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CO
UN
TRY
Doing Business in
Turkey
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1Baker Tilly International | Doing Business in Turkey
Preface
This guide has been prepared by GYM Güreli YMM AS, an independent member of
Baker Tilly International. It is designed to provide information on a number of subjects
important to those considering investing or doing business in Turkey.
Baker Tilly International is the world’s 8th largest accountancy and business advisory
network by combined fee income, and is represented by 150 firms in 120 countries
and over 25,000 people worldwide. Its members are high quality, independent
accountancy and business advisory firms, all of whom are committed to providing the
best possible service to their clients, both in their own marketplace and across the
world.
This guide is one of a series of country profiles compiled for use by Baker Tilly
International member firms’ clients and professional staff. Copies may be downloaded
from www.bakertillyinternational.com.
Doing Business in Turkey has been designed for the information of readers. Whilst every
effort has been made to ensure accuracy, information contained in this guide may not
be comprehensive and recipients should not act upon it without seeking professional
advice. Facts and figures as presented are correct at the time of writing.
Up-to-date advice and general assistance on Turkish matters can be obtained from GYM
Güreli YMM AS; contact details can be found at the end of this guide.
December 2011
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Contents
Page
1 Fact Sheet 4
2 Business Entities and Accounting 6
2.1 Corporations 6
2.2 Accounting and Audit Requirements 9
2.3 Filling Requirements 9
3 Finance and Investment 10
3.1 Exchange Controls 10
3.2 Banking and Sources of Finance 10
3.3 Stock Exchange 10
3.4 Foreign Investment Incentives 10
4 Employment Regulation and Social Security 14
4.1 Residence and Work Permits 14
4.2 Social Security System 14
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Page
5 Taxation 15
5.1 Principal Taxes 15
5.2 Corporation Tax 15
5.3 Taxation of Individuals 18
5.4 VAT 20
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1 Fact Sheet
Geography
Location Eurasia
Area 814,578km²
Land boundaries Bulgaria, Greece, Georgia, Armenia, Azerbaijan, Iran, Iraq and Syria
Coastline Black Sea, Mediterranean Sea, Aegean Sea
Climate Temperate; hot, dry summers with mild, wet winters; harsher in theinterior
Terrain High central plateau (Anatolia); narrow coastal plain; severalmountain ranges
Time zone GMT +2
People
Population 78.78 million
Ethnic groups Turkish, Kurdish, other minorities
Religion Islam, other (mostly Christians and Jews)
Languages Turkish (official), Kurdish, Dimli (or Zaza), Azeri and Kabardian
Government
Country name Republic of Turkey
Government type Republican Parliamentary Democracy
Capital Ankara
Administrative divisions Subdivided into 81 provinces for administrative purposes. Theprovinces are organised into seven regions for census purposes;however, the provinces do not represent administrative structures
Political situation The President is elected by the Great National Assembly for aseven-year term. Elections were last held in 2007. The PrimeMinister is appointed by the President from among members of theparliament. The Council of Ministers is appointed by the Presidenton the nomination of the Prime Minister
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Economy
GDP – per capita US$14,600 (2011 est)
GDP – real growth rate 6.6% (2011 est)
Labour force 2446 million
Unemployment 10.3% (2011 est)
Currency (code) Turkish lira (TL)
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2 Business Entities and Accounting
2.1 Corporations
There are two types of capital corporations under Turkish law: the joint stock company
(Anonim Sirket – A.S.) and the limited liability company (Limited Sirket – Ltd. Sti.). In
both types of company, the liability of the shareholders is limited to their share capital,
which may be paid up in cash or in kind. The A.S. has the right to offer its shares for
sale to the public, whereas the Ltd. Sti. does not.
2.1.1 Joint stock company (A.S.)
According to the Turkish Commercial Code, the minimum capital amount required to
establish an A.S. is TL50,000. One quarter of this share capital must be paid up on
registration, with the remaining capital due within 36 months of incorporation. A
minimum of five shareholders is required. If there are over 100 shareholders, the A.S.
is deemed to be, and is therefore inspected as, a public company. An A.S. is required
to have a board of directors with at least three members (directors may also be
shareholders of the company).
100% foreign ownership is allowed. Although foreign investors have free access to local
sources of funds, interest costs are high and careful financial structuring may be
necessary.
The A.S. may not commence business until the registration process has been
completed. It must also be registered with the Tax Office. Formation costs are
insignificant within the context of an inward foreign investment. Formation generally
takes two to four weeks.
