Turkey has a bureaucratic and complex tax system due to its extensive black market, enabling many people to evade tax. There is a system in place that groups Turkish residents as full liability taxpayers and are levied taxes on their worldwide income. Turkish non-residents, also known as limited liability taxpayers, only pay taxes on their earnings and revenues obtained in Turkey.

This tax regime is divided into three primary categories

• Income tax
• Taxes on expenditure
• Taxes on wealth

Income Tax

Income tax in Turkey is divided into individual income tax and corporate tax brackets.

Individual Income Tax

Individual residents and non-residents are subject to income tax. According to the Turkish tax code, residents have resided in Turkey for more than six months; this includes people with an unclear residence status.

They are taxed on their worldwide income (unlimited liability). This is also the case for Turkish citizens who live abroad and work for the government, governmental institutions, and companies with headquarters in Turkey.

The types of incomes considered include

• Salaries and wages
• Business profits
• Agricultural gains
• Income from movable property, e.g., capital investments
• Income from rental property and other immovable assets
• Revenue from consultation and other independent personal services
• Other income and earnings

Non-residents are only taxed on their earnings. Foreigners on short-term or long-term business or work assignments or other purposes like education and healthcare are not considered Turkish residents. Thus, they are limited liability taxpayers and only pay tax on their earnings sourced from Turkey.

Note: Turkey doesn’t have a special tax regime for expatriates.

Income taxes in Turkey are progressive, meaning they increase as your income increases. The income tax rates are as follows.

These rates are among the most competitive in the Organization for Economic Cooperation and Development (OECD) region.

Corporate Tax

Corporate taxpayers in Turkey are limited liability companies, including:

• Cooperatives
• Capital companies
• Joint ventures
• Foundation and association owned economic enterprises
• Public economic enterprises

Turkey has a corporate tax code in line with the OECD and European Union country’s tax regime. The code is based on residency.

It dictates that resident companies (have a management or legal seat in Turkey) have a full tax liability. Therefore, their worldwide income is taxable.

Non-resident companies conducting business through branches or joint ventures have limited tax liability; thus, corporate tax is only charged on profits made in Turkey. However, non- resident companies without a presence in the country are subject to withholding tax of up to 15% of their earnings.

The corporate tax rate has been on the rise from 22% in 2018, 2019, and 2020 to 25% in 2021, but it’s expected to fall to 23% in 2021.

Taxes on Expenditure

These are indirect taxes charged on different products, services, and transactions.

Value Added Tax

The VAT rates in Turkey range between 1% and 18%; the former is the super reduced rate for delivery of services, goods, and completion of transactions that are tax exemptions from VAT.

These tax exemptions include exports, transit transportation, petroleum exploration, and research and development allowances.

The standard VAT rate in Turkey is 18%, which is significantly below the OECD average. There’s also a reduced rate quoted at 8% for social reasons; it’s applied to foodstuffs, pharmaceuticals, medical products, books, and some construction equipment.

Special Consumption Tax

Turkey implemented the unique consumption tax system in 2002 to align with EU directives. The tax is charged on some of the products and other expenditures excluded from the VAT tax bracket. It is paid once, unlike VAT that’s paid per delivery.

The main classes under this tax class include

• Luxury products
• Alcoholic beverages, tobacco, and tobacco products
• Automobiles, motorcycles, helicopters, planes, and yachts
• Petroleum products, lubricating oil, natural gas, solvents, and solvent derivatives

It is paid by the manufacturers, exporters, importers, or sellers of the listed products.

Banking and Insurance Transaction Tax

In Turkey, banking and insurance transactions are exempt from VAT. However, the banking and transaction tax is levied on income earned by banks, say through loan interest.

It’s mandatory with a standard rate of 5%; it can be as low as 1% for some transactions such as deposits between banks. Foreign exchange transactions are exempt.

