Income Tax Brackets In Turkey: Explained

Income Tax Brackets In Turkey

Venturing into the world of income tax in Turkey? Understanding the country’s tax brackets is essential for anyone earning or doing business in this transcontinental nation. We’ve got your back dear expats!

From the bustling bazaars of Istanbul to the coastal retreats of Antalya, our guide simplifies the Turkish income tax system, helping you navigate through each bracket with ease and ensuring you’re financially informed.

Let’s dive in!

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What Are Tax Classes?

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A tax class is a collection of tax rates. Tax classes determine the tax rates that apply to menu items and service charges and which tax rates can be reduced by discounts. 

A tax class can have up to 64 active tax rates, but a single tax class typically has one to three tax rates.

By grouping multiple tax rates into a single tax class, you can easily see a record named Food Tax in other EMC modules without wondering which tax rates are active.

You can associate a tax class with the following types of records:

  • Menu Item Class: All menu item definitions in the menu item class are taxed using the tax class
  • Discount: Specific tax rates can receive a discount when a menu item is discounted
  • Service Charge: Specific types of service charges are taxed, such as banquet and room service transactions

In some jurisdictions, multiple tax rates apply to food items. 

Usually, these tax rates must be calculated separately for accounting purposes (allowing each jurisdictional government to collect the appropriate tax amount). Generally, a restaurant must pay taxes to both the state and the city:

  • State – 5% tax
  • City – 2% tax

What Are Taxes In Turkey?

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In Turkey, individuals pay an income tax of 15 to 40% on a progressive scale and are entitled to tax deductions.

Companies do not pay corporate taxes if registered in one of Turkey’s eighteen economic free zones. There are also reduced VAT rates of 1 and 8%.

Who Pays Turkish Taxes?

The residency criterion is the crucial point for taxes in Turkey. Residents are taxed on global income, whereas nonresidents are taxed on Turkish-sourced earnings only.

  • Tax Residents: Individuals become Turkish tax residents if they reside in Turkey for more than six months in one calendar year. But there are some exceptions. Foreigners who stay in Turkey for six months or more for employment, business, study, or treatment are treated as tax non-residents. Companies become Turkish tax residents if their registered head office is in Turkey or the center of all their business transactions is in Turkey.
  • Tax Nonresidents can be individuals who spend less than six months in one calendar year in Turkey and get income from Turkey. 

Legal entities are also considered nonresidents if their income source is in Turkey, but their head office is registered in another country.

What Are The Taxes For Individuals?

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There are no national wealth taxes in Turkey. However, Turkish tax residents and nonresidents pay the following types of taxes;

  • Personal income tax
  • Social security contributions
  • Unemployment insurance
  • Dividends and interests tax
  • Inheritance and gift taxes

Personal income tax (PIT) is the central tax for individuals in Turkey and is regulated by Law No. 193, Official Gazette No.10700, dated 06.01.1961.

Individual taxes are one of the most prevalent means of raising revenue to fund governments across the OECD. 

Individual income taxes are levied on an individual’s or household’s income to fund general government operations. 

These taxes are typically progressive, meaning that the rate at which an individual’s income is taxed increases as the individual earns more income.

In addition, countries have payroll taxes. These typically flat-rate taxes are levied on wage income in addition to a country’s general individual income tax. 

However, revenue from these taxes is typically allocated specifically toward social insurance programs such as unemployment insurance, government pension programs, and health insurance.

High marginal income tax rates impact decisions to work and reduce the efficiency with which governments can raise revenue from their tax systems.

If not included in the individual income tax, capital gains and dividend income are typically taxed at a flat rate.

PIT is levied on different types of individual income, from employment to nonrecurring income.

Social security contributions are calculated on salary limits of a minimum of TRY 166 and a maximum of TRY 1,251 per day and must be paid to the employer and the employee. 

The general rate is 20.5% for the employer and 14% for the employee.

Foreign nationals who remain protected by their country’s social security system are not required to pay Turkish social security contributions for three months. 

The exemption period may be extended if a treaty exists between their country of origin and Turkey.

Foreign workers pay total contributions if not subject to foreign social security.

Unemployment insurance contributions are calculated over an upper earnings level of TRY 1,251 daily. 

The contributions are paid by the employer, employee, and the state, where for an employer, the rate is 2%, and for the remaining two, it is 1%.

Interest tax is 0 to 15%, while nonresident investors always pay it at the maximum rate. In other cases, the tax rate depends on the maturity of bonds and deposits: the longer the maturity, the lower the interest.

Dividends tax is 10%, which is charged only on half of the dividends total. 

If the income from dividends and income from other sources of an individual exceeds TRY 70,000, or about $4,000, they are included in the annual tax return. 

In some cases, tax on dividends may be credited against calculated income tax.

Inheritance and gift tax rates depend on the object cost. The inheritance tax rate ranges from 1 to 30% and 1 to 10% for gift tax.

Inheritance and gift taxes are paid over three years. Except for lottery prizes, the relevant taxes are collected by withholding at the time of payment.

Tax Deductions For Individuals

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For Individual employees, no deductions are permitted. But contributions to social security may be deducted.

The annual cumulative personal deductions cannot exceed the minimum yearly gross salary.

What Are The Business Tax Rates In Turkey?

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The central taxes for companies in Turkey are taxes on corporate income and a value-added tax

Also, companies pay banking and insurance transactions tax, digital service tax, special consumption tax, and social security contributions.