2.1.2 Limited liability company (Ltd. Sti.)
A Ltd. Sti. must have a minimum capital of TL5,000 (no share certificates issued). It
can be formed with a minimum of two shareholders and a maximum of 50.
Management may be delegated to at least one designated “company director”. The
minimum nominal value of each share is TL0.25. Shareholders are personally
responsible for the Ltd. Sti.’s liabilities to the government in proportion to their
shareholding.
The board of company directors may be formed by individuals who are not
shareholders of the company. The directors are obliged to inform the relevant district
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court for the registered office of the company if, at any time, the company’s liabilities
exceed its assets. The directors are appointed and may be dismissed by the
shareholders at the general shareholders’ meeting.
The board of directors’ resolutions must be in written form and must be recorded in the
minute book. In practice, circulation of the approved minutes is sufficient to meet this
requirement if all directors agree not to meet physically. The shareholders have the
right to appoint one or more of the shareholders as director(s) of the company and may
restrict the right of individual directors to bind the company with third parties (eg a
production director may be excluded from taking decisions related to marketing).
All such restrictions, together with the appointment of a director, must be registered
with the Commercial Register if they are to be effective in respect of third parties. The
annual report and financial statements of every Ltd. Sti. must be audited by an
independent company auditor.
2.1.3 Branch
Branches are not required to have a formal minimum registered capital. A branch is a
legal entity but has no formal management structure apart from a branch manager. In
order to establish a branch of a foreign corporation, a permit from the Ministry of
Industry and Commerce (for banks, an additional permit from the Banking Regulation
and Supervision Agency) is required before registration with the trade registry office.
The managers of branches of foreign companies are obliged to publish the financial
statements of the branch as well as the parent company and the group within six
months of their approval in the parent jurisdiction.
2.1.4 Liaison office
Foreign entities may establish a non-trading, unincorporated liaison office.
The formalities are simple in that only the Treasury need be directly approached by the
applicant for a permit. The application should be in writing and should give sufficient
information regarding the applicant’s identity, the nature of the business operations and
the reasons for establishing a Turkish office. A detailed description of the intended
activities of the office is also necessary, as is a statement that the office will not trade
in its own name and a description of the benefits expected to accrue to the Turkish
economy. At present, permits are issued for up to three years and may be extended on
expiration for another three years.
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Liaison offices are not permitted to trade in their own names and on their own account.
Power of attorney must be granted by the parent entity authorising the liaison officer to
contract in the name of the parent for services in Turkey (eg office accommodation,
telephone, local staff and local incidental purchases).
Since a liaison office cannot perform any commercial activity it is not expected to have
a taxable income and therefore it is not liable to any corporate tax. However, it must
keep formal books of account and must keep records of all expenditure and income,
including transfers from the parent. The books of account are open to inspection
(usually annually) by the authorities of the Ministry of Finance. Both foreign and local
staff may be employed by liaison offices. Staff requirements should be specified in the
permit application.
The office is required to deduct social security contributions but not income tax from
the employees’ salaries. The deduction for social security must be determined
according to official rates and must be accounted for to the social security offices
monthly. Wage and salary records must be maintained as these may be inspected by
the authorities. Office operating costs and other expenses must be financed by
transfers in foreign currency from abroad.
2.1.5 Joint venture
Previously, foreign investment legislation in Turkey did not cover the concept of joint
ventures or consortia, including foreign partnerships formed for the completion of a
specific contract (generally a construction contract). However, under recent legislation,
consortia, joint ventures and other partnerships not falling within the scope of any form
of legal entity defined under the Turkish Commercial Code can be established by foreign
investors but are treated as ordinary partnerships.
2.1.6 Ordinary partnership
An ordinary partnership arises when two or more self-employed people or legal entities
share in the decision making, risks, costs and obligations of a business. Partnerships are
governed by a written agreement between the partners. This agreement can be ratified
by the notary public to formalise the arrangement and provides the partners with greater
protection. Each partner is jointly and severally liable for the debts of the business.
Unlike a limited liability company, joint stock company, or a branch office, an ordinary
partnership is not a separate legal entity. There are no minimum capital requirements
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for an ordinary partnership. An ordinary partnership will be dissolved if one of the
partners resigns, dies, or becomes bankrupt, or if a corporate partner is dissolved.