Stamp Duty

Stamp duty is levied on some documents needed by investors for their companies. These could include:

• Contracts
• Letters of credit
• Letters of guarantee
• Notes payable
• Financial statements
• Payrolls

The rate of stamp duty ranges from 0.189% to 0.948%, depending on the value of the documents. There are several ways of paying stamp duty: sticking printed stamps or revenue stamps, stoppage, or responding in receipt.

It’s paid by the signatories of the documents and can be collected as a fixed amount in certain situations.

Taxes on Wealth

There are three types of tax levied on wealth.

Property Tax

Real estate taxes in Turkey are annual and range between 0.1% to 0.6% on land and buildings. The rates vary in the following ways:

• Residences 0.1%
• Other buildings 0.2%
• Land 0.1%
• Vacant land (but allocated for construction purposes) 0.3%
• Farming lands 0%

The government also charges a purchasing tax of up to 4% of a property’s sale price. The tax should be divided equally between the buyer and seller. In case you are buying a resale property, you will incur the entire cost.

Inheritance and Gift Tax

Transfer of goods from one person to another, whether by inheritance or as gifts, are subject to tax provided the transferer is a Turkish citizen, and the goods are not to be returned.

It applies to worldwide assets received by Turkish citizens and on assets located in Turkey for non-resident foreigners. Resident foreigners also need to pay the tax on inheritance and gifts received from Turkish residents or any assets in Turkey received from residents and non- residents.

You must submit a declaration by the respondent in a specified time frame. For instance, in case you are due for an inheritance, you must submit the declaration within four months of death. The time can be extended when the taxpayer or the deceased was in a foreign country at the time of death.

You should submit the declaration of gifts in the month following you acquiring the properties.

These taxes could fall anywhere between 1% to 30% of an item’s appraisal amount. Inheritance tax is deductible in case you also pay it in another country, and it’s payable in six instalments spread across a three-year period.

Motor Vehicle Tax

Taxpayers must pay tax for any commercial and personal vehicles, like scooters, motorbikes, or cars registered under their names. This annual tax is levied as a fixed amount and is payable in two instalments due in January and June.

Failure to pay motor vehicle tax on time attracts a fine. The amount payable is determined by the age, the engine capacity, and the type of fuel your vehicle consumes. The older your vehicle is, the less you will pay.

Please note that disabled drivers do not pay this tax.

Other Taxes in Turkey

• Capital gains and losses: Capital gains obtained from the sale of shares are not included when calculating income tax and are taxed separately and independently.
• Custom duty: All imported goods that are subject to tax and are assessed based on the written declaration.
• Environmental tax: Levied by municipalities as scheduled fixed amounts put towards municipal services, like garbage collection. The amount varies depending on the location of the house or office.

Frequently Asked Questions

Even with all this information, there are some questions you may still have. So let’s look at three of the most common questions many potential investors ask themselves.

Why Are Taxes So High in Turkey?

Turkey has a vast black market that includes tourist and building sectors, highly dependent on cash-in-hand payments.

As a result, the government is left with no choice but to levy high indirect taxes to make up for the gap. However, income taxes remain relatively fair in an attempt to avoid the economic harm that increasing these will cause.

How Can I Minimize Taxes in Turkey?

There are multiple ways you can reduce the number of taxes your company pays in Turkey. For instance, you can request tax deductions on asset or cash donations and pay your credit card rates in advance. You can also invest in investment incentives or participate in the exception of dividends.

Can I Get Tax Refunds in Turkey?

Yes, you can get refunds in the form of cash or credit to your credit card account. These refunds are available for goods purchased from stores that participate in the national “Global Refund: Tax-Free Shopping” scheme are entitled to tax refunds.

You can also request a Tax Refund Cheque or Tax-Free Invoicer if the store you buy from is not part of the scheme. You also need a Turkish Customs Stamp on these documents before you can present these documents to the Tax-Free Refund Office. Additionally, you must be ready to avail your goods for inspection.