General Tax Structure
  • The Turkish tax regime can be summarised as follows:
  • Income taxes - Corporate Income Taxes
    - Individual Income Taxes
  • Taxes on wealth - Inheritance and Gift Taxes
    - Motor Vehicle Tax
    - Property Tax
  • Taxes on expenditure - Value Added Tax
    - Banking and Insurance Transactions Tax
    - Stamp Duty

Income Tax

Income taxes in Turkey are levied upon the income, both domestic and foreign, of individuals and
corporation's resident in Turkey. Non-residents earning income in Turkey through employment,
ownership of property, carrying on a business, or from other activities giving rise to income are also subject to tax, but only on their Turkish derived income.

At the present time, the tax burden is fairly heavy and the tax structure is relatively simple although
the legislation is not always consistent or specific and requires clarification. Tax inspectors from the
Ministry of Finance are allowed to make spot checks of returns. In addition, the government extends
the responsibilities of a company's board of directors by holding its members responsible to the tax
authorities for tax obligations, if the company fails to pay and enforces this provision.

Corporate Income Tax

For tax purposes, companies are grouped as limited liability companies (corporations and limited
companies) and personal companies (limited and ordinary partnerships). Corporate tax applies to
limited liability companies. From 1986, joint venture partnerships engaged in construction or repair work
extending for more than one year where at least one partner is a corporation, are subject to corporate
income tax. State economic enterprises and business entities owned by societies, foundations, and
local authorities are also subject to corporation tax.

Corporate Income Tax Rates

The basic corporate tax was lowered from 46% to 25%, from 1 January 1994. With additional
levies amounting to 10% of the tax, the effective tax rate is 27.5%. Income after corporate income tax
is subject to withholding tax at the rate of 20% plus fund levies amounting to 10% of the tax. This
withholding tax rate is 10% for public corporations, as an incentive for companies to issue shares to the
public. A public company is a company which consists of 250 shareholders and at least 15% of its
shares is held by the public. The full consolidated rate of corporate tax is therefore 44% (35.75% for
public companies). In addition, legislation has been introduced establishing a minimum corporate tax
rate of 20%, increased by the effect of funds to 22.0% applicable where the effect of allowances or
incentives would have otherwise reduced the effective rate below the minimum rate. Dividends and
certain type of investment income continue to be excluded from the computation of gross profit.

The current corporate income tax rates can be summarised as follows:

Tax & Fund levy
Combined Rate

Corporate income tax 27.50%

Withholding tax (on income after corporate income tax)

  • private companies 22.00%
  • public companies 11.00%

Total taxes on corporate income

  • private companies 44.00%
  • public companies 35.75%

Minimum corporate income tax 22.00%

For resident corporations, whose statutory domicile or place of management is established in
Turkey, tax is levied on world-wide income, but credit is given for foreign tax payable in respect of income from foreign sources (up to the amount of Turkish corporate income tax, i.e., 25%).

Withholding taxes must be made no later than May 20, the same due date for the first instalment if
there is no dividend distribution. Meanwhile, the second and third instalments should be paid with the
second and third instalments of the corporate tax liability in the months of July and October.

Taxation of Branches

Corporate entities having their statutory domicile and place of management outside Turkey, but
established in Turkey in the form of a branch are subject to tax on an annual return bases on income
received from the permanent establishment in Turkey.

Local Income Taxes

No income taxes are imposed by the provincial or municipal authorities. However, local property
taxes exist.

Personal Income tax

Turkish law does not distinguish between Turkish citizens and foreigners with respect to taxation.
Residents are taxed on their worldwide income. Individuals whose customary place of abode is not in
Turkey are subject to limited tax liability. Taxpayers with limited tax liabilities are taxed only on
various types of Turkish sourced income. Persons who spend more than six continuous months in a
calendar year in Turkey are considered residents except for individuals arriving in Turkey for temporary

The limited tax liability extends to trade or business income from a permanent establishment, salaries
for work done in Turkey (regardless of where paid or whether or not remitted to Turkey), rental
income from real property in Turkey, Turkish derived interest, and income from the sale of patents,
copyrights, and similar intangible assets.

Turkish residents are taxed on worldwide income, but they can receive a tax credit for taxes paid
abroad. Personal taxes on income from foreign countries may be deducted from taxes due in Turkey
on the same income, but only up to the amount of the Turkish taxes assessed.
Employment income is based on annual wages, minus social security and a general allowance, and is
taxed at a progressive rate. Income tax on wages and salaries, as well as payments for social
security, housing and savings funds, are withheld at source and employees are paid the net amounts after
such withholdings. Individuals with full tax liability having additional income for which taxes are paid
through the withholdings must file a tax return, if such income exceeds 900 MTL. In this case, the
incomes of husband, wife and children under 18 are aggregated, except to the extent that the wife's income is from assets inherited or acquired prior to marriage.