Also, an ordinary partnership may be dissolved by the mutual agreement of the partners
or at the end of a period determined in the partnership agreement.
Partnerships are required to submit an annual self-assessment tax return.
2.2 Accounting and Audit Requirements
The books of commercial enterprises must be kept in Turkish and transactions must be
accounted for in Turkish liras. Permission may be granted by the Council of Ministers
for keeping records in a currency other than Turkish liras in respect of corporations
with paid-up capital amounts higher than or equal to US$100m, of which 40% or more
is held by foreigners. Hard copy data must be kept for at least five years for tax
purposes and at least ten years for commercial law purposes.
Subsidiaries or branches of multinational companies that do not fall under the present
audit regulations are usually audited by independent professional firms on a voluntary
basis, although the reports are not generally published. In addition, Turkish companies
may choose to be audited for the purposes of obtaining bank loans, public relations, or
internal control.
2.3 Filling Requirements
Companies quoted on the stock exchange are required to have their financial
statements audited by independent auditors and file them with the Capital Market Board
(SPK). The New Turkish Commercial Code, adopted by the Turkish Parliament in 2011,
aims to improve public confidence and transparency in financial reporting. Upon
implementation of this law in July 2012, all companies must have their financial
statements audited.
SPK regulations specify the format of the balance sheet, income statement, statement
of changes in financial position and the presentation of notes to the financial
statements. Listed companies are required to publish their balance sheet, income
statement and auditors’ report in the Trade Registry Gazette and in at least two daily
newspapers.
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3 Finance and Investment
3.1 Exchange Controls
There are no exchange controls in Turkey on inward or outward investment. Foreign
currencies may be bought and sold freely and there are no restrictions on the
maintenance of foreign currency bank accounts in Turkey.
3.2 Banking and Sources of Finance
The country’s banking sector is supervised by the Banking Regulation and Supervision
Agency. Turkey’s central bank, Central Bank of Turkish Republic, is charged with
regulating currency in circulation by implementing monetary policy to maintain price
stability.
Turkey’s banking and financial system includes national banks, international banks and
various financial institutions.
3.3 Stock Exchange
The Istanbul Stock Exchange (ISE) provides a market for shares and other securities
issued by public companies and government bonds.
The ISE is a public corporation, established by governmental decree, operating as an
autonomous and professional institution. The ISE is entitled to issue legal regulations
related to the subjects and fields within the scope of its authority.
3.4 Foreign Investment Incentives
3.4.1 Investment incentives and Investment Encouragement Certificate
Incentives generally comprise a mix of taxation and non-taxation measures. An
Investment Encouragement Certificate (IEC) is required for an investor to benefit from
investment incentives in Turkey. Foreign investors must apply to the Under Secretariat
of the Treasury for an IEC.
The IEC defines the main characteristics of the investment, the incentives granted and
the requirements that must be met by the investor.
Investors may qualify for the following general incentives based on the location (region),
scale and the nature of the investment:
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Reduced corporate tax
Applicable to the net revenues derived from eligible investments and depending on the
region(s) and scale of the investment, the standard corporate tax rate of 20% may be
reduced by between 25% and 80% to an effective rate of between 4% and 15%.
VAT exemption
VAT exemption is provided on the import and local delivery of machinery and equipment
within the scope of the IEC.
Customs duty exemption
With the exclusion of investments in certain industries that are not supported by the
government, customs duty exemption is provided for all investments above a minimum
investment amount and satisfying other requirements set out in the current investment
incentive regulations.
Social security employer’s premium support
For large investment projects and other investments in eligible regions, the employer’s
social security obligations up to the amount calculated based on the current official
minimum wage for each employee is borne by the Treasury.
Interest cost support
Upon request, cash interest cost support may be applicable to research and
development (R&D) and environmental protection investments in all regions, as well as
other types of eligible investments in “economically distressed” regions.
Land allocation
Investment land may be granted to large investment projects and eligible regional
investments.
3.4.2 R&D incentives
R&D allowance
Businesses employing at least 50 R&D personnel can deduct 100% of their eligible R&D
and innovation expenditures, as well as the amortisation on capitalised R&D
expenditure, from taxable profits.
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Businesses employing more than 500 R&D personnel can also deduct half of the
increase in their R&D and innovation expenditure over the previous year’s costs.
Income tax incentives
Up to 90% of the salaries of eligible R&D and R&D support personnel are exempt from
personal income tax.
