Income tax rates in Turkey

As a rule, individual earnings and earnings are taxed on income at the progressive rates ranging from 15% to 35% and are calculated on an accrual basis.

Find below income tax rate in Turkey in 2009:

Taxable income

The minimum amount of tax

Rate in excess of the norm

Above normal

(TL)

Within normal limits (TL)

0

8 700

-

15%

8 700

22000

1 305

20%

22000

50000

3 965

27%

50000

-

11 525

35%

Income tax rates in Turkey in 2010:

Taxable income

The minimum amount of tax

The tax rate in excess of the norm

Above normal

(TL)

Within normal limits (TL)

0

8 800

-

15%

8 800

22000

1 320

20%

22000

50000

3 960

27%

50000

-

11 520

35%

Income and earnings of an individual (as resident and non-resident), an employee are subject to income tax. Income tax in Turkey, in this case, will be charged and is payable by the organization, which provides income to individuals who are residents or non-residents. Within the framework of the law on the Elimination of double taxation, it is provided an opportunity to reduce the tax rate or abolish taxation on income and earnings received by physical persons-non-residents.
Major private income and earnings, subject to income tax in Turkey, and the related income tax rates

Private income, taxable by income tax in Turkey

Resident

Non-resident

Income from employment (salary, bonuses, additional privileges, etc.)

15-35%

15-35%

Revenue from professional services

20%

20%

Invoicing invoice under long-term contracts for construction

3%

3%

Proceeds from the sale of rights and other intangible assets

No fee will be charged.

20%

Income from FOREX

No fee will be charged.

No fee will be charged.

Rental income (with tangible and intangible values)

20%

20%

Dividend income

(e) 15%

(e) 15%

Interest on time deposits and income from repos

15%

15%

The interest yield on Government bonds and Treasury bills

(a) 10%

0%

Capital gains from the sale of government bonds and Treasury bills in Turkey

(b) 10%

(b) 0%

Capital gains from the sale of shares on the Istanbul Stock Exchange trades and held in possession of less than 1 year

(c) 0%

(c) 0%

Capital largely from the sale of shares of investment trusts at bids

10%

0%

Income from investment funds

(d) 10%

0%

 

  • 0% for the issued till 01.01.2006.
  • Capital gains from the sale of government bonds and Treasury bills issued before 01.01.2006 are not subject to income tax in Turkey. Subject to declaring.
  • Capital gains from the sale of shares acquired prior to 01.01.2006 and held in possession of more than 1 year are not taxable.
  • Income tax in Turkey is not subject to the investment funds that are generated from the shares that make up at least 51% of the portfolio, and held in possession of more than 1 year.
  • Offset against profits in capital refers to the distribution of dividends and is not subject to income tax on dividends.

Taxpayers of income tax in Turkey


Resident individuals are taxed on income got from anywhere in the world, and have a total tax burden in Turkey (full taxpayers). Non-residents are taxed only on earnings and income received in the territory of Turkey and bear partial tax burden in Turkey (partial taxpayers).
Residents are individuals having a permanent residence permit in Turkey, and those who abide in Turkey for more than 6 months in one calendar year (temporary absence cannot interrupt the duration of stay in Turkey).
Civil legislation determines the status of a resident as «intention of settling». Although the legislation does not emit any objective criteria for resident status, facts of buying accommodation  in Turkey and the cessation of business activities abroad, as well as the availability of vital interests (social and economic) in Turkey can be regarded as an intent to get the status of a resident in Turkey.
The six-month rule described above is a specific exception for expatriates, such as businessmen, scholars, experts, government officials and journalists arriving in Turkey to perform temporary or pre-defined work, as well as persons who have arrived in Turkey with a view to education, medical care, recreation, and tourism. Such persons will be deemed non-residents, even if they would stay in Turkey for more than six months of the calendar year.
Generally, if an individual is not a resident of Turkey on the above rules, he will be deemed non-resident for the Turkish taxation rules. This may affect the taxation of income obtained not in Turkey, in the source country of income.


