A) DIRECT TAXES

Turkish taxation system contains two main direct taxes; income tax and corporate tax. The individuals are subject to the income tax on their income and earnings. The companies are subject to corporate tax on their income and earnings.

INCOME TAX

a-)Taxation of Income

The income tax is levied on the income of individuals. Partnerships are not accepted separately and each partner is taxed individually on their shares. An individual’s income may contain one or more of the income items listed below;

• Business profits
• Wages and salaries
• Income from independent professional services
• Agricultural incomes
• Income from immovable property and right (rental income)
• Income from movable property (income from capital investment)
• Other incomes and earning without considering the source of income

b-)Tax Liability

An individual, who is a resident of Turkey is liable to pay for his income all around the world. It means unlimited liability. The person, who stays in Turkey more than six months in a year (calendar year) is accepted as a resident in Turkey. On other hand, the persons who stay in Turkey for six months or more for a specific job or business or special purpose are not as a resident, for this reason unlimited tax liability is not applied for them.

c-)Income Types:

• Business Profits

An individual needs to have a permanent establishment or representative in Turkey, income must be earned through the business and carried out by the establishment or representatives. The taxable income of a business enterprise is the difference between its net assets at the beginning and at the end of a calendar year.

• Wages and Salaries

Employees are subject to income tax. The income contains employee’s salaries and wages as well as associated supplementary such as allowances, bonuses, commissions, premiums, compensations, etc. They are all subject to income tax.
Income tax rates applied for wages and salaries are following;
15% up to   9.400 TL
20% up to 23.000 TL
27% up to 80.000 TL
35% more than 80.000 TL

• Income from Independent Professional Services

Independent professional services mean the activity is done by a person, who is self-employed. It includes services of lawyers, doctors, accountants, consultants and engineers. These independent professionals need to get “acceptance certificate” for their degree obtained abroad from Turkish  Council of Higher Education.

• Agricultural Incomes

Income derived from agricultural activities are subject to income tax. It contains activities are done in land, sea, rivers, lakes in forms of cultivating, planting, breeding, fishing, hunting..etc

• Income from Immovable Property

Immovable property includes land, buildings, and permanent leaseholds rights. Trucks, boats, aircrafts and other transportation vehicles are accepted as immovable property. Rental income from them is subjected to income tax.

• Income from Movable Property

Interest, dividend, rent, capital in cash or capital in kind are included in income from movable property and subjected to income tax.

• Other Income and Earnings

2-)CORPORATE TAX

a-)Taxation of Income

Corporate tax is levied on the income and earnings arising from corporation activities.   Companies which are subject to corporate tax are listed below;

• Capital companies and similar companies
• Public enterprises
• Cooperatives
• Enterprises owned by foundations, societies, associations
• Joint ventures

b-)Tax Liability

The corporations, which have their legal headquarters located in Turkey or effective management placed in Turkey, are taxed on their income worldwide. They are subjected to unlimited liability.

c-)Net Taxable Income

Net income is defined as the difference between the net worth of asset owned at the beginning and at the end of a fiscal year. The expenses in Income Tax Law article 40, are allowed to be deducted from revenue. The following expenses may also be deducted in order to determine tax base;

• Expenses related to the issuance of stock and shares
• Initial organization and establishment expenses
• Expenses incurred for general board meeting, expenses made during mergers, dissolutions and liquidations.
• In the case of insurance companies, technical reserves required for the insurance contract still valid at date of inventory.
• Profit shares accrued to partners by participation banks for participation accounts.
• Profit shares accrued to active partners of partnerships in commendams limited by shares
• Research and developments deductions calculated as 40% of new technology and the research expenses realized within business.

d-)Corporate Tax Return

Every taxpayer must fill only one tax return, including corporations. The corporate tax return must be filled by the 25th of the fourth month following the end of the fiscal year and assessed taxes are paid until the end of that month.
In Turkey corporate tax rate is 20% of corporate earnings.

B) INDIRECT TAXES

1-)Value Added Tax (VAT)

In Turkey, VAT is prior and the most important indirect tax. Value Added Tax is levied on the supply and importation of goods and services.

VAT is applied in different rates of 1%, 8%, 18% and the payment of VAT is made by 26th of the month after the current month.

2-)Stamp Tax

Stamp tax is applied for documents such as agreements, contracts, financial statements, payroll, letter of guarantee, etc. Stamp tax is levied as percentage of value on the documents.

• Motor Vehicle Tax
• Banking and Insurance Transactions Tax
• Property Tax
• Communication Tax
• Customs Tax
• Inheritance Tax
• Gambling Tax
• Special Consumption Tax