Social security premium incentives
Half of an employer’s social security obligations in respect of R&D and R&D support
personnel is financed from a budget allocated by the Ministry of Finance.
3.4.3 Technology development zones
Business income derived from software development and R&D activities in technology
development zones (techno parks) and salaries and wages of researchers, software
programmers and R&D personnel working in techno parks are exempted from
corporate and personal income taxes respectively until 31 December 2013.
3.4.4 Free trade zones (FTZs)
Tax treatment and incentives for FTZs include:
Corporate income tax relief for FTZ manufacturing entities
Income derived from manufacturing activities in FTZs is exempted from corporate
income tax, although this incentive will be phased out on Turkey’s accession into
the EU.
Personal income tax relief on wages and salaries
Subject to certain conditions, salaries and wages paid in FTZs by manufacturing entities
are exempted from personal income tax and salary withholding taxes, although this
incentive will be phased out on Turkey’s accession into the EU.
Value added tax (VAT) treatment at FTZs
The delivery of goods and services within FTZs is not subject to VAT.
Deliveries of goods and services from Turkey into FTZs are treated as exports and are
exempt (zero tax) from VAT.
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Stamp taxes
All transactions in FTZs which would otherwise be subject to stamp taxes and duties are
exempted, although this incentive will be phased out on Turkey’s accession into the EU.
Corporate and personal withholding taxes (WHT)
FTZ entities no longer receive favourable tax treatment in terms of WHTs, with the
exception of salary WHT, as noted above. Therefore, the same WHT obligations that are
applied to regular non-FTZ entities are also applicable to FTZ entities.
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4 Employment Regulation and Social
Security
4.1 Residence and Work Permits
Most foreigners may enter Turkey with a visa, which can be obtained at the border of
entry allowing them to stay in the country up to three months.
A foreign individual sent by a foreign company to carry out business on its behalf in
Turkey must obtain a work permit from the Ministry of Labour and a work visa from the
Turkish Consulate. After obtaining a residence permit from the Ministry of Internal
Affairs, the individual and the company should jointly apply for a work permit from the
Ministry of Labour.
Foreign nationals residing outside Turkey may make their work permit applications
through representatives of the Turkish Republic in their respective countries. Foreign
nationals holding residence permits may file their applications jointly with their employer
directly with the Ministry of Labour.
Work permits are granted by the Ministry of Labour after consultation with the relevant
bodies, if necessary. The work permit does not give the right of employment to spouses.
Foreigners who are insured in their own country may opt out of the Turkish social
security scheme upon filing a written request with the social security authorities.
4.2 Social Security System
The major features of the social security system are the provision of healthcare and a
small pension. There is also unemployment insurance.
All employees, with the exception of certain agricultural workers, of Turkish businesses
are subject to the social security scheme. Contributions are paid monthly by the
employer and are partially recovered from the employees by salary deductions.
Employees’ social security premium obligations amount to 15% of gross monthly
benefits and employers’ premium obligations vary between 21.5% and 27%, depending
on the sector of employment.
Turkey has reciprocal social security agreements with a number of countries. However,
inherent limitations caused by the difference in benefits mean they are rarely used for
expatriate employees.
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5 Taxation
5.1 Principal Taxes
The most important taxes for foreign corporate investors in Turkey are:
● Personal income tax● Corporate income tax● Withholding taxes on certain payments including dividends and wages● VAT● Bank and insurance transactions tax.
For individuals, the principal taxes on income are:
● Personal income tax● Social security.
The tax year is generally the calendar year for corporate and personal income tax
purposes, although with the approval of the Ministry of Finance companies may adopt
any 12 month fiscal year appropriate to their businesses.
5.2 Corporation Tax
5.2.1 Corporations and shareholders
The corporate income tax rate is 20%. For non-resident entities operating in Turkey (ie
branches, permanent establishments) a withholding tax of 15% is applicable on the
portion of the branch profit that is transferred to the head office. The current corporate
withholding tax rate is 15% on dividends paid to resident or non-resident individuals or
to non-resident corporations without a permanent establishment operating in Turkey.
After tax earnings repatriated to the parent country by non-resident permanent
establishments are also subject to 15% corporate withholding tax. Dividends paid to
resident corporations or to non-resident corporations with a permanent establishment in
Turkey are exempted from dividend withholding taxes.
Thus the fully consolidated rate of corporate income tax amounts to 32%. In the event of
dividend distribution by an international holding company to non-resident shareholders,
dividend withholding tax rate may be applied at 7.5%, subject to certain conditions.