Taxable income tax base in Turkey


Turkey has a unified tax system, under which the income received from different sources, are aggregated, and the tax burden falls on the completely aggregated income. Within the framework of a unified system income tax is charged in Turkey with advances and is credited in the account tax liabilities in the income for the year. Tax is charged on the basis of the calendar year. Income obtained in Turkey by the residents and non-residents, is divided into 7 types:
•         Income from commercial activities
•         Agricultural income
•         Wages and remuneration
•         Income from self-employment
•         Revenues from real estate owned (including royalties)
•         Income from investments (interest and dividends)
•         Other earnings and income (capital gains)
The  source of income is important (within or outside Turkey).
Foreigners bearing full tax burden in Turkey, are subjected to the taxation of income obtained both in Turkey and abroad.
Sources of income for taxpayers in Turkey, bearing the partial tax burden (non-residents) are the following:

  • Income from commercial activities
  • Income from any kind of commercial or industrial activities carried out within the business or representative offices in Turkey, are considered to proceed in Turkey
  • Agricultural income
  • Income from agricultural activities received in Turkey.
  • Wages and remuneration. Salaries and fees are considered cash and goods, issued as compensation for employees by the location of the organization, as well as an award that can be granted to them in cash.

In Turkey, there is no difference between salaries and emoluments, that is, salary is related to emoluments. If remuneration is paid in cash, guarantees, benefits, overtime, advance payments, subscriptions, prizes, bonuses, accumulated percentage or percentages of profit, not identified as equity participation, are not changing. Specific charges paid by the employer on behalf of employees, such as rent and utilities, aggregated and taxed as salary and remuneration.
The following conditions for individuals with limited tax liability mean that rewards are earned in Turkey:

  1. If the employment service is represented in Turkey or,
  2. Service is estimated in Turkey.

Placement services refer to assessed in Turkey if the wage is recorded as costs or expenses of the Turkish entity.
In determining the taxable income the cost allowable under the income tax Act, are excluded from gross income.
Non-resident individuals in Turkey held in organizations, the head offices of which are located outside Turkey, and paid in foreign currency, shall not be subject to cash on their profits; if all the following conditions comply with (this exception usually refers to employees of departments of interaction):

  • A non-resident organization pays the remuneration from the earnings obtained abroad;
  • Payment of bonuses does not apply to costs at the expense of profits taxable in Turkey
  • The amount of compensation comes to Turkey in foreign currency.

Income from self-employment. Earnings from self-employment include services provided by persons working on their behalf, using their own professional knowledge and independent of the employer. His income comes from independent activities carried out or evaluated in Turkey - this means that income from self-employment in Turkey for individuals with limited tax liability.
Services provided by individuals residents and/or non-residents are subject to income tax at the rate of 20%, and the recipient of services provide income tax return to the tax authority of Turkey, on behalf of the service provider.
Income from immovable property. Revenues from the rental of real estate and property rights on these objects by their owners, holders of rights to use or their tenants are taxed in Turkey (if the real estate is located on the territory of Turkey or if such property or rights therein are used or evaluated in Turkey).
Income received by individuals-residents and non-residents from renting of immovable property and royalties on patents and rights are subject to income tax in Turkey at a rate of 20%. The income tax may be waived or reduced by the application of the law on the Elimination of double taxation if income is received by physical persons-non-residents.
Income from investments. Income from investments (investment) is considered to be the following types of income:

  • Dividends on all types of shares
  • Earnings from equity participation
  • The profit is distributed among the Presidents and members of the Board of Directors of organizations
  • The interest and income earned on public and private bonds and Treasury bills
  • All interest income (for time deposits, REPURCHASE agreements, etc.)

Dividends received by individuals-residents and non-residents are subject to income tax at the rate of 15%. Profit paid to the equity account, income tax on dividends is not subject to Turkey. Income tax in Turkey is a final tax for individuals-non-residents. One-half of the amount of dividends received by individuals-residents of Turkish organizations-residents should take tax declaration if the sum of dividends together with other income provided real estate and investment collateral exceeds the amount of TL 22000. In this case, they are declared together with all such proceeds, in the annual tax return income tax in Turkey, and income tax on dividends is deducted from the total amount of accrued income taxes.
Interest on time deposits and REPURCHASE agreements, income received by individuals-residents and non-residents are subject to income tax at the rate of 15%. They are not declared in the annual declaration of income tax.
Income from interest on Government bonds and Treasury bills (issued since 01.01.2006) received by physical persons-residents, subject to income tax in Turkey at a rate of 10%, for non-residents rate is 0%. They are not declared in the annual tax return.
Income from interest on Government bonds and Treasury bills (issued prior to 01.01.2006) is subject to income tax, but the rate is 0%. For individuals-non-residents, this income is not declared in the annual tax return and income tax is a final tax. For physical persons-residents, this income is declared, if the total amount of that income along with dividends, interest and income from immovable property exceeding 22000 TL on 2009 for securities denominated in LIRAS, when calculating taxable income applies adjustments for inflation.
Capital gains and other income. Some types of capital gains and other income:

  • Proceeds from the sale of securities, rights, copyrights, patents
  • Revenues from the sale of land, real estate, ships during the first 5 years from the date of purchase
  • Proceeds from transfer of rights or fellow shares
  • Proceeds from the full or partial implementation of operational activities, which had been suspended
  • Random income

Capital gains obtained by physical persons-residents on the sale of shares on the Istanbul Stock Exchange trades and held in possession of less than 1 year, is subject to income tax at a rate of 0 proceeds from the sale of shares (i) received prior to January 1, 2006, or sold and held in possession of more than 1 year, income tax in Turkey is not taxed.
Capital gains obtained by physical persons-residents on the sale of shares do not trade on the Istanbul Stock Exchange, (if the shares shall be carried out without the mediation of the Bank or other institution) is taxed higher than progressive rates and is payable in annual income tax declaration. However, if these shares-shares companies that are residents of Turkey held in possession of more than 2 years, capital gains income tax in Turkey is not.
If the shares are purchased before 1/1/2006, capital gains received by individuals-residents and non-residents on the sale of shares issued by Turkish companies-residents, income is not taxable, provided that it is received gratuitously; or from sold and held in possession of more than 3 months; or not sold, but retained in the possession of more than 1 year. Capital gains received by individuals-residents and non-residents on the sale of shares is declared, along with the amounts of capital gains in excess of 17 900 TL in 2009.
Capital gains from the sale of government bonds and Treasury bills (issued prior to 01.01.2006) income is not taxable. It is declared by individuals, both residents and non-residents, if the total amount along with any other income from capital exceeds 17 900 TL in 2009. 17 900 TL is all income from capital and is excluded from the taxable base of income tax. In determining the taxable income applies adjustments for inflation.
Taxation of stock options granted to employees
With regard to the taxation of stock options granted to employees in Turkey special tax rules. On the basic rules of taxation, options are taxed as well as income from employment at the time of the execution of the option (it should be noted that the deadline for the taxation can vary depending on each stock option). In addition, under certain circumstances, stock options are subject to stamp duty at a rate of 0.6% and may be deducted from the compulsory social security contributions.


Deductions on income tax in Turkey


Individuals providing independent professional services, or commercial activities, may deduct from taxable income the usual costs of core activities, including salary, rental payments, fees and utility costs. Depreciation is also permitted. Penalties are not deducted.
Percentage of employees contributions to social insurance and unemployment benefits deducted from the total amount of income from paid employment in determining the taxable base on income tax.
Bonuses paid by the worker himself, his or her spouse, children according to the policies of the personal life insurance, death from accidents, illness, disability, unemployment, maternity, birth, and education, as well as contributions to private pension funds, may be deducted from the taxable base of income tax. However, for deducting the following conditions must be met:

  • Insurance and pension contract must be issued by an insurance company, located in Turkey, and the Head Office of this company also must stay in Turkey.
  • The size of the monthly premiums, dues or contributions payable in non-governmental pension funds, should not exceed 10% of the salary for that month (premium paid on personal insurance policies, not in the framework of non-State pension funds, should not exceed 5% of the remuneration per month payment of premium). The annual amount of monthly premiums, membership, and other contributions must not exceed the annual amount of the minimum legal fees.

Lighting, heating, water supply, maintenance, administration, insurance, interest, taxes, depreciation, maintenance costs are paid by individuals whose income from rent can be deducted from the taxable base on a lease.
Taxation of different types of income described above.
Tax credits on wages and remuneration Committee
"Subsistence level" can be deducted from the taxable base on income from employment. Subsistence minimum for each month of work may not exceed 50% of the total amount of the minimum wage for the month, acting at the beginning of the calendar year (729 TL for the first half of 2010 year), which means earned (the maximum level is 10% for the non-working spouse; 7.5 percent for the first two children and 5% of other children).
The tax credit is calculated by multiplying the total subsistence level to 15%. However, the loan amount may not exceed the total amount of tax on the income from paid employment, and in the case of excess shall not be refunded.
Subsistence minimum does not apply to individuals-non-residents receiving income from employment in Turkey.
The following is an example of the calculation of the monthly amount of the deduction for income tax in Turkey for different occasions
Status of the physical person    Calculation of monthly amounts for tax deduction

