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Article by "Independent Accountants" firm www.ia.com.tr (July 2009)

1. TAXES

Turkey has one of the most competitive corporate tax rates in the OECD region. The new Corporate Tax Law that was enacted on June 21st, 2006 has made some important amendments to the current applications and also included new concepts in the tax legislation. With the new Corporate Tax Law in place, Turkish corporate tax legislation now has noticeably clearer, more objective and greater harmonized provisions which are in line with international standards.

The Turkish tax regime can be classified under three main headings:
  • 1.1. Income Taxes

    Income taxes in Turkey are levied on all income, including domestic and foreign individuals and corporations residing in Turkey. Non-residents earning income in Turkey through employment, ownership of property, business transactions, or any other activity which generates income are also subject to taxation, but only on the income earned in Turkey.

    • 1.1.1. Corporate income taxes

      In Turkey, the basic corporate income tax rate levied on business profits is 20%.
      Withholding taxes on selected payments of resident corporations:

      • Dividends are subject to 15%.
      • Interest on treasury-bill and treasury bonds derived by resident corporations is subject to 0%.
      • Interest on other bonds and bills derived by resident corporations is subject to 0%, bank deposits are subject to 15%.
      • Profit shares paid by participation banks in consideration of participation accounts are subject to 15%.
      • REPO agreements are subject to 15%.


      Withholding taxes on selected payments of non-resident corporations:

      • Dividends are subject to 15%.
      • Interest on treasury-bill and treasury bonds derived by non-resident corporations is subject to 0%.
      • Interest on other bonds and bills derived by non-resident corporations is subject to 0%, bank deposits are subject to 15%.
      • Profit shares paid by participation banks in consideration of participation accounts are subject to 15%.
      • REPO agreements are subject to 15%.


    • 1.1.2. Individual income tax

      The personal income tax rate varies from 15% to 35%.

      Income tax rates applicable to yearly gross earnings from 2009 are as follows:

      INCOME SCALES (TRY) RATE (%)
      Up to 8,700 15
      8,701 22,000 20
      22,001 50,000 27
      50,001 and over 35


    • 1.1.3. Social Security

      Social security is not a tax but rather a payroll cost to the employer. The employer and employee contribute to a social security system comprised of items such as sick pay, work related accidents, unemployment coverage, pensions, and other programs.
      • Employer's contribution: 19.5%
      • Employee's contribution: 14%


    1.2. Taxes on Expenditure

    • 1.2.1. Value Added Tax (VAT)

      The generally applied VAT rate varies between 1%, 8%, and 18%. Commercial, industrial, agricultural, and independent professional goods and services, goods and services imported into the country, and deliveries of goods and services caused by other activities are all subject to VAT.
    • 1.2.2. Special Consumption Tax (SCT)

      There are four main product groups that are subject to special consumption tax at different tax rates:
      • Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvents
      • Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
      • Tobacco and tobacco products, alcoholic beverages
      • Luxury products
      Unlike VAT, which is applied on each delivery, special consumption tax is charged only once.


    • 1.2.3. Banking and insurance transaction tax

      Banking and Insurance company transactions remain exempt from VAT but are subject to a Banking and Insurance Transaction Tax. This tax applies to income earned by banks, for example on loan interest. The general rate is 5%, while interest on deposit transactions between banks is taxed at 1% and sales from foreign exchange transactions at 0.1%.

      1.2.4. Stamp duty

      Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable, capital contributions, letters of credit, letters of guarantee, financial statements, and payrolls. Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.15% to 0.75%.


    1.3. Taxes on Wealth

    There are three kinds of taxes on wealth: inheritance and gift taxes, property taxes, and motor vehicle tax.
    Buildings and land owned in Turkey are subject to real estate tax at the following rates:
    • Residences 0.1%
    • Other buildings 0.2%


    Chart of Principal Turkish Taxes


2. TAX INCENTIVES



3. TAX EXEMPTIONS AND ALLOWANCES

VAT exemptions include but are not limited to the following transactions:
  • Export of goods and services.
  • Roaming services rendered in Turkey for customers outside Turkey (i.e. non-resident customers) in line with international roaming agreements, where a reciprocity condition is in place.
  • Petroleum exploration activities.
  • International transportation.
  • Deliveries made to diplomatic representatives, consulates and international
  • organizations with tax exemption status and to their employees.
  • The supply of machinery and equipment, including importation to persons or corporations that are VAT taxpayers and that have an investment certificate issued by the relevant authority.
  • Services rendered at harbors and airports for vessels and aircrafts.
  • Social and other exemptions apply to deliveries made to the government and
  • other related organizations for cultural, educational, health and similar purposes.
  • Banking and insurance transactions are exempted from VAT as they are subject
  • to a separate Banking and Insurance Transactions Tax at a rate of 5%.
  • Tax exemptions are provided for earnings derived by corporations from their overseas branches and both their domestic and overseas ventures if they meet certain conditions.
  • Research and development allowances.
  • Deductions from the tax base of corporations related to certain donations, aid or sponsorship expenditures for sport activities.


Reference: www.invest.gov.tr






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