Turkey is one of the countries known for diversity in terms of the different types of taxes imposed, and each type of these taxes has a certain way in Turkey. However, Turkey's tax law is classified according to three categories as below:
Types of Taxes in Turkey:
First: Taxes on Income
This type of taxes - income taxes - includes two basic types, one imposed on individuals and the other imposed on corporates. However, these two types of income taxes are subject to several laws, rules, and provisions, taking into account the need to apply the individual income tax on companies through the income components and determining the net income, therefore, each one has certain ratios in application as follows:
The individual income tax ranges between 15% and 35%. It can be defined by determining the annual income of the individual; that is by calculating all the gains and returns during one calendar year. On the other hand, net income is defined by calculating the income of these elements (business profits, agriculture profits, salaries and wages, income from independent personal services, income from the immovable properties and rights, which includes "rental income", and income from movable properties, including income from capital investment and other gains.)
The Bases upon Which an Individual Income Tax is Imposed:
The Turkish tax system for individuals has two conditions based on the residence system, including the following:
- Resident taxpayers in Turkey: persons residing in Turkey; those who spend more than six consecutive months in Turkey in one calendar year, where the tax is applied to their earnings and the income they have in Turkey and abroad.
- Non-resident taxpayers in Turkey: a tax applied to people who do not reside in Turkey and who spend less than six months in Turkey in one calendar year. This tax is imposed on the gains they make and the income they earn only in Turkey.
Corporate Income Tax:
The corporate income tax is applied to the legal entities of these companies, which include (capital companies, cooperative societies, public economic institutions, and economic institutions owned by other joint institutions, associations, or ventures). These companies are subject to joint income tax based on their income from Turkey and other countries, since they are classified as residents. If the location and place of the legal and commercial centers in Turkey is not determined, these companies are considered to be non-residents of Turkey, and in this case they are subject to taxation through their incomes derived from Turkey only. The ratio and price of corporate income tax is determined to be 20%.
However, resident companies are subject to 15% intermittent tax by paying dividends to shareholders. Dividend paid does not include resident companies of resident companies for intermittent tax, such as an increase in the share capital of the company using retained earnings. Therefore, it is not considered a dividend distribution.
On the other hand, the non-resident companies are subject to a 15% intermittent tax after transferring profits to the main headquarters. The intermittent tax is applied to the amount after the corporate income tax is deducted from the profits of the branch which pays the tax.
Second: Expenditure Taxes in Turkey:
The taxes on expenditures include several types of taxes that fall under them, including income tax, expenditures tax, and properties tax, and there are special items included under each type of that taxes. Hereunder, we will explain about each item separately.
The expenditure tax includes four basic taxes, including the following:
1- Value Added Tax (or VAT) in Turkey:
a tax applied in Turkey, which covers all commercial and industrial activities, as well as goods and free activities, including goods entering the country through import, as well as any goods and services arising from other activities. The rates of VAT are 1%, 8%, and 18%.
Therefore, the process of tax rate on materials and services is constantly changed. The tax rates on the materials are announced by issuing special lists for this purpose. Therefore, each quality of materials has an added tax rate different from the other, including the following:
- 1% VAT is levied on driers, nuts, seeds, grains, vegetables, newspapers, and transport and funeral services, as well as second-hand transport means.
- 8% VAT is levied on foodstuffs, animals, cotton fibers, yarns, shoes, bags, and some medical instruments and agricultural machinery.
- 18% VAT is levied on telecommunication services.
Though, there are some services exempted from VAT, including the following:
- Goods and services prepared for export.
- Mobile roaming in Turkey for people based outside Turkey's borders, in countries compliant with international roaming agreements signed by Turkey, and this is something required.
- Some manufacturing services that are not offered to customers in free zones.
- Oil extraction activities.
- Services provided for aircraft and ships in seaports and airports.
- Transit freight.
- Transit transportation.
- Supply of machines and equipment in the form of investment certificate.
2- Special Consumption Tax:
The Special consumption tax is combined by a major product group, which is as follows:
- Oil derivatives, natural gas, mineral oils, and solvent derivatives.
