Tax regime of Turkey

Turkey has one of the most competitive corporate tax rates in the OECD region. The Corporate Tax Law No. 5520 that was enacted on June 21, 2006 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 better 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 that of 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 10%-18% (for bank deposits opened after January 2, 2013).
Profit shares paid by participation banks in consideration of participation accounts are subject to 10%-18% (for participation accounts opened after January 2, 2013).
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 10%-18% (for bank deposits opened after January 2, 2013).
Profit shares paid by participation banks in consideration of participation accounts are subject to 10%-18% (for participation accounts opened after January 2, 2013).
REPO agreements are subject to 15%. 
 
1.1.2. Individual Income Tax

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

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 as a result of 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 no tax is levied on sales from foreign exchange transactions.
 
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 0.189% to 0.948%, and collected as a fixed price (a pre-determined price) for some documents.
 
1.3. Taxes on Wealth
 
There are three kinds of taxes on wealth: inheritance and gift taxes, property taxes, and motor vehicle tax. 

Buildings, apartments and land owned in Turkey are subject to real estate tax ranging at a rate of 0.1% and %0.06, while Contribution to the Conservation of Immovable Cultural Property is levied at a rate of %10 percent of this real estate tax. Motor vehicle taxes are collected on the basis of fixed amounts that vary according to the age and engine capacity of the vehicles every year. Meanwhile, Inheritance and Gift Taxes are levied at a rate of %1-30.
 
2. TAX INCENTIVES
 
Prioritized development zones
Technology development zones
Organized industrial zones
Free zones
Research and development
Private educational corporations
Cultural investments and enterprises
Loan allocation
Turkish International Maritime Sector 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.

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