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Income Tax in Turkey



Turkey taxes its residents on their worldwide income, whereas non-residents are taxed on Turkish-source earnings only. Income tax is levied on taxable income at progressive rates after certain deductions and allowances.

There is no special tax regime for expatriates.

Personal income tax rates
Real persons' income is subject to individual income tax. Income is defined as the net amount of all earnings and revenues derived by an individual within a single calendar year. As per the Income Tax Law, income may consist of the elements listed below:

·        Business profits
·        Agricultural profits
·        Salaries and wages
·        Income from independent personal services
·        Income from immovable property and rights (rental income)
·        Income from movable property (income from capital investment)
·        Other income and earnings

According to the Turkish tax legislation, there are two main types of tax statuses regulated on the basis of residence: resident taxpayers and non-resident taxpayers. Resident taxpayers (those who reside in Turkey, and those who spend more than a continuous period of six months in Turkey within a calendar year) are taxed on their earnings and incomes derived in and outside Turkey, whereas non-residents (those who do not reside in Turkey and those who do not spend more than a continuous period of six months in Turkey within a calendar year) are taxed only on their earnings and incomes derived in Turkey.

Individual income tax rate varies from 15% to 35%.

The following rates apply to employment income from 1 January 2017 for residents and non-residents:

Taxable Income Bracket
Tax Rate on Income in Bracket
From
To
Percent
1
13,000
15
13,001
30,000
20
30,001
110,000
27
110,001
Over
35

For other type of income for the year 2017:

Taxable Income Bracket
Tax Rate on Income in Bracket
From
To
Percent
1
13,000
15
13,001
30,000
20
30,001
70,000
27
70,001
Over
35

Residence rules
For the purposes of taxation, how is an individual defined as a resident of Turkey?
A resident is defined as an individual who has his/her domicile in Turkey, or whose presence in Turkey is for more than six months in a calendar year.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
Not applicable.

What if the assignee enters the country before their assignment begins?
No special rules apply.

Termination of residence
Are there any tax compliance requirements when leaving Turkey?
An income tax may be required to be filed within 15 days before final departure from Turkey.

What if the assignee comes back for a trip after residency has terminated?
The assignee is not regarded as a resident.



Corporate Income Tax Rate
In case income elements specified in the Income Tax Law are derived by corporations, taxation is applicable on the legal entities of these corporations. Corporate taxpayers defined in the law are as follows:

·        Capital companies
·        Cooperatives
·        Public economic enterprises
·        Economic enterprises owned by associations and foundations
·        Joint ventures

Corporations with legal or business centers located in Turkey are qualified as residents and are subject to tax on their income derived in Turkey and other countries. If both the legal and business centers are not located in Turkey, then these corporations are qualified as non-residents and subject to tax only on their income derived in Turkey. The legal center is the place stipulated in the Articles of Association or the incorporation law of corporations that are subject to tax, while the business center is defined as the place where business activities are concentrated and managed.

In Turkey, the corporate income tax rate levied on business profits is 20%.

Resident corporations are subject to a 15% withholding tax when dividends are paid out to shareholders. However, dividends paid by resident corporations to resident corporations are not subject to withholding tax. As a share capital increase by the corporation using the retained earnings is not considered to be a dividend distribution, no withholding tax applies to dividends. Similarly, non-resident corporations are subject to a 15% withholding tax during remittance of such profits to the headquarters. Withholding tax is applied on the amount after the deduction of corporate income tax from taxable branch profits.

Frequently Asked Question

1) Is there a specific income tax regime for foreign individuals in Turkey?
No, there is no special tax regime for expatriates or foreign individuals living in Turkey.

2) How will I be treated as a tax resident of Turkey?
In case you are seconded from a country Turkey has a Double Tax Treaty agreement with, your taxation status is determined in accordance with the provisions of this agreement (Article 4). The country where your financial and individual interests are closer to is in principle considered as the country where you are tax resident.

3) What is the taxation period in Turkey?
1 January – 31 December

4) Which income elements do I need to report in Turkey in case I am treated as a tax resident of Turkey?
Your world-wide income is required to be reported in Turkey regardless of where the income delivered.

5) Which income elements do I need to report in Turkey in case I am treated as a non-tax resident of Turkey?
Only your Turkish source of income is required to be reported in Turkey.

6) Do I still need to file personal income tax return in Turkey if I am getting paid in Turkey and do not have any other types of income?
No, according to Turkish Income Tax Law, salary withholding taxes are final taxes on employment income and there is no additional filing requirement for the same income.

7) Do I need to report only cash benefits in Turkey or also benefit in kind (like rent paid by employer directly to landlord)?
Besides cash benefits, also benefit in kind (such as rent paid by employer directly to landlord) are treated as a part of salary according to Turkish Income Tax Law.

In case these benefits are not processed on Turkish payroll and therefore no salary withholding taxes are withheld for those components, then you are obliged to report them through personal income tax return.

8) Do I still need to file personal income tax return in Turkey even though I don’t have any work permit in Turkey?
Yes. The filling requirement is independent from holding a valid work permit or residence permit.

9) To which tax office should I be registered?

You are supposed to be registered with the Tax Office in which jurisdiction you are officially residing. In case you have no official residence address in Turkey, then you are supposed to be registered with the Tax Office in which jurisdiction your employer is located.



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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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This blog is Created by CA Anil Kumar Jain.