign businesses.
Key Features of Temporary (Provisional) Tax in Turkey
1. Quarterly Payments
Temporary tax is calculated and paid on a quarterly basis. The payment periods are as follows:
- 1st Quarter: January – March
- 2nd Quarter: April – June
- 3rd Quarter: July – September
- 4th Quarter: (Abolished)
By paying quarterly, companies can manage their cash flow more effectively and avoid a large tax bill at the end of the year.
2. Advance Payment of Income Tax
Provisional tax is a prepayment of the total annual tax liability. This system helps businesses avoid paying a lump sum at the end of the fiscal year and facilitates better cash flow management.
3. Rate of Temporary (Provisional) Tax
The provisional tax rate is typically calculated as a percentage of the taxpayer’s quarterly profit. For corporate taxpayers, the current corporate tax rate in Turkey for 2024 is 25%. This rate is used as the base for calculating the provisional tax, which is paid in advance and offset against the final tax liability.
For individual taxpayers engaged in commercial activities, the income tax rates range from 15% to 40%, depending on the income bracket.
Calculation of Temporary (Provisional) Tax
The calculation of the provisional tax is relatively straightforward. The taxpayer’s tax base for the quarter is determined by subtracting deductible items from gross revenue and adding non-deductable expenses. The provisional tax is then calculated as follows:
Provisional Tax = (YTD Quarterly Tax Base) x (Corporate Tax Rate or Individual Tax Rate) – Deductions
For example, if a company’s tax base (Not “net income” – ask me for details) for the first quarter is TRY 1,000,000 and the corporate tax rate is 25%, the provisional tax would be:
Provisional Tax = TRY 1,000,000 x 25% = TRY 250,000 – 100,000 (deductions) = 150,000
This amount is then paid by the company in advance and will be deducted from the final tax liability at the end of the year.
Deadlines for Temporary (Provisional) Tax Payments
Adhering to the deadlines for provisional tax payments is crucial to avoid penalties. The deadlines for the submission and payment of provisional tax are:
- 1st Quarter: Submission by April 17th, payment by April 17th
- 2nd Quarter: Submission by July 17th, payment by July 17th
- 3rd Quarter: Submission by October 17th, payment by October 17th
- 4th Quarter: Abolished
If the deadline falls on a public holiday, the payment date is extended to the next business day.
Provisional Tax Returns and Refunds
Once the final tax return is submitted at the end of the fiscal year, any overpayment of provisional tax is refunded or credited towards future tax liabilities. If the provisional tax paid during the year exceeds the final tax liability, the taxpayer can request a refund from the Turkish Revenue Administration.
Penalties for Late Payment
Failure to pay the provisional tax on time can result in penalties, including:
- Late payment interest (calculated daily)
- Administrative fines imposed by the tax authorities
Businesses must ensure that their tax compliance processes are up to date and accurate to avoid these penalties. Foreign investors should take particular care to understand the provisional tax system in Turkey, as non-compliance can result in financial and operational setbacks.
The Role of Accountants and Financial Advisors
For foreign investors, navigating the Turkish tax system can be complex. Hiring a local financial advisor or accountant is highly recommended to ensure compliance with tax regulations, including provisional tax payments. A professional can help:
- Calculate and file provisional tax returns accurately
- Manage deadlines to avoid penalties
- Advise on tax planning and strategies to optimize cash flow
- Assist with refunds and dealing with tax authorities
We offer accounting and financial advisory services specifically tailored to foreign investors entering the Turkish market. With over 15 years of experience with multinational companies, we provide a comprehensive understanding of local tax regulations, including provisional tax, and help businesses maintain full compliance.
Why Foreign Investors Should Pay Attention to Temporary Tax
The Turkish government places significant importance on tax compliance, and the provisional tax system is designed to streamline tax collection throughout the year. For foreign investors, staying compliant with provisional tax regulations is crucial to maintaining good standing with Turkish tax authorities and avoiding penalties.
Foreign companies operating in Turkey must understand the intricacies of the Turkish tax system, including how provisional tax interacts with their overall tax obligations. Having a strong financial team or working with an experienced financial advisor can provide peace of mind and help ensure that the business remains compliant year-round.
Conclusion
Temporary (Provisional) Tax in Turkey is an essential part of the country’s tax system, helping to spread the tax burden throughout the year and prevent businesses from facing a large lump sum at the end of the fiscal year. For foreign investors, understanding this system and adhering to the deadlines is crucial for staying compliant and optimizing cash flow.
If you are a foreign investor looking to enter the Turkish market, we can assist you with all aspects of tax compliance, including provisional tax, corporate tax, and VAT. With tailored solutions and expert knowledge of Turkish tax regulations, we can help you navigate the complexities of the Turkish tax system and ensure your business stays on track for success.
FAQ
1. What is Temporary (Provisional) Tax in Turkey?
Answer:
Temporary (Provisional) Tax in Turkey is a prepayment of corporate or income tax, calculated on a quarterly basis. Companies and individuals subject to income tax are required to calculate their tax liability for each quarter and pay 25% of their annual taxable income as a provisional tax.
2. How is the Temporary Tax rate determined in Turkey?
Answer:
The Temporary (Provisional) Tax rate in Turkey is set at 25% of taxable profits. This rate is applied to the income or profits earned during each quarter. Any provisional tax paid is later offset against the annual corporate or income tax due.
3. When are Temporary Tax payments due in Turkey?
Answer:
Temporary Tax payments in Turkey are due quarterly. The deadlines are typically in the middle of the month following the end of each quarter:
- April 17th for the first quarter,
- July 17th for the second quarter,
- October 17th for the third quarter,
- Fourth quarter had been abolished
4. Can foreign companies be subject to Temporary Tax in Turkey?
Answer:
Yes, foreign companies operating in Turkey, particularly those with a permanent establishment or deriving income within Turkey, are subject to Temporary Tax. This applies to profits generated from their Turkish operations, which are taxed on a quarterly basis.
5. Is Temporary Tax in Turkey refundable?
Answer:
Yes, any excess Temporary Tax paid can be refunded or used as a credit against the company’s or individual’s final annual tax liability. If the final annual tax is lower than the total provisional taxes paid, the difference can either be refunded or carried forward.
Invest CPA Ltd. Turkey 