There is no separate tax applicable to capital gains made by corporate tax payers.
Capital gains are treated as part of regular corporate and are taxed accordingly.
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5.2.2 Advance payment of income tax
Corporations are required to pay advance corporate income tax based on their
quarterly profits at the rate of 20%. Advance corporate tax returns are filed on the 14th
day and tax is due to be paid on the 17th day of the second month following the close
of the quarterly period. Advance corporate income taxes paid during the tax year are
offset against the ultimate corporate income tax determined in the related year’s
corporate income tax return. The return must be filed and the tax by the 25th day of
the fourth month following the close of the annual tax period.
5.2.3 Taxable entities
Resident and non-resident entities are subject to the same corporate income tax
regime. Joint stock or limited companies established by foreigners are treated as
resident companies in Turkey. Branches formed by foreigners are treated as
non-resident entities.
5.2.4 Territoriality
Companies with legal or business headquarters in Turkey are considered resident
companies and are subject to corporate income tax on their worldwide income.
Non-resident entities are those that have neither legal nor business headquarters in
Turkey and are subject to tax only on income generated in Turkey.
5.2.5 Losses
Losses may be carried forward for up to five years but they cannot be carried back.
5.2.6 Tax treaties
Currently, Turkey has bilateral tax treaties with 74 countries.
In some of these, there is a tax sparing mechanism designed to eliminate taxation of
foreign investors benefiting from Turkish tax incentives. The country of residence can
give a credit for the tax that would have been paid in Turkey if the latter had not
granted investment incentives. Tax sparing is not needed if the country of residence of
the foreign investor uses the exemption method for the income concerned to eliminate
double taxation.
The definition of permanent establishment and attribution of profit thereto within the tax
treaties generally follows the OECD model.
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5.2.7 Transfer pricing and thin capitalisation
Transfer pricing rules
Taxpayers should determine the most appropriate price for transactions with related
parties, both domestic and foreign, from: uncontrolled price; cost-plus; and resale price
methods to ensure their commercial transactions are treated as being carried out on an
arm’s-length basis. Other transfer pricing methods may be used if these three
approaches can be demonstrated to be unsuitable. Taxpayers are responsible for
maintaining and providing sufficient documentation to support the method used and
calculation of the price.
Transactions between related parties outside the transfer pricing guidelines are
considered to be disguised profit distributions and are subject to dividend withholding
tax. These amounts are not deductible in arriving at taxable corporate income.
Corporate tax payers may apply to the Ministry of Finance for an advance pricing
agreement. Provided the conditions under which the transfer pricing method is
determined remain stable, the approved method will apply for three years.
Thin capitalisation rules
Turkish thin capitalisation rules apply to virtually all types of related party financing.
Related party financing exceeding three times shareholders’ equity is considered to be
indicative of thin capitalisation. If the lending related party entity is a local or foreign
bank or a financial institution, the relevant debt to equity ratio is six to one.
Related party financing is deemed to include commercial current account receivables as
well as any other borrowings.
Shareholders’ equity for the purposes of the thin capitalisation rules is the balance on
the opening day of the accounting period and includes the paid up capital as well as
undistributed reserves and other retained earnings less prior year losses.
Foreign exchange losses and interest payments made by a Turkish entity to a related party
lender will be deductible on financing up to the applicable debt to equity ratio. Interest
payments on loans obtained from any foreign company, other than banks or financial
institutions, are subject to VAT at 18%, payable by the Turkish company under the reverse
charge mechanism. Any interest treated as non-deductible for corporate income tax
purposes under the thin capitalisation rules is subject to dividend withholding taxes as well
as 18% VAT which is not to be credited against the borrowing entity’s output VAT.
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5.3 Taxation of Individuals
5.3.1 Territoriality and residence
All individuals resident in Turkey are liable to Turkish income tax on their worldwide
income. For tax purposes, a person whose domicile is in Turkey or who stays in Turkey
more than six months in a calendar year is deemed to be resident. Certain foreign
individuals (eg business persons, scientists, news correspondents and professionals)
present in Turkey more than six months for the fulfilment of “specific and temporary
assignments” are not regarded as resident and are taxed solely on the income derived
from their activities in Turkey.
5.3.2 Capital gains
Gains arising on the disposal of capital assets are calculated and added to income for
tax purposes.
