Tax Declaration In Turkey: Step-By-Step Guide

Tax Declaration In Turkey

Navigating the tax declaration process in Turkey and need help? Whether you’re a local business owner, a foreign investor, or a working expat, understanding Turkey’s tax system is crucial for financial compliance and peace of mind. Don’t worry! We’ve got you covered!

This guide will take you through the labyrinth of tax declarations in Turkey, from understanding different tax brackets to meeting deadlines, ensuring you’re on top of your fiscal responsibilities in this vibrant nation.

Let’s dive in!

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What Is A Tax Declaration?

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Employers seek a tax declaration from their employees at the beginning of a financial year. This declaration lists all tax-saving investments an employee commits to make in that particular year. 

Based on the information in the tax declaration, the employer calculates and deducts tax at source (TDS) proportionately from the employee’s monthly income. TDS on salary payments is governed by Section 192 of the Income Tax Act, 1961.  

Declaring tax-saving investments is not all! Employees must submit proof of expenses or investments during the year to support their declaration. 

If they fail, the employer must recover the tax shortfall from the employee’s salary in the remaining months. 

Employers managing payroll traditionally use spreadsheets to collect investment proofs in physical copies or via email.

 Then, the concerned team verifies the details and approves the tax declarations. The whole process becomes cumbersome and confusing. 

But, this process can be simplified for employers and their employees through automation. 

Turkey Tax Declaration

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The Turkish tax year is the calendar year. Turkish income is classified into seven categories. Income or receipts classified in these categories are taxable.

The maximum combined Turkish income tax rate is 40 percent for employment income.

Turkey’s official currency is the Turkish Lira (TRY).

Herein, the host country/jurisdiction refers to the country/jurisdiction to which the employee is assigned. The home country/jurisdiction refers to the country/jurisdiction where the assignee lives when they are not on assignment. 

Income Tax

Residents are not generally required to file income tax returns if they have only been income taxed through a withholding mechanism at source. 

Salaries paid to resident employees are taxed at source through a withholding mechanism, and there is no filing requirement for this income.

Nonresidents are not generally required to file income tax returns if they have only been income taxed through a withholding mechanism at source. 

Salaries paid to nonresident employees are taxed at source through a withholding mechanism, and there is no filing requirement for this income. 

However, if two employers pay an employee in a calendar year and the payment made by the second employer exceeds a specific limit (TRY 150,000 for the year 2023), 

the employment income should be subjected to declaration regardless of whether it is already subjected to withholding or not. 

Taxes withheld will be credited against the taxes payable concerning the tax return.

Corporate Income Tax Certification

A unique tax control mechanism called ‘corporate income tax certification’ has been established in Turkey. 

Under this mechanism, the tax authority accepts accounts and tax returns of taxpayers whose accounts are audited and certified by Sworn Fiscal Advisors (SFAs) to be accurate and correct unless proven to be incorrect. 

On the other hand, the MoF has announced that those companies that do not have their tax returns certified will be on the priority list for tax inspection. The Ministry sets standards of work to be done for any taxpayer wanting to use an SFA. 

At the end of each year, SFAs must prepare a comprehensive report to be submitted to the MoF and certify the accuracy of the CIT return.

The work is carried out over the statutory financials subject to tax calculations. Note that this service is not a ‘statutory audit’ nature; technically, it is ‘non-audit assurance’ work.

The tax certification process helps to identify and take corrective measures against erroneous applications that may otherwise be detected only upon a tax investigation by the Turkish MoF.

How Do You Get More Taxes Back From Turkey?

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Tax refunds in Turkey are an issue that needs careful consideration. Turkey’s complex tax system can sometimes cause issues for foreign investors when trying to implement a profitable tax structure for their businesses. 

This is especially the case for businesses conducting international trade transactions, where raw materials are imported into Turkey and used to produce a specific product, which is later exported to third countries.

In such cases, Turkey’s payment and tax refund procedures for customs tax, value-added tax (VAT), and other taxes and duties applicable to specific materials and products can be overwhelming.

Different exceptions, exemptions, and mechanisms available at law allow for the deduction and tax refunds for taxes paid by taxpayers for certain products and services.

Each mechanism has different criteria and requirements for applicability.

Procedures Of Standard Value-Added Tax Refund In Turkey

The main text regulating VAT payments, exceptions, and tax refund procedures is the Value Added Tax Law No. 3065 (“VAT Law”). 

VAT Law states that products and services exported to foreign nationals shall be subject to exemptions from VAT applications. 

A similar provision is also noted in the VAT General Application Communique (“VAT Communique”), further clarifying the procedures required for such exemption and refund applications. 

Accordingly, the VAT Law and the VAT Communique state the standard exemption for exported products and services.