Corporate income tax is levied on the income and earnings derived by corporations and corporate bodies such as;

  • Capital companies and similar foreign companies
  • Cooperatives
  • Public enterprises
  • Enterprises owned by foundations and associations
  • Joint ventures

The taxed net corporate income is the difference between the net worth of assets owned at the beginning and the end of the financial year.

The tax on profit is paid at a standard rate of 20%. However, the rate has temporarily increased to 25% for income received in 2021 and 23% for income received in 2022.

The current rate will return to 20% from 2023 if the legislation still needs to be changed. The income tax rate for companies in the financial sector is 25%.

The standard value-added tax (VAT) rate is 18%. For comparison, the average base  VAT rate in the European Union is 23.1%. VAT is levied if a company provides services, exports, and imports goods.

Also, reduced VAT rates of 1 and 8% are valid for some deliveries and services in Turkey.

The transactions of banks and insurance companies are exempt from VAT but are subject to banking and insurance transactions tax (BITT).

Transactions carried out by licensed banks and insurance companies are subject to BITT at a rate of 5%. However, some transactions are subject to a 1% or 0% BITT – rate depending on the corporation’s profit from their trades.

The digital service tax rate is 7.5%. The taxpayer of the DST is a digital service provider.

For example, in the digital environment, sales of audible, visual, or digital content like computer programs, applications, music videos, games, and in-game applications.

Special consumption tax is levied only once at one stage of the consumption process of four main product groups:

  • Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvent; land, air, and sea vehicles;
  • Alcoholic beverages and cola soda pops, cigarettes, and other tobacco products; luxury products, such as caviar, furs, mobile phones, etc.

The kilogram, liter, cubic meter, or other goods units defy the tax amount.

Social security contributions for both employer and employee are 35.5% of the employee’s salary: 14% for the employee and 20.5% for the employer.

The unemployment contribution of 3% of wages is paid in addition to social security contributions: 1% for the employee and 2% for the employer.

What Are The Tax Benefits For Businesses In Turkey?

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Turkey has eighteen free zones with a special tax regime. Thus, the government stimulates the development of industry and trade.

The advantages of free economic zones in Turkey are:

  • No income and corporate tax; no stamp duty
  • No real estate and property taxes
  • No VAT on logistics services supplied to third countries.

To work in the free zones of Turkey, individuals and legal entities receive a license from the Ministry of Commerce of Turkey. 

Permitted activities include product production, storage and packaging, research, trade, banking and insurance, and software development.

How To File Taxes In Turkey?

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Paying taxes in Turkey is a two-step process:

  1. Registering for the tax on the Turkish Revenue Administration website.
  2. Filing tax returns on time.

Registering on the website requires a tax number from a home country and all business details like phone, email, and address.

Filing tax returns differs and depends on the tax type and payment deadlines. 

For example, for legal entities, the last payment date of the corporate income tax payment is the 30Th day of the fourth month following the fiscal year-end. The Turkish tax year is a calendar year.

Individuals. The income tax is withheld monthly from wages paid through the Turkish payroll under the Pay As You Earn (PAYE) system.

The filing tax on any outstanding obligation following the above principles is payable in two equal installments at the time of filing and within the fourth month.

Nonresidents leaving Turkey must pay the entire liability within 15 years before departure.

The filing tax on any outstanding obligation following the above principles is payable in two equal installments at the time of filing and within the fourth month.

Nonresidents leaving Turkey must pay the entire liability within 15 days before departure.

Taxpayers filing income tax returns for their commercial or professional income must pay an advance tax. A so-called ‘temporary tax’ is calculated as 15% of their gross income at the end of each quarter during the calendar year.

This tax is submitted before the 17th day of the second month following the end of the respective quarter and must be paid before the 17th day of the submission. 

The tax paid in advance is credited against the amount of income tax calculated in the annual tax return for the same year.

Legal entities. A self-assessment system is used in Turkey.

Residents and non-residents with permanent establishments in Turkey must register for all taxes in Turkey and file annual income tax returns.

The last date to submit the CIT return is the 30th day of the fourth month following the fiscal year-end. This date will be 30 April if CIT returns are filed on a calendar-year basis.

The taxable income is declared quarterly as an advance tax on the 17th day of the second month following each quarter, and corresponding taxes are payable on the 17th day of the same period. 

The advance CIT paid is offset against the final CIT calculated in the annual CIT return.

The last payment date of CIT is the 30th day of the fourth month following the end of the fiscal year.

What Are The International Taxes In Turkey?

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In an increasingly globalized economy, businesses often expand beyond the borders of their home countries to reach customers around the world. 

As a result, countries need to define rules determining how or if corporate income earned in foreign countries is taxed. International tax rules deal with the systems and regulations that countries apply to those business activities.

Tax treaties align many tax laws between two countries and attempt to reduce double taxation, mainly by reducing or eliminating withholding taxes between the countries. 

Countries with more partners in their tax treaty network have more attractive tax regimes for foreign investment and are more competitive than countries with fewer treaties.

Conclusion

As we wrap up our deep dive into Turkey’s income tax brackets, remember that knowledge of these brackets isn’t just about compliance; it’s a key to smarter financial planning in Turkey.

Equipped with this information, you can better understand your fiscal responsibilities and opportunities, whether you’re a local entrepreneur or an international professional.

Bracket Breakdown!

But wait! There’s lot more that you might be interested in following:

  • Tax Declaration In Turkey
  • Tax Consulting In Turkey
  • Tax Return Software In Turkey