Tax Return Software In Turkey: A Simple Guide

Tax Return Software In Turkey

Navigating the labyrinth of tax returns in Turkey doesn’t have to feel like a voyage through the unknown. Looking to explore tax return software in Turkey? Don’t Worry! We’ve got you covered!

With the right tax return software, what once seemed like deciphering ancient hieroglyphs can become as straightforward as sipping a cup of Turkish tea. This guide introduces you to the top tax return software options in Turkey, designed to streamline your tax filing process, ensuring compliance and peace of mind.

Let’s dive in!

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What Is A Tax Return?

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A tax return is a form or form filed with a tax authority that reports income, expenses, and other pertinent tax information. 

Tax returns allow taxpayers to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes. 

In most countries, tax returns must be filed annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits.

All personal tax returns have a central section which contains common types of income, such as bank interest or dividends received, and expected tax reliefs, such as donations to charities. 

Other types of income, such as profits from self-employment or salary from a job, are reported in separate sections.

Not all income has to go on a personal tax return; for example, if you have money in an ISA, you do not need to include interest earned on that money because ISA interest is tax-free.

Understanding Tax Refunds

It can be exciting to get a large tax refund. You can expect a refund if you overpaid your taxes during the year. 

This generally happens when taxes are deducted from your paycheck every time you get paid by your employer.

Here are some reasons why a taxpayer might get a refund:

  • The taxpayer failed to fill out Form W-4, which estimates the correct withholding amount from the employee’s paycheck.
  • The taxpayer intentionally fills out their W-4 for a higher withholding and larger tax refund at tax time.
  • The taxpayer should have updated their W-4 to reflect a change of circumstances, such as the birth of a child and an additional child tax credit (CTC).
  • A freelancer or self-employed person who files quarterly estimated taxes may overpay to avoid a surprise tax bill or underpayment penalties at tax time.
  • The taxpayer is eligible for refundable tax credits, which can reduce the taxes owed below $0. In other words, if the credit exceeds your tax bill, you will receive a refund for the difference.

Tax refunds are the opposite of a tax bill, which refers to taxes owed by a taxpayer. 

In the case of a tax bill, you owe more taxes to the government than you paid during the year. You usually have a tax bill if your employer doesn’t withhold enough taxes from your paycheck.

What Are Refundable Tax Credits?

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Most tax credits are nonrefundable, meaning that the tax credit can only reduce a taxpayer’s liability to $0. 

The taxpayer automatically forfeits any remaining amount from a nonrefundable tax credit. For this reason, this type of tax credit is sometimes called a waste tax credit.

In contrast, a refundable tax credit pays out in full, meaning that a taxpayer is entitled to the entire amount of the credit regardless of their income or tax liability. 

If the tax credit reduces the tax liability to below $0, the taxpayer gets a refund.

Refundable tax credits include:

Child Tax Credit (CTC)

The child tax credit is $2,000 maximum for eligible taxpayers. The fully refundable portion is $1,600 for 2023 and $1,700 for 2024.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) gives low- and moderate-income workers and families a tax break. 

The credit is $7,430 in 2023 and $7,830 in 2024. The amount of credit a taxpayer receives depends on their income, filing status, and the number of children. 

For example, eligible taxpayers without children will receive $600 for tax year 2023. That figure increases to $632 for tax year 2024.

Premium Tax Credit (PTC)

Low- and moderate-income households may qualify for the premium tax credit (PTC), which lowers the monthly premiums for health plans offered through the federal and state health benefit exchanges. 

Taxpayers can use all, some, or none of their PTC in advance (i.e., upfront). If taxpayers use less PTC than they qualify for, they will get the difference as a taxable credit.

How Are Taxes Returned In Turkey?

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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 per cent 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 of 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.

What Are The Best Free Tax Return Softwares In Turkey?

Sovos

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Sovos is purpose built for modern regulatory environments,

It is an evolving, complex landscape in which global authorities are requiring increased visibility, faster reporting and greater control of business processes, in many cases at the transaction level. 

Governments around the globe have embraced digitization to speed revenue collection, reduce fraud and close tax gaps. 

This is the catalyst for companies to move towards centralized compliance systems that can quickly scale to meet the demands of new and expanding mandates.  

Get started with Sovos 🔥

Sap

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Sap can simplify your approach to tax controls and improve compliance by systematically checking transactions and centralizing remediation activities. 

Integrate automation to help accelerate audit-proof corrections and comply with new digital mandates.

  • Enterprise-wide repository of tax controls
  • Automated screening of all tax-relevant transactions
  • Support for audit-proof corrections in one centralized platform
  • Automated remediation through machine learning

Get started with Sap 🔥

Thomson Reuters Onesource

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There are a lot of options out there when it comes to automation solutions for corporate tax processes. 

OneSource is a corporate tax software and services for seamless tax and trade compliance for companies and large accounting firms around the globe

Get started with Onesource 🔥

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, the procedures concerning the payment and tax refund in Turkey for customs tax, value-added tax (VAT), and other taxes and duties can overwhelm those unfamiliar with the procedures.

There are different exceptions, exemptions, and mechanisms available in law.

These allow for the deduction and tax refunds for taxes paid by taxpayers for certain products and services, and 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.

This can be done 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.

To benefit from this DPR regime, taxpayers must obtain a clearance or a licence/certificate from the Trade Ministry.

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 goods/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.

Is Turkey Tax-Friendly?

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Turkey has a territorial tax system exempting foreign dividends and capital gains income without country limitations.

The personal income tax on dividends is 20 percent, below the OECD average (24 per cent).

The country provides an ACE, addressing the debt bias inherent to the standard corporate income tax.

Countries raise tax revenue through individual income taxes, corporate income taxes, social insurance taxes, taxes on goods and services, and property taxes. 

The mix of tax policies can influence how distortionary or neutral a tax system is. Taxes on income can create more economic harm than taxes on consumption and property. 

However, the extent to which an individual country relies on these taxes can differ substantially.

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

And so, with the best tax return software at your fingertips, mastering the art of tax filing in Turkey can transition from daunting task to a ticked-off to-do list item.

These tools not only promise accuracy and compliance but also offer you more time to enjoy what you love most about Turkey. Remember, the right software is not just a choice; it’s an investment in your peace of mind during tax season.

Tax Simplified!

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