Gains on the sale of shares traded on the Turkish Stock Exchange are exempt from
taxation. Similarly, gains on the sale of shares in non-listed Turkish resident companies
are exempt from taxation provided they have been held for longer than two years.
The taxable base for capital gains derived from shares and other securities by
non-residents is the lira purchase cost adjusted in accordance with monthly indices,
announced by the Turkish Statistical Institute, excluding the month of the sale.
There is an annual exemption in respect of aggregate gains up to TL8,800 for 2012.
Capital losses may be off set against capital gains arising in the same tax year but
they may not be off set against other taxable income and they may not be carried
forward.
5.3.3 Other income
Interest, rental and dividend income generated in Turkey is subject to income tax. Half
of dividends received from Turkish-resident corporations are exempt from income tax
for resident recipients. Credit is given for corporate withholding tax paid by the resident
corporation. Additionally, if the dividend income which has been taxed at source in
Turkey does not exceed the declaration limit specified in the law (TL25,000 in 2012 ),
no further taxation arises.
Interest income is not subject to taxation, provided it has already been taxed through
withholdings. Additionally, rental income from residential property let by individuals is not
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required to be declared if the total rental income does not exceed the exemption limit
of TL3,000 in 2012.
5.3.4 Double taxation relief
Foreign withholding taxes on passive income from abroad are usually credited against
the applicable Turkish income tax, unless the relevant tax treaties specify otherwise.
However, such credits may not exceed the rate of tax assessed for similar income in
Turkey.
5.3.5 Tax rates
Income tax applies at progressive rates starting at 15%. The highest tax rate of 35% is
applicable to taxable income above TL58,000 for 2012.
Taxable Income
Band (TL) Rate
Tax on
Band (TL)
Cumulative
Tax (TL)
0 – 10,000 15% 1,500 1,500
10,001 – 25,000 20% 3,000 4,500
25,001 – 58,000 27% 8,910 13,410
Over 58,000 35%
A higher upper bracket is applied to wages and salaries as follows:
Taxable Income
Band (TL) Rate
Tax on
Band (TL)
Cumulative
Tax (TL)
0 – 10,000 15% 1,500 1,500
10,001 – 25,000 20% 3,000 4,500
25,001 – 88,000 27% 17,010 21,510
Over 88,000 35%
5.3.6 Advance payment of personal income tax
Income tax payers filing returns for commercial or professional income are obliged to
pay advance tax (temporary tax) at a rate of 15% on their quarterly profits by the 14th
day of the second month following the quarter end. The annual tax return for personal
income tax must be filed between 1 and 25 March following the close of the period and
tax due must be paid in two instalments in March and July.
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5.3.7 Social security
Social security charges are based on salary earned and borne by both employer and
employee. Currently, total monthly premium rates are between 36.5% and 42% (31.5%
to 37% for employers fulfilling certain conditions) of gross salary (see 4.2). No further
premium is payable on salaries exceeding TL5,762.40 per month (effective from 1
January 2012).
5.3.8 Gift and inheritance taxes
Gift and inheritance tax is levied on gifts or inheritances of specific assets located in
Turkey. The tax is levied on the individual receiving the gift or inheritance. Various
progressive rates starting from 1% up to 30% apply depending on the amount
transferred and on the nature of the relationship between the testator or donor and the
recipient.
5.3.9 Withholding taxes
Withholding taxes may be reduced by virtue of a double taxation treaty, particularly in
respect of dividends arising on substantial holdings.
5.3.10 Personal services
Non-residents performing personal services are governed by the usual 183-day rule.
5.4 VAT
All supplies of goods and services within the scope of commercial, industrial,
agricultural, or independent professional activities carried out within Turkey are subject
to VAT. The import of goods and services (refer to the position of foreigners below) and
a range of other activities not generally seen as producing added value within a
business context are also subject to VAT.
VAT is chargeable on post, telephone, telegraph, telex and other similar services; radio
and television services; artistic performances; auction sales and sales made in customs
warehouses; transportation of petroleum, gas and their products through pipelines;
rentals and royalties; certain services and goods delivered by public authorities.
Unless exempted, the supply of all goods and services is subject to VAT. The standard
VAT rate is 18%. Two reduced rates are applicable to certain goods and services.
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Goods and services subject to VAT at 1% include: agricultural products intended for
re-sale; used cars; business sales of residential property with a net usable area of
150m² or less; funeral services; newspapers and periodicals.
