Corporate taxes in Turkey
We need to make a distinction regarding corporate taxes in Turkey between resident company and foreign company.
A company is considered a resident entity for Turkish tax purposes if it has its registered office or place of management in the country.
The standard rate
|Corporation tax||25% (expected to be reduced to 23% from 2022; was 22% for 2018-2020)|
|Companies (other than banks, financial institutions, insurance companies and pension funds) offering at least 20% of their shares through their initial public tender offer on the Istanbul Stock Exchange||2% reduction for five years from the year of the IPO.|
The tax rate for foreign companies
Resident companies, having their legal seat or place of management in Turkey, are full taxpayers and are taxed on their worldwide income. Non-resident companies are limited taxpayers and are only taxed on income earned in Turkey.
Branch profit transferred to headquarters is subject to dividend withholding tax at the rate of 15% (unless the rate changes under a tax treaty).
The taxation of capital gains
Long-term capital gains are taxed in Turkey at the standard income tax rate, with a 75% exemption of capital gains arising from the disposal of shares held in subsidiaries in Turkey (provided that the shares are held for a minimum period of two years and that the capital gains from the sale are kept in a special reserve account for a minimum period of five years).
Capital gains derived from the sale of real estate held for a minimum period of two years are exempt from tax up to 50%.
Capital gains derived from the sale of foreign holdings held for a period of at least two years by an international holding company resident in Turkey are exempt from corporation tax.
Tax deductions and credits
Expenses that may be deducted from the corporate tax base include: ordinary and necessary expenses incurred in the course of general business, business-related property tax, bad debts, and research and development. The employer’s contributions of personnel hired for R&D projects are covered up to 50% by the Ministry of Finance. Companies are also exempt from stamp duty on all R&D related documents and goods imported for this purpose are exempt from customs duties. In addition, an increase in R&D expenditure compared to the previous year (by at least 20%) gives rise to additional deductions.
Business start-up costs are considered deductible once incurred. Moreover, the taxpayer has the option of capitalizing these costs and amortizing them over a period of five years in equal amounts.
Donations to listed charities as well as for the construction of schools, hospitals and scientific research organizations are deductible up to 5% of the company’s gross profit. Pension contributions and severance pay are deductible from corporation tax under certain conditions.
“Strategic” investments (as determined by the government, such as investment in the production of products that are highly dependent on imports) are eligible for a deduction of up to 100% of corporate tax with several other advantages offered concerning customs duties, social contributions due by the employer, etc.
Tax losses can be carried forward for a period of five years. Loss carryback is prohibited. Royalties and interest paid to foreign affiliates may be deductible for corporate income tax purposes where transfer pricing and thin capitalization rules are met.
Other corporate taxes in Turkey
Buildings and land owned in Turkey are subject to annual property tax at different rates: 0.2% for buildings, 0.1% for housing, 0.1% for land and 0.3% for construction sites (these rates are increased by 100% for buildings and land located in large cities).
Real estate transfers are subject to a tax calculated at 4% of the acquisition / transfer value, which is divided equally between the buyer and the seller.
Stamp duty applies to a wide range of documents, including financial statements and payrolls. Stamp duty is levied as a percentage of the value shown on the agreements at rates varying between 0.189% and 0.948%. Wages are subject to stamp duty at a rate of 0.759% on gross amounts.
From March 1, 2020, Turkey levies a 7.5% « digital services tax » on service providers whose revenue from digital services in the previous fiscal year exceeds TRY 20 million in Turkey or 750 million EUR worldwide. The president is authorized to double the rate or reduce it to 1%, depending on the type of digital service.
A tax on banking and insurance transactions applies at the general rate of 5% on bank and insurance charges. A resource utilization support fund applies to foreign currency-denominated loans at variable rates depending on their maturity, as well as TRY-denominated loans with a maturity of less than one year. Currency purchases from banks, insurance companies and exchange offices are subject to a rate of 0.2%.
Other taxes include a tourism share (levied at TRY 2 and TRY 7.5 per TRY 1,000 of total net sales and rental income) and an accommodation tax (rates initially set at 1% until December 31, 2020 and 2% thereafter, but the implementation of the tax has been postponed to 2022 due to the COVID-19 crisis).
Social security contributions for employer and employee amount to 34.5% of an employee’s salary; 14% paid by the employee and 20.5% by the employer. In addition to social contributions, the unemployment contribution is 3% of the salary, 1% for the employee and 2% for the employer. The monthly social security ceiling is TRY 26,831.40 for the period from January 1 to December 31, 2021; with a minimum calculation basis of TRY 3,577.50.