Status of the physical person

Calculation of monthly amounts for tax deduction

A single worker

Minimum at the beginning of year x 50% x 15%

Working with broken wife

Minimum wage, at the beginning of year x (50% + 10%) x 15%

Working with broken wife + 2 child

Minimum at the beginning of the year (50% + 10% + 7.5% + 7.5%) x 15%

Working with broken wife + 3 child

Minimum at the beginning of the year (50% + 10% + 7.5% + 7.5% + 5%) x 15%

Working with a working wife + 1 child

Minimum at the beginning of the year (50% + 7.5%) x 15%

Working with a working wife + 4 child

Minimum at the beginning of the year (50% + 7.5% + 7.5% + 5% + 5%) x 15%

Damages


Individuals engaged in private activities or individuals leading commercial activities can carry tax losses in future periods. Transfer of such damages will not be allowed back.
Application 1. The procedure for the payment of income tax in Turkey
Employers must deduct income tax from wages and remuneration of employees. All kinds of income tax in Turkey are declared on the 23rd day of each month and are paid on the 26th day of the following month (cash or accrual basis).
A taxpayer who retrieves the income from self-employment should calculate and pay the income tax advance payments on income on a quarterly basis. The sum of advance tax is equal to 15% of total revenue. Payments must be made before the 17th day of the second month following the quarterly tax period. Paid sums of advance tax deducted from the final amount of tax on the income when filing annual income tax declaration.
Annual tax declaration must be submitted to the tax authorities with 1 on 25 March next year, and the fee must be paid in two equal installments in March and July.
Taxpayers resident individuals are able to obtain the tax credit. Taxes paid abroad, on income obtained outside Turkey and taxable in Turkey, may be deducted from the taxable base for tax in Turkey. Foreign tax credits are not available for partial taxpayers (non-residents), as tax deductions are applicable only to the full of taxpayers.
The amount of tax to the definition as a foreign tax credit for taxpayers is limited to the amount of tax payable in Turkey for the same amount of income. In other words, if the tax rates applicable in the other country are higher than the rate applicable to in Turkey, the difference could not be regarded as a foreign tax credit. Part of the tax on the income, the corresponding earnings obtained overseas must be calculated on the basis of their percentage of the income.
To obtain the tax deduction described above, it is important that:
1. Taxes paid abroad shall be levied in a personal manner on the basis of income.
2. Tax Payments abroad must be supported by documents from competent authorities and certified local Turkish Embassy or Consulate, or, if this is not possible, similar representatives of Turkey abroad.
Non-residents are generally not required to file a return if their earnings are taxed only on income tax. Non-resident individuals, or Turkish citizens living in the country with the intention of staying or expatriates who receive income not subject to income tax in Turkey, must submit an annual declaration of income from other sources of income, including income from commercial activities.
When leaving Turkey, non-resident individuals must apply "extraordinary" Declaration about income for the 15 days prior to departure.
Non-resident individuals that are not required to submit an annual declaration of income must file a special declaration of earnings in its main profits listed in the code on the taxable income. Special income tax returns are filed within 15 days after the receipt of the proceeds. Special tax on income from self-employment of partial taxpayer’s declaration shall be filed within 15 days after the end of the activity.
Application 2. Tax credit on foreign income
The tax credit is available for foreign taxes paid on the sum of the Turkish main tax income earned abroad.
VAT-value added tax (in Turkish KDV)
Although theoretically VAT is a value added tax, in practice it is similar to VAT when every merchant adds to invoice issued this tax accounting and tax collected for submission of information to the tax authorities. That is an indirect tax.
The burden of his payment falls in the end not to traders but to final consumers of goods and services. This taxation system is designed to avoid paying tax on the tax due to the fact that goods and services are undergoing a long path to the consumer; when the VAT system to all goods and services only charges tax at the final sale of goods to the consumer. The interest rate may vary depending on the type of product.
However, the buyer has the right to deduct the amount of tax which he discharges it in invoices to pay for goods and services (but not in the form of salary or wages).
The special consumption tax in Turkey 
The special Consumer tax is charged in Turkey with supply, primary acquisition or the import of specific products, divided into 4 different groups.
Some supply, import and acquisition may be subject to Special consumer tax on specific conditions, certain Turkish law in part the special consumer tax (i.e., exports-imports, initial acquisition and delivery of goods, international organizations and their staff, who are exempt from tax on the basis of international agreements, as well as diplomatic envoys and consuls of foreign countries in Turkey and their members with diplomatic status on the basis of reciprocity; delivery of goods listed in Group 1 in a certain public organizations; primary purchasing vehicles by persons with disabilities; primary aircraft acquisition of the Turkish Aeronautical Association, etc.)
Usually, the special consumption tax in Turkey is called a tax on luxury, but that's not really true. The special consumption tax in Turkey is really charged and with luxury items, but not only them.
 
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