To understand the withholding tax in Turkey, it is essential to grasp the following two concepts:
1- Taxpayer: An individual or legal identity obligated to pay taxes according to tax laws.
2- Tax Withholder: The company responsible for payment of the tax to the tax office as the counterparty on behalf of the taxpayer.
In most cases, the taxpayer and tax withholder are the same party. However, in certain situations, the tax withholder may pay the tax on behalf of the taxpayer by making deductions. In such cases, when your company acts as the tax withholder, you are obliged to declare and pay taxes to the tax office on behalf of third parties. Now, which types of taxes involve withholding in Turkey?
Withholding in Turkey is categorized into two main types:
1- Withholding on Income
2- Withholding on Value Added Tax (VAT)
Withholding on Income in Turkey
Your company is required to make income tax deductions in certain cases involving business relationships with other parties, including:
a-) Employees’ gross salaries,
b-) Payments to freelance professionals providing services to your company,
c-) Dividend paid to shareholders,
d-) Rent for properties such as offices, warehouses, or factories leased from individuals,
e-) Payments made to individuals who provide occasional (one-time) services but are not income tax payers,
f-) And deductions on payments to third parties for certain transactions covered by the law.
You declare and pay these deductions to the tax office with the “Witholding Declaration.”
Withholding on Value Added Tax (VAT)
Your company is obligated to pay VAT as a withholder in certain cases of business relationships, including:
a-) Deducting the VAT amount at the rates specified in the relevant law for the types of services mentioned in the VAT Law from the payment to the service provider,
b-) In cases where you receive services subject to VAT from foreign service providers, paying VAT on their behalf,
c-) And paying VAT as a withholder for certain transactions covered by the law.
You pay these deducted VAT amounts to the tax office using the “VAT2 Declaration” and can offset this amount from the VAT amount calculated for your own business in the “VAT1 Declaration.”
[OUR SERVICES] Ensure Compliance with Withholding Tax Requirements in Turkey
Withholding tax in Turkey applies to various payments, and understanding these obligations is crucial for foreign investors to stay compliant and avoid potential penalties. Managing withholding tax accurately can help your business maintain strong financial health while fulfilling local requirements. Our services offer targeted support to handle all aspects of withholding tax in Turkey.
- Preparation and filing of withholding tax returns to meet Turkish tax regulations
- Advisory on applicable withholding tax rates specific to your transactions and industry
- Monthly management reporting to monitor withholding tax liabilities and cash flow impact
- Financial statement analysis to ensure accurate reporting of withholding tax in line with Turkish GAAP
- Risk management strategies to help identify and address withholding tax compliance risks
We’re here to simplify your withholding tax processes, ensuring your business is fully compliant and financially sound. Reach out for expert support in managing your withholding tax obligations effectively in Turkey.
FAQ
1. What is the withholding tax rate on dividends in Turkey?
Answer:
The withholding tax rate on dividends in Turkey is 15%. This rate applies to both resident and non-resident shareholders. However, the rate can be reduced under Turkey’s double taxation treaties with other countries, depending on the specific terms of the treaty.
2. What is the withholding tax rate on interest payments in Turkey?
Answer:
The withholding tax rate on interest payments to non-residents in Turkey is generally 10%. This applies to interest on loans and other financial instruments. The rate may be reduced if there is a double taxation treaty in place between Turkey and the recipient’s country.
3. Is there a withholding tax on royalties in Turkey?
Answer:
Yes, Turkey imposes a 20% withholding tax on royalties paid to non-residents. This rate applies to payments for the use of intellectual property, patents, trademarks, and similar assets. The rate may be reduced under a double taxation treaty.
4. How does Turkey’s double taxation treaty affect withholding tax rates?
Answer:
Turkey has double taxation treaties with over 80 countries, which can reduce or eliminate withholding taxes on dividends, interest, and royalties. The exact reduction depends on the terms of the treaty between Turkey and the foreign investor’s home country.
5. When is withholding tax applied in Turkey?
Answer:
Withholding tax in Turkey is applied at the time of payment to non-residents on certain types of income, such as dividends, interest, royalties, and service fees. The payer is responsible for deducting the tax at the source and remitting it to the Turkish tax authorities.
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