Tax Facts - Turkey

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

Introduction

Taxation in Turkey is mainly at a national level with municipalities having certain rights over some minor taxation charges. The tax regime is administered by the Ministry of Finance.

Tax Year

1st January – 31st December.

Assessment Basis

An individual resident in Turkey is subject to tax on their worldwide income as an ‘unlimited’ taxpayer.  Spouses are assessed separately for taxation purposes and allowances are not transferable.  Individuals are required to file an annual tax return by the end of February or March each year.  However, a tax return is not required if an individual’s income is, less than TRL22,000 (2010) and tax is withheld at source by the employer.

Tax on employment income

Taxable income includes all amounts, whether salary or benefits in kind, derived from employment in Turkey above the exempt earnings threshold. Turkish social security and unemployment insurance contributions, approved pension scheme contributions and personal insurance premiums (payable to a Turkish resident company) are all deductible from taxable income. However, the deduction for pension contributions and personal insurance premiums are limited to 10% and 5% of the gross salary respectively. Furthermore, the annual cumulative deduction cannot exceed the annual minimum gross wage. These deductions are not granted to non-residents.

There is a tax credit/refund regime for employees in respect of family living expenses. Subject to proper documentation, individuals can claim a tax credit/refund for a certain proportion of their family’s expenditure on education, food, health, clothing and residential rent. Depending upon the amount of expenditure on such items a tax credit/refund of up to 10% may be claimed.

All taxable income is taxed at progressive rates of between 15% and 35% and tax due on employment income is generally withheld by the employer.

Taxation of Investment Income

Investment income arising from anywhere in the world is taxable for resident individuals. Investment income from a Turkish entity is subject to a withholding tax, which depends upon the type of income and is, for example, 15% on dividends, 15% on interest and 20% on royalties. Provided investment income is taxed through withholding tax and does not exceed the declaration limit (TRL22,000 for 2010), such sources of income do not need to be declared on an individual’s annual tax return.

Certain gains such as interest income, income from ‘repo transactions’ and from ‘A’ and ‘B’ type funds, which have already been taxed through withholdings, do not need to be declared irrespective of the amount.

Tax on Property Rental Income

Income from immoveable property is subject to withholding tax at a rate of 20% if the property is rented to a company. This tax is final, provided that the taxpayer’s income from moveable and immoveable property and salaries from more than one employer does not exceed TRL22,000 (2010). If it does, the total income is taxed as income from immoveable property, but a credit granted for any tax withheld.  Otherwise, rental income from immoveable property should be declared in an annual tax return to be taxed as income at general rates. In the case of a dwelling rented to individuals, the first TRL2,600 (2010) is exempt. Any excess is declared in an annual tax return and taxed at general rates. 

Wealth Taxes

There are no wealth taxes in Turkey.

Capital Gains Tax

Shares acquired prior to 1 January 2006 are subject to the regulations in force as at 31 December 2005.  The following explanations apply to shares acquired on or after 1 January 2006.  Capital gains are added to income and taxable at general rates, with the first TL7,700 of gains generated exempt from tax.

Gains on the disposal of shares that are traded on the Istanbul Stock Exchange are exempt, provided that they have been held at least a year after acquisition. Gains on disposal of shares of Turkish resident companies not quoted are exempt, provided that they have been held for at least two years after acquisition.

Shares inherited or given as a gift are also exempt from taxation.

Capital gains generated via resident banks or financial institutions are paid net of a 10% withholding tax, unless the gain is exempt from taxation. Capital gains that are subject to 10% withholding tax at source do not need to be declared on an  individual’s tax return, unless the individual chooses to declare them in order to account for any capital gains losses incurred during the year.

Inheritance and Gift Tax

Inheritance and capital transfer or gift tax apply to assets passing on death and to lifetime gifts. Rates between 1% and 30% apply, depending on the amount transferred and the relationship between the deceased and the beneficiary, and the donor and the donee.

Regional and Municipal Taxes

There are no regional or municipal taxes in Turkey.

Property Taxes

An annual property tax, collected by the local municipalities, of between 0.1% and 0.3% is payable on land and buildings located in Turkey. The tax rate depends upon the type of property and is applied to the taxable value of the property as declared periodically by the tax office.  The rates are doubled in respect of property located in metropolitan municipality areas.

Stamp Duty/Transfer Tax

A property transfer tax of 1.5% is levied on both the purchaser and the vendor on the sale of real estate.  Stamp tax applies to a wide range of documents including, but not limited to, agreements, financial statements and payrolls. Stamp tax is levied as a percentage of the monetary value stated on the agreements at rates ranging from 0.15% to 0.6%. If the agreement has no monetary value the stamp tax is calculated on a fixed fee basis.

Salary payments are subject to stamp duty at the rate of 0.6% of the gross amounts paid.

Sales Tax

A sales tax of 18% is generally levied on goods and services with reduced rates of 1% and 8% applying to some goods. Certain other goods are exempt from sales tax.

Social Security Contributions

Social security contributions are payable on gross salaries up to a maximum threshold of TL4,943.25 (from 1st June to 31st December 2010).  Employers generally pay 19.5% in respect of Turkish nationals, or expatriates not covered by their home state social security system, whilst an employee is required to contribute 14%. In addition, there is a mandatory unemployment insurance contribution. Employers pay 2% of gross salaries, employees pay 1% of gross salaries, while the state pays an additional 1% up to the upper earnings limit mentioned above.

Taxation of Expatriates Living in Turkey

An individual’s liability to tax in Turkey is dependent on whether they are considered a Turkish resident by the tax authorities. For tax purposes an individual is considered resident if their legal domicile is in Turkey as defined by the Civil Code, or if the individual stays in Turkey continuously for more than six months in a calendar year.

Individuals considered residents are liable to tax on their worldwide income and are termed as ‘unlimited taxpayers’. There is no special tax regime for expatriates and resident foreign nationals are taxed the same as Turkish nationals.

Income received from overseas may be covered under a double taxation treaty. Turkey has negotiated tax treaties with over 70 countries around the world.

A foreign national with residence status in Turkey is not required to pay Turkish social security contributions if they remain covered by their home country and provided proof of foreign coverage is filed with the local social security office. If an individual is not covered by a foreign social security arrangement full contributions would usually be imposed in Turkey. Foreign nationals also qualify for unemployment insurance, provided there is a reciprocal agreement between Turkey and their home countries.

Taxation of ‘Non-Residents’ Living in Turkey

Non-residents in Turkey are only liable to taxation on their Turkish sourced income and are termed ‘limited taxpayers’. Certain individuals who stay in Turkey for more than six continuous months exclusively for the fulfillment of specific and temporary assignments are not considered as resident and they will still be treated as limited taxpayers.

The liability to tax on Turkish source income is the same as that for residents with regards to income, capital gains, investment income and inheritances/gifts. The same rates and exemptions apply.