Taxation in Turkey
Turkey’s taxation framework is a complex system that plays a crucial role in the country’s economic strategy, aiming to balance the generation of revenue with incentives for growth and investment. This system includes various taxes, each regulated by intricate rules and rates. A thorough understanding of this landscape is vital for businesses, investors, and individuals to effectively manage their finances and ensure compliance.
Taxation system
Turkey’s taxation system is structured to integrate domestic financial policies with international requirements, providing an organized but flexible taxation framework. It can include a mix of flat rates, progressive tax scales, and specific exemptions, which are indicative of the nation’s economic goals and social aims. Grasping the complexities of these tax mechanisms is important for maximizing financial results, maintaining compliance, and taking advantage of opportunities within the legal framework.
Capital gains tax
In Turkey, capital gains are typically taxed according to personal income tax rates that vary from 15% to 40%, based on overall income. Profits from selling shares, real estate, and other capital assets are taxable, with particular regulations for various asset categories. Under specific circumstances, the acquisition cost of an asset may be adjusted for inflation. Additionally, profits from selling real estate owned for over five years are not subject to tax.
Corporate taxation
In Turkey, corporate income tax is generally set at a standard rate of 25% for the majority of companies. However, banks and financial institutions face a higher corporate tax rate of 30%. The tax system allows for deductions on business expenses that are incurred within the tax year, following specific guidelines on qualifying expenses. This tax regime is applicable to both resident companies, which are taxed on their worldwide income, and non-resident companies, which are taxed on income sourced within Turkey.
Personal income taxation
In Turkey, personal income tax operates on a progressive scale with rates between 15% and 40%. The tax system encompasses income from a variety of sources such as employment, business activities, professional services, agriculture, and capital gains. The amount of tax owed is based on the taxpayer’s total income for the year, and certain expenses, such as social security contributions, can be deducted. Residents are liable for tax on their global income, whereas non-residents are only taxed on income sourced from Turkey.
Dividend taxation
In Turkey, dividend tax is applicable to distributions made to both resident individuals and non-resident individuals or firms. Dividends distributed to resident companies are not subject to tax. The typical withholding tax rate for dividends offered to non-residents stands at 10%, although this rate may be lowered based on a relevant tax treaty. Dividend income is taxed at the source via withholding, and generally, no additional taxation is necessary at the individual level.
Property tax
In Turkey, property tax is imposed on both buildings and land. The tax rate for buildings is set at 0.2% (with a reduced rate of 0.1% for residences), while for land, it stands at 0.1% (and 0.3% for building sites). This tax is assessed each year based on the property’s fair market value. In major urban areas, these rates are increased to double. Payments are made to the local municipality, and there is an extra environmental tax applied to buildings utilized for business activities.
Inheritance taxation
In Turkey, inheritance tax is levied on assets received through gifts or inheritance. The tax rates vary from 1% to 10% depending on the assessed value of the inherited items. The tax is calculated based on the value of the assets obtained and applies to both movable and immovable properties. This system is designed to tax inherited wealth progressively, meaning that assets of greater value are taxed at higher rates.
International taxation
In Turkey, international tax laws pertain to the taxation of global income for residents and income originating from Turkey for non-residents. The corporate tax rate stands at 25%, with non-resident businesses being taxed on their income generated within Turkey. To lessen the tax impact on international earnings, double taxation agreements and foreign tax credits are available. Additionally, Turkey complies with OECD principles regarding international taxation, which encompasses transfer pricing and controlled foreign company regulations.
Cryptocurrency taxation
In Turkey, income from cryptocurrency is subject to progressive income tax rates that vary from 15% to 40%. Cryptocurrency is classified as a capital asset, and any gains obtained from trading, mining, or other income derived from cryptocurrency activities are taxable. Residents are liable for taxes on their global cryptocurrency income, whereas non-residents are taxed solely on income sourced from Turkey. Furthermore, certain cryptocurrency transactions might incur VAT, depending on the type of transaction. The tax regulations encompass a range of activities, including trading, mining, and staking, requiring taxpayers to accurately calculate and report their taxable gains.
VAT system
In Turkey, Value Added Tax (VAT) is applicable to the sale of goods and services. The general VAT rate is 20%, while there are reduced rates of 8% and 1% for certain categories of goods and services, including essential food items, specific agricultural products, and particular machinery and equipment. VAT is applied to various transactions, encompassing industrial, commercial, agricultural, and independent professional endeavors. The importation of goods also incurs VAT. The tax is collected at every level of the production and distribution process, and businesses must register and apply VAT to taxable transactions.
Our taxation solutions
In an ever-changing tax landscape, professional advice is crucial. Our firm provides a range of specialized tax solutions designed to cater to the varied requirements of individuals, corporations, and investors in Turkey. Our services aim to address the complexities of the tax code, reduce liabilities, and guarantee full compliance with regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
In the intricate realm of taxation, expert guidance can be invaluable. Reach out to us today to arrange a consultation with our tax specialists. We will collaborate with you to create a customized tax strategy that meets your goals and guarantees adherence to Turkey’s regulatory framework.
Disclaimer
Tax laws and regulations frequently evolve and may differ depending on personal situations. The information presented here serves as general guidance and may not represent the latest changes. It is strongly advised to seek the assistance of a qualified tax professional for precise and current advice tailored to your circumstances.