Further provisions of the VAT Law also allow these standard exemptions to be used to claim value-added tax refunds paid for imported products used and processed to produce exported products. 

Accordingly, invoices issued in connection with transactions noted in Article 11 of the VAT Law may be deducted from the taxpayer’s total VAT amount, depending on the fulfillment of specific other criteria set forth by the legislation.

The procedures and methods for value-added tax refunds can also vary, as there are two options: refund by deduction and refund in cash, as noted in the VAT Communique.

Refund by deduction is the primary method of value-added tax refunds as it is much easier and faster, and taxpayers rarely utilize refunds in cash. 

The main reason is the extra procedures and costs required to utilize the refund in cash mechanism, such as sworn public accountant reports, additional tax office investigations, etc.

Domestic Processing Regime

Another mechanism available for tax refunds is a trade regime called the Domestic Processing Regime (DPR). 

This tax exemption is provided to local manufacturers who import raw materials or intermediary products they require for the production of goods and requires the importer to obtain a prior clearance or inward processing certificate. 

According to provisions of the VAT Communique, products imported with DPR certificates can be exempted from VAT payments or subject to value-added tax refunds based on the DPR rules.

According to the Domestic Processing Regime Communique provisions, taxpayers who import goods as per the DPR with proper certificates can benefit from DPR exemptions.

Simply, either by providing a partial guarantee or through the refund mechanism. 

These DPR exemptions may include a deduction (either partial or in whole) from VAT, customs tax, Special Consumption Tax, Resource Utilisation Support Fund payments, and other customs duties.

They may apply to the specific products and goods imported through the DPR mechanism.

Taxpayers must obtain a clearance or a license/certificate from the Trade Ministry to benefit from this DPR regime. 

These certificates are issued for limited durations, and the taxpayer that receives the certificate undertakes to import the goods, process them, and then export the final products overseas within the given period.

The main benefit of this mechanism is that taxpayers can claim tax refunds in cash (if authorized by the certificate) directly from the customs, without the need to go through the red tape required for cash refunds from tax offices.

As per the standard refund mechanism, refunds or exemptions for customs tax and other taxes (if applicable) can be claimed in addition to value-added tax refunds/deductions.

Contract Manufacturing & VAT

As a rule, the liability and responsibility to pay VATs arising from invoices for sales of services and products rests on the party issuing the invoice (the seller). 

Accordingly, in a standard sale transaction, the seller issues an invoice (including VAT amounts) to the buyer, and the buyer pays the total amount (the price of the good/service plus the VAT) to the seller.

Then, the seller will be required to pay the VAT amounts charged to the tax office by the buyer before the end of the following month.

However, there is a unique mechanism called the VAT withholding mechanism, where the duty to pay a part of the VAT (depending on the transaction) is transferred to the other party.

Accordingly, in sales where this VAT withholding mechanism is applicable, the burden to pay a part of the applicable VAT to the state is transferred from the seller to the buyer. 

This allows the state to guarantee the partial payment of the applicable VAT by forcing the buyer to pay it directly to the tax office rather than the seller (hence the name withholding/stoppage).

For example, VAT withholding is applied to invoices issued for contract manufacturing services at a ratio of 3/10. 

This means that for such invoices, only 3/10 of the total VAT of a specific invoice will be paid to the supplier (seller), whereas the remaining 7/10 will need to be paid to the tax office directly by the buyer.

This is an important mechanism that directly impacts the tax base of a specific business transaction, as it decreases the total VAT that a company can deduct for a specific transaction. 

Therefore, it is essential to structure the business accordingly to establish an efficient tax model for the company.

What Do You Need To File A Tax Return In Turkey?

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Individuals with only salary income from one Turkish employer are not obliged to file a tax return, as employers must withhold income tax from salaries and wages paid to employees. Tax withheld at source will be their final liability.

A taxpayer obtaining commercial and self-employment earnings must file and pay provisional (advance) income tax quarterly. 

The provisional tax amount is calculated at 15% of net income. Provisional tax is deducted from the final income tax payable.

Nonresidents are generally not required to file a tax return unless they have earnings subject to withholding tax. Income tax returns must be filed between the first of 1st and 25th of March of the following year. 

If the person leaves the country within the tax year, the tax return must be filed 15 days before the departure from Turkey.

To be able to file a tax return, the person needs to have a tax ID. A tax ID can be obtained only if the person has a residence permit.

Conclusion

As we conclude our guide on tax declarations in Turkey, it’s clear that this isn’t just about fulfilling legal obligations; it’s about being an informed and responsible participant in Turkey’s economy.

Armed with this knowledge, you can confidently manage your taxes, contributing to your personal financial health and the prosperity of this culturally rich country.

Declaration Mastered!

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