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Turkish Accounting Regulations

Turkish Accounting Regulations: A Guide for Foreign Investors

Turkey’s strategic location, robust economy, and investment-friendly policies have made it an attractive destination for foreign investors. One of the critical aspects of operating in Turkey, however, is understanding the Turkish accounting regulations. For businesses, it is essential to maintain accurate financial records and comply with local laws, including tax obligations, to ensure smooth operations and avoid legal complications.

In this comprehensive guide, we’ll explore everything foreign investors need to know about Turkish accounting regulations, including key principles, legal requirements, and best practices to stay compliant.

What Are Turkish Accounting Regulations?

Turkish accounting regulations are a set of rules and standards that govern how businesses in Turkey must maintain their financial records, prepare financial statements, and report their earnings. These regulations are crucial for ensuring transparency, accuracy, and uniformity in financial reporting across businesses.

The accounting framework in Turkey is based on Turkish GAAP (Generally Accepted Accounting Principles), although certain companies must follow TFRS (Turkish Financial Reporting Standards), which are based on IFRS (International Financial Reporting Standards). For most small- and medium-sized enterprises (SMEs), Turkish GAAP is more common and easier to apply.

Key Accounting Standards in Turkey

Foreign investors planning to do business in Turkey should be aware of the following key accounting regulations:

1. Turkish GAAP vs. TFRS

While Turkish GAAP is widely used by most companies in Turkey, larger entities and publicly listed companies must adhere to TFRS, which closely mirrors the International Financial Reporting Standards (IFRS). These accounting standards determine how financial statements are prepared and presented.

  • Turkish GAAP is less complex and more suitable for smaller businesses. It includes local laws and traditional accounting practices used in Turkey.
  • TFRS, on the other hand, aligns with international standards and is typically used by larger corporations, and businesses which met certain criteria.

2. Uniform Chart of Accounts (UCA)

The Uniform Chart of Accounts (UCA) is a mandatory accounting framework used by all companies operating in Turkey. It provides a standardized system of classification for financial transactions, ensuring consistency and accuracy across businesses.

Foreign investors should familiarize themselves with the UCA as it is the foundation for preparing financial statements in compliance with Turkish regulations. Adhering to the UCA ensures that the company’s financial reporting is in line with local legal requirements.

Financial Reporting Requirements

Businesses in Turkey are required to prepare several financial reports to stay compliant with local laws. These reports must be submitted annually or periodically, depending on the company’s size and structure.

1. Annual Financial Statements

All businesses in Turkey must prepare and submit annual financial statements to the relevant authorities. These financial statements generally include:

  • Balance Sheet: A snapshot of the company’s assets, liabilities, and equity at a specific point in time.
  • Income Statement: A report of the company’s revenues and expenses over a financial period.
  • Cash Flow Statement: Details how cash flows into and out of the company.
  • Statement of Changes in Equity: Explains changes in the company’s equity during the accounting period.

2. Tax Filings

One of the most crucial aspects of Turkish accounting regulations is tax compliance. Businesses operating in Turkey are required to submit several tax-related filings, including:

  • Corporate Tax Declaration: Corporate income tax in Turkey is set at 25% for 2024. Companies must calculate and submit their tax filings annually, with advance tax payments made quarterly.
  • VAT Declarations: Value-added tax (VAT) rates in Turkey are 20%, with reduced rates of 10% and 1% applicable for certain goods and services. Companies are required to file VAT returns monthly.
  • Withholding Tax: Certain payments, such as dividends and interest, are subject to withholding tax. This tax must be calculated and submitted by the company on behalf of the recipient.

Bookkeeping Requirements for Foreign Investors

In Turkey, proper bookkeeping is not only a best practice but also a legal obligation. The Turkish Commercial Code mandates that all companies must keep accurate and complete records of their financial transactions. Foreign investors need to understand that Turkey has stringent rules regarding bookkeeping, and failure to comply can result in severe penalties.

Key bookkeeping requirements include:

  • Daily Record Keeping: All financial transactions, including sales, purchases, and expenses, must be recorded daily in the company’s accounting system.
  • Currency Conversion: Transactions in foreign currencies must be converted into Turkish Lira (TRY) at the official exchange rate on the date of the transaction.
  • Document Retention: Businesses are required to keep all accounting records, including invoices and receipts, for at least ten years. These documents must be easily accessible and available for inspection by tax authorities if required.