In 1996, the personal income tax rates applicable to taxable income after deduction of allowances
are listed in Appendix B.

The income of non-residents is taxed at the same rate as residents, but non-residents are not entitled
to deduct the general allowances and income tax rebate. Various levies amounting to 10% of
income tax are also imposed (excluding salary income).

Withholding Tax

The income of non-residents, except for commercial and agricultural profits and income received by
individuals in respect of the sale, transfer, or assignment of intangible property, is subject to a
withholding tax. This is deemed to have been deducted at source despite such income being connected with a permanent establishment in Turkey. Companies may choose to declare such income and deduct
the withholding tax from their total income on the basis of the declaration. However, interest on bonds,
government securities, bank deposits and dividends from investment funds must be included in the

Many payments abroad connected with professional services, royalties and rentals are subject to
withholding tax at rates varying between 10% and 25%. The withholding tax rate on interest income
earned on deposits (except for foreign currency deposits) in Turkey has been reduced from 10% to 5%.
In this regard countries having double tax treaties with Turkey have considerable advantages as to
tax efficiency for as long as such payments are likely to arise. The countries currently having bilateral
tax treaties with Turkey are set out in Appendix C. These countries can, in general, benefit from
reduction of withholding taxes in various circumstances. A tax treaty with the United States has been
signed but is not yet approved and therefore not currently effective.

For professional services, if there is no permanent establishment in Turkey and the service is
provided less than 183 days, no withholding taxes are applicable under bilateral tax treaties. Where there is a permanent establishment or a legal representative in Turkey or services are provided for more than 183 days in a year, withholding taxes are applicable.

Withholding Tax Rates Specified in Tax Treaties and Non-Tax Treaty Countries

Refer to attached Appendix D & E for details.

Value Added Tax (VAT)

Deliveries of goods and services are subject to VAT at rates that vary from 1% to 23%. The
general rate applied is 15%. Banking and insurance company transactions remain exempt from VAT, but
are subject to a Banking and Insurance transaction tax levied at a rate of 5% and 0.1% for foreign
exchange transactions. Intercompany interest charges are subject to VAT at 15%.

Leased assets

Financial leasing in Turkey is regulated by the Financing Leasing Law No.3226. In accordance with
this law, to qualify as a leased asset, the lease payments cannot be less than US$25,000 annually
and the minimum lease term has to be four years. The Council of Ministers has set a 1% VAT rate on
most leased assets (rather than 15%), with the exception of 23% on leased cars and 8% on other
leased land transportation vehicles. Lease contracts are exempt from all types of taxes, duties and stamp

Stamp Duty

Stamp duty applies to a wide range of documents, including but not limited to 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 varying between
0.12-0.6% and at nominal values.

Inheritance and Gifts

Items acquired as gifts or through inheritance are subject to taxes between 4% and 30% of the
item's appraised value. Tax paid in a foreign country on inherited property is deducted from the taxable
value of the asset. Inheritance tax is payable over the period of five years and in two instalments per

Other Taxes

  • Property taxes are paid each year on the tax values of land and buildings at rates varying from
    0.3-0.6%. In the case of the sale of a property a 4.8% levy is paid on the sales value by both the buyer
    and the seller. The rate is reduced to 2.4% if the property is contributed as capital-in-kind.
  • Service tax is levied on banking and insurance transactions at 5% and 0.1% on foreign exchange
  • Fund taxes Following the Custom Union from 1 January 1996 with the European Union, there are
    no duties and funds on manufactured products imported from countries which are members of the
    European Union or Turkey will apply the EU's Common Customs Tariff to manufactured goods from
    other countries. VAT is charged on imports at normal rates.

Computation of Taxable Income

Capital Gains

There is no special provision for capital gains. Gains resulting from sales of fixed assets subject to
depreciation are taxed at the normal rate (which can be deferred for three years), and gains are not
taxable to the extent that the proceeds are reinvested in new fixed assets. If none of these deferred
gains are reinvested, all rollover gains will be taxable in the fourth year. Until the end of 1999, gains on
sales of listed securities are not taxable for individual investors, other investors must hold shares for
at least one year for gains on sale to be tax exempt. With effect from 1 January 1997, some capital
gains will not be taxable on individuals. All bond interest on treasury bonds and debentures etc., bank
interest and repo income is taxable beginning 1997, although this is currently under discussion,
particularly where it applies to government bonds.

Gains from the sale of real estate and investments are exempt from taxation provided the gain from
the transaction has been incorporated into the share capital within the year in which the sale takes
place. This provision takes effect retroactively from 1 January 1994 and is valid until 31 December

Only assets and investments that have been held for more than two years by taxpayers who are not
engaged in real estate and securities trading qualify for this exemption. Additionally, the gain should
be retained in the company account for a period of five calendar years from the date of share capital
increase (i.e. reserves cannot be distributed if, as a consequence, the total of retained earnings and
share capital drops below the amount after registering the gain).

