The Turkish tax system resembles the EU tax system, particularly the tax systems of Germany and Belgium. Therefore, the main criterions for the taxation are that residency and nationality. In this respect, real persons (or companies) residing in Turkey (or having their centre or business centre in Turkey) shall have unlimited liability to tax. In other words, such persons are obliged to pay tax for their worldwide income. However, real persons (or companies) not included in the said scope shall have limited liability to tax and shall have the obligation to pay tax on their income derived from the sources in Turkey.
The Turkish tax legislation shall be classified under three main headings: Income Taxes, Transaction Taxes and Taxes on Wealth.
Income Taxes:
Although the main principles and rules are pretty much the same with respect to the elements of income and the determination of net income, the individual income tax and corporate income tax have been divided into two and regulated under two different codes.
Individual Income Tax:
Income is the net amount of earnings and revenues earned by a real person in a calendar year. The income types that shall be subject to the income tax, of a real person are listed within the Income Tax Law numbered 193. Accordingly, the income of an individual in terms of the individual income tax are as follows:
- Agricultural Profits
- Business Profits
- Salaries and Wages
- Income from Independent Personal Services
- Income from Immovable Property and Rights
- Income from Movable Property (capital investments)
- Other income and Earnings
As a specific point, although the tax responsible is the individuals with respect to the salaries and wages, the tax is deducted at source and the taxpayer of this income shall be the employer.
Corporate Income Tax:
Corporations which are subject to the corporate income tax are as follows:
- Companies with Share Capital (limited liability companies, joint stock companies, limited companies with shares which are founded under the Turkish Commercial Code and similar foreign companies)
- Co – operative Companies
- State Economic Enterprises
- Commercial, Industrial and Agricultural Organizations
- Economic Entities (owned by foundations and associations)
- Joint Ventures
The corporate income tax rate is 22% as of 2020.
As stated above, taxable income is defined as the difference between the net worth at the end of the year and the net worth at the end of the preceding year Accordingly, the net business income is calculated by deducting expenses relating to the operating of the business, such as taxes imposed on goods, payments of royalties for the use of patents, copyrights, know-how and trademarks, expenses incurred for business entertainment, travel expenses; from the gross income realized by the business. However, the companies subjecting to the corporate income tax are not entitled to deduct the disguised profit distributions through transfer pricing, legal reserves, cost allocations and thin capital.
Transaction Taxes:
The taxes arising from the transactions are Value Added Tax (VAT), Special Consumption Tax, Banking and Insurance Transaction Tax and Stamp Tax.
Taxes on Wealth:
The taxes arising from the wealth are property taxes, motor vehicle tax and inheritance and gift tax.