Independent Audits

Certain companies operating in Turkey are subject to independent audits based on their size, revenue, and other factors. The Turkish Commercial Code outlines which companies are required to undergo audits. Typically, large corporations, listed companies, and those with significant cross-border activities must be audited by an independent firm.

Audits ensure that the company’s financial statements are accurate and in compliance with Turkish accounting regulations. For foreign investors, having audited financial statements can also enhance credibility with stakeholders, including banks, suppliers, and government authorities.

The Role of Accountants and Financial Advisors

Navigating Turkish accounting regulations can be complex, especially for foreign investors unfamiliar with the local legal and financial landscape. Working with an experienced accountant or financial advisor in Turkey is essential to ensure compliance and avoid potential pitfalls.

How We Can Help

As experienced financial advisors in Turkey, we provide tailored services to help foreign investors establish and maintain their accounting systems in line with Turkish regulations. Our services include:

  • Setting up your accounting system: Ensuring that your business follows the Uniform Chart of Accounts and complies with Turkish GAAP or TFRS as needed.
  • Tax advisory: Helping you navigate the complexities of Turkish tax laws, including corporate tax, VAT, and withholding tax obligations.
  • Audit preparation: Guiding you through the independent audit process and ensuring your financial records are in order.
  • Ongoing compliance support: Providing ongoing accounting and financial management services to keep your business compliant with local regulations.

Tax Compliance and Accounting Software

To streamline accounting processes and ensure compliance with Turkish regulations, many companies in Turkey use accounting software that is tailored to local requirements. These systems are designed to integrate with the Internet (Digital) Tax Office in Turkey, making it easier to file tax returns and maintain proper financial records.

Foreign investors should consider investing in accounting software that supports the Turkish Uniform Chart of Accounts, VAT calculations, and currency conversions to make their accounting processes more efficient.

Challenges for Foreign Investors

While Turkey offers significant opportunities for foreign investors, there are some challenges to consider when it comes to accounting and compliance:

  • Language Barriers: Financial reporting and documentation must be in Turkish, which can pose a challenge for foreign investors unfamiliar with the language.
  • Complex Tax Laws: Turkish tax laws are intricate, and staying compliant with VAT, withholding taxes, and corporate tax regulations can be overwhelming.
  • Frequent Changes: Turkish accounting regulations and tax laws are subject to change, and keeping up with these changes is critical for avoiding penalties.

However, with the right support from a qualified accountant or financial advisor, these challenges can be easily overcome.

Conclusion

Turkish accounting regulations are a crucial consideration for any foreign investor looking to establish or expand their business in Turkey. By understanding the key principles of Turkish GAAP, tax obligations, and bookkeeping requirements, foreign investors can ensure that their business operates smoothly and complies with local laws.

If you’re a foreign investor planning to invest in Turkey, our accounting and financial advisory services can help you set up your business for success. From establishing your accounting system to ensuring tax compliance feel free to contact us today!

FAQ

1. What are the main accounting regulations in Turkey?

Answer:
The main accounting regulations in Turkey are based on the Turkish Generally Accepted Accounting Principles (GAAP) and the Turkish Commercial Code (TCC). Businesses must also comply with tax laws and regulations issued by the Revenue Administration. In some cases, Turkish Financial Reporting Standards (TFRS) are applied for larger entities.

2. Is IFRS mandatory in Turkey?

Answer:
IFRS is not mandatory for all businesses in Turkey. Publicly listed companies and financial institutions are required to use Turkish Financial Reporting Standards (TFRS), which are adapted from IFRS. However, most small and medium-sized enterprises (SMEs) follow Turkish GAAP for financial reporting.

3. What is the role of the Turkish Commercial Code (TCC) in accounting?

Answer:
The Turkish Commercial Code (TCC) governs financial reporting and auditing standards for companies operating in Turkey. It mandates the maintenance of accurate financial records, the preparation of financial statements, and regular auditing for certain types of businesses. The TCC ensures transparency and accountability in financial reporting.

4. What are the financial reporting requirements in Turkey?

Answer:
In Turkey, companies must prepare annual financial statements, including a balance sheet, income statement, cash flow statement, and statement of changes in equity. These reports must comply with Turkish GAAP or TFRS, depending on the company’s size and type. Public companies are subject to stricter reporting rules.

5. How are accounting records maintained in Turkey?

Answer:
In Turkey, accounting records must be maintained in Turkish and recorded using the Turkish lira. Companies must keep accurate records of all financial transactions, and the use of electronic ledgers (e-ledgers) is mandatory for certain businesses. Records must be kept for at least 10 years as per Turkish regulations.