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Taxes on Companies in Turkey

This guide was written by Burak Orkun, Managing Partner at Orkun & Orkun (info@orkunorkun.com) in collaboration with Guides.Global (office@guides.global).

It was written on 5 July 2017. The law and practice in Turkey change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.

Our guides are prepared by professionals from many countries. They are, of necessity, both brief and general and can take no account of your personal circumstances. They are intended to be a good introduction to the subject BUT ARE NO SUBSTITUTE FOR PROPER PROFESSIONAL ADVICE, which our contributors will usually be happy to provide upon request.

The advice and opinions contained in the guides are those of the author and are not necessarily those of Guides.Global.

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The scope of this guide

This guide is about the taxes your business or company will have to pay in Turkey.

You may also want to watch the video version of this guide or download the audio (MP3) guide.

Introduction

Some businesses operate as sole traders or as partnerships. These businesses are not taxed separately as businesses. The profits that they make are simply treated as the income of the sole trader or divided between the individuals who are the partners and treated as their income.

However, many businesses operate through separate limited companies and these companies are taxed in Turkey.

There are two bases upon which they can be taxed. Some businesses have the right to choose which method will apply but, once they've chosen, they can't change their mind for a period of five years.

VAT in Turkey

VAT operates pretty much in the same way in every country that uses the VAT system, and Turkey is no exception.

A company based in Turkey or selling goods or services in Turkey to consumers must charge Turkish VAT (currently 18% in most cases) on the total value of those goods or services.

IMAGE TITLEIt will then submit a VAT tax return to the Government of Turkey every month and pay all the VAT due to the tax authority.

To calculate the amount of VAT due, the company will deduct any VAT that it has paid in connection with its business. This will include the VAT it has paid to the suppliers of the goods that it has sold and the VAT it has paid on all its incidental expenses such as rent, telephone charges, delivery charges etc.

Having said this, there are three main points that foreign businesses need to consider when planning their affairs in Turkey.

The first is that there is no VAT minimum limit. In some countries, the law does not require a business to register for VAT until its turnover during the year reaches a certain mount. Until then, it does not need to collect any VAT and so, of course, it doesn’t need to pass it onto the government. Of course, it also can’t recover any VAT on any goods or services it pays for.

In Turkey, even if your business only generates TRY100 per month you will need to charge VAT on that amount and pass that onto the government, less any permissible VAT deductions.

The second point is that, in the case of small businesses, you will often find that the VAT that you have spent on providing the goods or services that you have supplied might be higher than the amount of VAT that you have gathered. In this case, you will be entitled to a refund from the government.

The final - and perhaps most important - point is that Turkey imposes heavy penalties on those who are late in filing their VAT return or who do not pay the VAT that is due. These penalties are much higher than in many other countries. For example, failure to file your VAT return on time incurs a penalty PLUS a surcharge of between 100% and 300% of the VAT due.

Taxes on profits in Turkey

Corporation tax is the tax paid by companies on their profits.

Tax residents in Turkey

The profit is based upon the worldwide income of the company (although, in practical terms, under the Double Taxation Treaties, income earned by the company outside Turkey is likely to be taxed first and foremost in the country in which it is earned, with tax being due in Turkey only if the tax rate in Turkey is higher than the tax rate in the country concerned). In most cases this will mean that no tax is paid in Turkey on earnings generated outside Turkey.

The profit is calculated by deducting from the gross earnings of the company all legitimate expenses. There are a mass of regulations governing what can and cannot be deducted as companies find ever more ingenious ways of trying to get around the rules.

Basically, you can deduct from the gross income of the company:

  1. The usual operating costs such as salaries, rent, electricity bills, the purchase and maintenance of equipment and professional fees incurred in running the business.

  2. Depreciation, at rates published by the Ministry of Finance

  3. Any capital losses

  4. Interest paid for business purposes, unless it is paid to acquire fixed assets, in which case it must be capitalised

The remaining balance - the profit - is taxed at a flat rate of 20%.

Any losses can be carried forward for five years, but cannot be carried back.

Dividends received by the company from another company, or paid out by the company, are subject to 15% withholding tax.

Controlled Foreign Company (CFC) rules apply in Turkey, where the Turkish company has at least a 50% interest in a non-resident company. In these cases, tax will be paid in Turkey on part of the profits of the foreign company. The details are beyond the scope of this book – talk to your accountant.

Failure to pay the taxes by the due date incurs a penalty of between 100% and 300% of the tax due, plus interest at 16.8% per year until paid.

Companies who are not tax resident in Turkey

Companies not tax resident in Turkey pay tax only on their activities in Turkey. This means that any revenue they generate in Turkey or whilst operating from Turkey is taxable in Turkey.

This catches the obvious situation where a company, often based in a tax haven, sells goods to people living in Turkey but it also catches the quite frequent situation where a company has an administrative base in Turkey (but not its headquarters) and uses that base to carry out business in other countries but not in Turkey itself.

The tax due is calculated and paid in the same way as for companies that are resident in Turkey.

Taxes on money earned abroad

A company based in Turkey must declare, for the purposes of Turkish corporation tax, the full amount of its earnings in Turkey and overseas.

Of course, the money it earns overseas will usually be subject to taxation in the country where it’s earned. In this case, the provisions of any double taxation treaty between Turkey and the country in question will apply.

Other taxes for companies in Turkey

Companies, like private individuals, will end up paying a number of incidental taxes in Turkey. These will include taxes on motor vehicles, charges for the collection of garbage and so on. See our Guide to Taxes on Individuals in Turkey for a bit more information.

Does a company have to pay tax twice in Turkey?

As in the case of private individuals, the government recognises that it would be unjust and counterproductive if companies had to pay tax on the same income both in Turkey and in another country. Thus, they have entered into many Double Taxation Treaties. See our Guide to Double Taxation Treaties in Turkey.

Conclusion

There are lots of tax matters to consider when doing business in Turkey. Will your company be better of as a tax resident of Turkey, or not? Which business structure will be the most tax-efficient? Seek financial advice from someone who knows the Turkish tax laws well (see our Guide to Choosing a Tax Adviser in Turkey) to help you with these questions, as answering them correctly could save you a lot of money.

Other guides of interest

 Description Link 
Turkey Country Guide
Essential facts and figures about Turkey
Click to see this guide
The Tax System in Turkey
An overview
Click to see this guide
Choosing a Tax Adviser in Turkey
Things to consider
Click to see this guide
Taxes on property in Turkey
Taxes on businesses
Click to see this guide
Taxes on people in Turkey
Taxes on individuals
Click to see this guide

Readers' Comments

 

Further information?

I hope you have found this guide useful. If you need any further help, please contact me.

Burak Orkun

5 July 2017


 

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