Such gains are exempt from mainstream corporate income tax at 25% and minimum corporate tax.
However, they will be subject to corporate withholding tax at 10% plus 1% fund, totalling 11%.

This exemption also applies to cases where the production facilities are fully or partly subscribed as
capital in kind for prospective companies that would have an incentive certificate or for a joint stock
company to be established with the participation of a foreign investor. This new company should be a
resident full taxpayer with a minimum investment of US$5 million or equivalent hard currency.
Additionally, the share of the foreign investor should at least be US$1 million or equivalent in hard currency. 20% of the share capital and the transfer of the funds should be substantiated. In this case,
withholding tax is not required as well as corporate tax.

Treatment of Dividends

There is no tax on dividends for companies. Dividends can be freely remitted regardless of the form
of an entity once corporate income and corporate withholding taxes on profits are paid.

Loss Carryover

Losses may be carried forward for up to five years and set against taxable profits but may not be
carried back.

Loss carryover limitations vary depending on how the ownership of a company is changed. For a
merger, since a new company is formed, no carryover losses from either company prior to the merger
can be brought forward.

Transactions between related parties

Related party transactions, especially internationally transactions, must be on an arm's-length basis.


Any profits arising on the liquidation of a company are taxed as if they had been earned in the
ordinary course of business. Any loss over the period of the liquidation of a company may be carried back over the number of years within the period of liquidation, and overpayments of tax can be reclaimed.

Mergers and Takeovers

In a merger, two companies merge in a process whereby one of the companies is absorbed by the
other company. The dissolving company's assets are united with those of the absorbing company.

According to Articles 36 to 39 of the corporation tax legislation, a merger can split into the following

Merger, whereby taxation arises as the hidden reserves of the dissolving company are realised since
merger transactions take place at market and/or net realizable value.

Takeover, whereby no taxation arises as the assets of the dissolving company are transferred to the
absorbing company at book value and any taxation is deferred to a later date.

According to Article 37 of the corporation tax law, the following conditions should be met for a

  • The absorbing and absorbed company's registered legal or commercial centers should be located in Turkey;
  • The absorbing company should takeover the total estate of the absorbed company by
    transferring it to its balance sheet;

The advantages of a takeover are :

  • there is no merger taxation
  • there is no taxation on the transfer of real estate as there would be in a sale
  • the process is longer than a taxable asset sale, but it is more adaptable and flexible
  • it avoids publicity
  • the share capital of the absorbing company will increase automatically

Consolidation of Income

All companies are regarded as separate tax payers, and the profits and losses of affiliated
companies generally may not be combined. A company merging with a company with accumulated tax losses may not deduct the accumulated losses brought forward from its income. Tax losses are no longer
transferable from one company to another. Profits transferred as dividends are deductible by the recipient company to avoid double taxation.

Tax Periods, Filing and Payment Requirements

Income tax is generally assessed on the calendar year basis. However, companies may adopt any
12 month fiscal period appropriate to their business, subject to the approval of the Ministry of Finance.
In the fourth month after the end of the company's own accounting period a tax return must be filed.
Income tax is paid in three equal instalments starting with the month in which the tax return is filed.
If the accounting period is the calendar year, the tax return must be filed before the end of April and
tax is payable in April, July and October. Turkish legislation also requires firms to pay a portion of
their corporate taxes in advance. A new provision now allows advance tax payments to be paid in
either of two ways as set out below.

Under the existing laws, advance payments may be paid in 12 monthly instalments at a rate of 50%
for individuals and 70% for corporations, of the previous year's tax liability commencing in March
and April respectively. The advance payments are deducted from the corporation's ultimate tax liability
as shown on the return for the tax year. The balance is due after the end of the filing period as set out
above and any excess is carried forward against payment of advance tax due for the following year.

However, tax payers may now choose to change the method of making advance tax payments.
Instead of the above method, companies may pay 25% of their profits as advance tax. Quarterly
balance sheets and income statements are used as the basis for their calculation of the liability. Advance
payments calculated in this manner would be payable on the 20th day of the month following the end of
the quarter. If tax payers change to the new method, they may not go back to the old method for a
minimum of two years.

Books and Records

Legal books must be kept for five years after the end of the related accounting period according to
tax legislation and for 10 years according to the Turkish Commercial Code. The legal records that
must be kept are the journal ledger, inventory ledger, production ledger, stamp tax book journal for bills
of exchange and the cash book. These records should be kept in Turkish and be authenticated by a
public notary. Although these are the basic legal books required, others may be needed depending
on the type of business. Companies may keep computerised records provided that they comply with