Goods and services subject to VAT at 8% include: textile and leather products; schools
and day-centres for children, certain healthcare products; dental, optometric and
medical materials and equipment; veterinary and human healthcare services; basic
foods; restaurant food services; hotel room and board services; nursery services;
agricultural tools and equipment; tickets for cinema, theatre, opera and ballet; books
and publications. Businesses account to the tax authorities for VAT on the net difference
between inputs and outputs (value added). If output VAT charged exceeds input VAT
suffered, the excess amount is payable to the related tax office.
If input VAT suffered exceeds output VAT charged, the balance is carried forward to be
set off against future VAT liabilities.
5.4.1 Imported goods
For VAT purposes, any import of goods into Turkey is a taxable transaction. The VAT on
imports of goods is imposed at the same rate applicable to the domestic supply of
such goods. The VAT is collected by the customs authorities when the goods are
released for free circulation.
VAT on imports and customs duty is paid at the same time to the customs authorities.
VAT on imports is deducted from the total output VAT payable by the importer in the
same way as input VAT paid on domestic purchases. The import as well as domestic
acquisition of machinery and equipment for investment projects under an investment
incentive certificate is exempt from VAT.
Goods and services supplied by small businesses exempt from income tax are also
exempt from VAT. Similarly, deliveries and services performed by farmers not subject to
income tax on net-profit basis are also exempt from VAT.
5.4.2 Special features
Financial services provided by banks and insurance companies falling within the scope
of banking and insurance transaction tax are exempt from VAT. They are, however,
liable to a 5% banking and insurance transactions tax (BITT). A reduced rate of 0.1%
applies to foreign currency arbitrage transactions.
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22 Baker Tilly International | Doing Business in Turkey
This tax is not recoverable by the customer and therefore increases the cost for the
service provided. Input VAT suffered by banks and insurance companies is not
recoverable. The bank or the insurance company accounts for BITT to the tax
authorities.
Transactions that basically comprise a supply of goods and services for cultural,
educational, recreational, scientific, social and military objectives and certain other
categories are also subject to exemption from VAT and input VAT suffered is not
recoverable.
The supply of some goods and services (including all exports) is exempt from VAT with
credit for input VAT suffered. The most common items qualifying for this treatment are
supplies related to transportation, mining and petroleum exploration.
The categorisation of supplies between those which are taxable (and the applicable rate)
and those which are exempt (and the treatment of input VAT) can be complicated and it
is recommended that professional advice is sought before commencing business
activity in Turkey.
5.4.4 Foreign businesses
Foreign-owned businesses (both subsidiaries and branches) operating in Turkey are
treated as regular taxpayers if they maintain a permanent establishment in Turkey.
Building sites and other construction projects may be classified as foreign-owned
businesses. Goods imported from abroad are taxed at the point of entry under special
rules. The tax is collected by the customs authorities from the importer. The latter, if a
business undertaking, may reclaim it in its VAT return.
The foreign supplier of the goods is not involved in these proceedings. Services
performed in Turkey by a foreign business other than through a Turkish permanent
establishment are subject to VAT, but it is the responsibility of the Turkish customer to
account for the VAT to the Turkish tax authorities.
There is no provision for a foreign business (other than a permanent establishment) to
reclaim any Turkish VAT paid. This applies particularly to travel and other incidental
expenses incurred by foreigners visiting Turkey for business purposes, and also to
other sales promotion costs incurred there.
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23Baker Tilly International | Doing Business in Turkey
Member Firm Contact Details
Contacts:
Hansln Dalbayrak, CPA, managing partner
Sinan Güreli, CPA, assurance partner
GYM Güreli YMM AS
Beybi Giz Plaza
Dereboyu Caddesi Meydan Sokak No: 1 Kat: 19
Maslak/Istanbul 34398
Turkey
T. +90 (212) 290 3760
F. +90 (212) 290 3796
www.gureli.com.tr
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24 Baker Tilly International | Doing Business in Turkey
Notes
Produced by Stephen Duke Ltd +44 (0)20 7422 0040 (13791)
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26 Baker Tilly International | Doing Business in Turkey
WorldHeadquarters25 Farringdon Street
London EC4A 4AB
United Kingdom
T. +44 (0)20 3201 8800
F. +44 (0)20 3201 8801
www.bakertillyinternational.com
© 2011 Baker Tilly International Limited, all rights reserved.
Baker Tilly is a trademark of the UK firm, Baker Tilly UK Group LLP, used under licence