Turkey adopts a progressive tax regime across all its constituencies. As far as Turkish residents are concerned, their taxable income comprises of their worldwide income. On the other hand, for non-residents, only that income is taxable that is sourced directly from Turkey.
Personal Income Tax Rates in Turkey
As far as Personal Income Taxes are concerned, the following rates are levied:
- For a taxable income between 0 TRY (Turkish Lira) and 24,000 TRY (Turksih Lira): A tax rate of 15% is applied on excess.
- For a taxable income between 24,000 TRY (Turkish Lira) and 53,000 TRY (Turksih Lira): A tax of 3600 TRY is levied, and a tax rate of 20% is applied on excess.
- For a taxable income between 53,000 TRY (Turkish Lira) and 190,000 TRY (Turkish Lira): A tax of 9400 TRY is levied and a tax rate of 27% is applied on excess.
- For a taxable income between 190,000 TRY (Turkish Lira) and 650,000 TRY (Turkish Lira): A tax of 46,390 TRY is levied and a tax rate of 35% is applied on excess.
- For a taxable income higher than 650,000 TRY (Turkish Lira): A tax of 207,930 TRY is levied, and a tax rate of 40% is applied on excess.
Corporate Income Taxation in Turkey
Corporate Income Tax for companies that have a resident status in Turkey are supposed to pay taxes on their worldwide income. On the other hand, companies that are non-residents are only supposed to pay taxes on income that is sourced within Turkey only.
Corporate Income Tax Rates in Turkey
Corporate Income is taxed at a rate of 22% for the year 2018, 2019, and 2020. This is applicable on the net profit that has been generated by the company. This is also supposed to be adjusted for different exemptions and deductions that are in place.
There are no provincial or municipal taxes that are liable to be paid by corporates.
The Corporate Income Tax rate is due on the 25th day of the fourth month after the following the fiscal year-end.
Other Taxation in Turkey
There are several other taxes that are applicable by both, individuals as well as corporates in Turkey. These taxes are mentioned below:
Value-Added Tax: A value added tax is levied on goods and service, as a consumption tax. The VAT rates vary from 1% to 18% depending on the type of good. However, the general applicable rate is 18%. It is payable on all local purchases, as well as on imports. Tax on inputs and purchases is referred to as input tax. In the same manner, tax that is collected on sales is referred to as output tax. As per the taxation law, input tax is offset against the output tax. In the case where output tax is higher than the input tax, in that case, the difference is paid in the form of excess VAT.
Reduced rates of taxation are levied at a rate of 1% in the case of agricultural products, including cotton, nuts, as well as supply of necessary goods and services.
Banking and Insurance Transactions Tax: The normal transactions that are performed by the licensed banks and insurance companies are mostly exempted from VAT. However, they are subject to Banking and Insurance Transaction Tax (BITT) which is levied at a rate of 5%.
Special Consumption Tax: There is a special consumption tax that is in place for certain special category of goods and services. These category of goods and services include petroleum products, automobiles, tobacco and related products, as well as luxury products.
Social Security Premiums: Social Security Premiums are supposed to be paid by both, the employer, as well as the employee. The total rate at which social security premium is applied is amounts to 34.5%. Out of this, 20.5% is borne by the employer, whereas the remaining 14% is paid by the employee. Additionally, there is also an unemployment contribution in place around 3% of the salary, out of which 2% is levied on the employer, and the remaining 1% is employed by the employee.
Tax Credits and Incentives in Turkey
Foreign Tax Credit: There is a partial tax relief that is present in order to facilitate tax payers who have already paid a tax abroad.
Capital Gains Exemption: For capital gains that are generated as a result of sale of shares in a company. There is a 75% Corporate Income Tax that is applicable in certain conditions. This partial exemption also includes capital gains that are derived from the alienation of real estate investments.
Investment Activities: Turkey also has a system in place that comprises of 15 investment models, 2 investment programs as well as 12 incentive elements. These different investment models are in place in order to facilitate companies to incentivize companies to continue working towards research and development, as well as investment into their business expansion.