Taxation in Turkey

Turkey has a well-structured tax system, which can be broadly classified into three categories: direct taxes, indirect taxes, and other levies.

• Direct Taxes (income and corporate taxes)
• Indirect Taxes (VAT, special consumption tax, stamp duty, etc.)
• Other Levies

1. Income Tax

Income tax is levied on the income earned by individuals and entities within Turkey. Individuals are taxed on their worldwide income, while non-residents are only taxed on income earned within Turkey.

• Individual Income Tax: Progressive rates range from 15% to 40%, depending on the income bracket.Taxable income in Turkey for individuals includes:

• • Salaries and wages
  • Business profits
  • Rental income
  • Investment income (interest, dividends, capital gains)
  • Other miscellaneous income
•  Corporate Income Tax: As of 2024, the corporate income tax rate is set at 25%, with some incentives and exemptions available for specific sectors. Corporate tax applies to the income of legal entities operating in Turkey. Both resident and non-resident establishments are subject to corporate tax.
  • Resident Establishments: The following resident entities are taxed on their worldwide income:

1. • 1. Corporations
     2. Funds
     3. Cooperatives
     4. Economic entities belonging to associations or foundations
     5. Joint Ventures
   • Non-Resident Establishments: Non-resident companies are taxed only on income earned within Turkey through permanent establishments or agents.

• Corporate Tax Rate: The corporate tax rate in Turkey is 25% for 2024, but this rate can fluctuate based on government regulations and budgetary requirements.
• Taxable Income: Taxable income includes business profits, capital gains, and other forms of income earned by the company. Expenses such as operational costs, interest payments, and depreciation can be deducted when calculating taxable income.
• Dividends: Dividends paid to shareholders are subject to withholding tax, generally at a rate of 15% for residents and 20% for non-residents, although these rates may be reduced under tax treaties.
• Corporate Income Tax Filing: Corporations are required to file quarterly advance tax returns and a final return by the end of April following the tax year. Electronic filing is mandatory for corporations.

Corporations are required to file their tax returns annually, with advance tax payments made quarterly.

2- Value-Added Tax (VAT) 

Value-added tax (VAT) is one of the most significant indirect taxes in Turkey, applied to the sale of goods and services.

• VAT Rates:
  • Standard Rate (20%): This is the most common VAT rate and applies to the majority of goods and services.
  • Low Reduced Rate (10%):Pharmaceuticals, and some health products, textile, cloting products, transportation, cultutal & artitics events benefit from this reduced rate.
  • Reduced Rate (8%): Applies to food and beverages and accommodation services.
  • Super Reduced Rate (1%): This rate applies to basic food items, pecific goods, such as books & newspapers, some agricultural products, and certain residential properties.Certain essential goods and services, such as , pharmaceuticals, and some health-related products, benefit from this reduced rate.
• VAT Filing: VAT is reported and paid monthly, and businesses are allowed to claim VAT refunds on their input taxes for goods and services purchased.

3. Withholding Tax

Withholding tax is applied to specific types of income, such as self-emloyed, workplace rental incomes, wages income, dividends, interest, and royalties, at varying rates, depending on the source and type of income. General rate is %20.The payer is responsible for deducting and remitting the tax to the government before making payments to the recipient.

• Types of Income Subject to Withholding Tax:
  • Dividends: Dividends paid to individuals or non-resident companies are subject to a 15% withholding tax.
  • Interest: Interest on loans, deposits, and other financial instruments may be subject to withholding taxes, usually ranging from 0% to 15%.
  • Royalties: Payments for the use of intellectual property are subject to a withholding tax of 20% if paid to non-residents.
  • Rent and lease payments: Payments for the rental of property or equipment may be subject to withholding tax, especially if paid to non-resident entities.
  • Service Fees: Fees paid for professional services, consultancy, or technical services are subject to 20% withholding tax, especially if the recipient is a non-resident.
• WHT Filing: VHT returns are filed monthly, and payment is due by the 26th of the following month.

4. Digital Service Tax

Introduced in 2020, this tax applies to revenues generated by digital services provided to users in Turkey. The rate is currently set at 7.5%.

 Click the link for more info about  Digital Service Tax in Turkey

5. Tourism Tax

It is also known as the Accommodation Tax in Turkey, is a relatively new tax introduced to generate additional revenue from the country’s vibrant tourism sector. The tax applies to overnight stays in various types of accommodation facilities, including hotels, motels, resorts, holiday villages, and similar establishments.The Tourism Tax rate is set at 2% of the accommodation cost, excluding VAT.

• Tourism Tax Filing: It returns are filed monthly, and payment is due by the 26th of the following month.

6. Special Consumption Tax (SCT)

SCT is applied to luxury goods, petroleum products, tobacco, and vehicles, among other items. The rates vary depending on the product category.

7. Banking and Insurance Transaction Tax (BITT)

BITT is levied on transactions performed by banks and insurance companies at rates ranging from 1% to 5%.

8. Stamp Duty

 Stamp duty is imposed on a wide range of legal documents, including contracts, agreements, and official papers, with rates varying based on the type and value of the document.

9. Property Tax

 Property owners in Turkey are required to pay an annual tax based on the value of their property. The rates are generally low but vary depending on the location and type of property.

10. Valuable Housing Tax (VHT)

VHT introduced in 2020, is a property tax in Turkey applied to high-value residential properties. This tax targets luxury homes that exceed a certain value threshold, aiming to generate additional revenue from wealthier property owners. VHT is a progressive tax, with rates increasing based on the value of the property. The rates for 2024 are as follows:

• For properties valued between 20 million and 30 million TRY: 0.3%
• For properties valued between 30 million and 50 million TRY: 0.6%
• For properties valued over 50 million TRY: 1%

Need more info? Click the link of Valuable Housing Tax in Turkey

11. Inheritance and Gift Tax

 This tax is levied on the transfer of assets through inheritance or as a gift. Rates range from 1% to 30%, depending on the relationship between the donor and the recipient and the value of the assets.

12. Motor Vehicle Tax (MTV)

MTV is a mandatory annual tax in Turkey applied to owners of motor vehicles, including cars, motorcycles, buses, trucks, and other vehicles. The tax amount depends on several factors, such as the age of the vehicle, engine size, and, more recently, the vehicle’s price for luxury cars.