- Vehicles and other means of transport, which also include motorcycles, helicopters and yachts.
- All types of tobacco along with its derivatives and alcoholic beverages.
- Luxury and leisure products.
The special consumption tax is applied only once, and this tax rate is constantly changing, by the issued regulations. For example, there is a regulation issued on 08.09.2016 which included the value of special consumption on gasoline without lead, which was estimated at 2.3765 Turkish lira per one liter, the tax rate on diesel fuel was 1.7945 Turkish lira per one liter, and natural gas for cars 0.8599 lira per m3.
3- Banking and Insurance Transactions Tax:
This tax is applied to banks, insurance companies, and banking transactions. It is applied to the returns of banks from loans and interest. The bank and insurance transactions tax rate is 5%, and it is 1% for the interest earned from such transactions.
4- Stamp Tax (Paper Fee):
The stamp tax (paper fee) is applied to include contracts, debt securities, capital subscriptions, letters of loans, insurance letters, emails, and many documents, including financial statements, payment notes, letters of credit and guarantee, and tables with salaries ranging between 0.189% and 0.948%, sometimes to be defined as a percentage determined from the price of the document and also determined as lump sum in some other documents.
Third: Wealth Taxes in Turkey:
Wealth taxes include three types:
- Real estate taxes in Turkey: Real estate taxes include buildings, apartments and also loans that are owned in Turkey for real estate tax that ranges between 0.1% and 0.6%. Real estate taxes are also imposed for the preservation of immovable cultural property, and this tax shall be 10%.
- Car taxes: Car taxes are based mainly on fixed amounts, which are estimated according to the age of the vehicle and the capacity of its engine.
- Inheritance and gifts taxes: inheritance and gift tax are imposed by 1% to 30%.
Fourth: Tax Incentives
Tax incentives is a system of four different schemes, which provides an opportunity for foreign investors to be equal to local investors. In this regard, advantage is taken through the General Investment Incentives System, the Regional Investment Incentives Scheme, the Large-Scope Investment Incentives Scheme and the Strategic Investment Incentives Scheme.
The investment incentive system was designed to encourage investments to reduce dependence on the import of vital commodities in some strategic sectors. The system aims at:
- Reduction of current accounts deficit.
- Increase of investment support in less developed regions.
- Helping to raise the level of support.
- Promotion of clustering activities.
- Helping in supporting investments that bring high technology.
In order to encourage the investment incentives system, several tools have been activated to stimulate it, including:
- Customs Duty Exemption: This was achieved by exempting machines and equipment that are imported for projects that have the certificate to stimulate investment.
- Value Added Tax (or VAT) Exemption: Machines purchased from Turkey are exempted.
The regional investment incentives program is forced by identifying the area to be supported according to the region's potential and local economic level. Therefore, the level of support is different from the intensity of the subsidy, depending on the level of development in which the investment will be set. Priority areas of investment are identified, including:
- Investments of tourism accommodation in the cultural and tourism preservation, development regions and investments that could benefit from regional incentives with regard to thermal tourism.
- Investments of mine extraction.
- Investments in railway, maritime freight and passenger transportation.
- Investments in test centers, wind tunnels, investments in the automotive, aerospace, defense industries, and space industries.
- Investments in kindergartens and day-care centers, as well as educational institutions.
- Investments based on the manufacture of products or spare parts developed under the research and development project.
- Investments in the field of liquefied natural gas (LNG) and underground gas storage investments with a minimum amount of TRY 50 million.
- Investments involving the production of carbon fiber and composite materials made from carbon fiber.
- Investments of the production of items in high-tech industry.
- Investment involving the production of turbines and generators used for renewable energy generation, as well as the production of blades used in wind power generation.
- Investments integrated to produce aluminum flat products.
- Investments in which electricity is generated that can be used as inputs to the stated metals.
Investing in these fields will therefore benefit investments in materials production in the technology industry, as these investment topics include:
- Inorganic products used as luminophore.
- Sulphites and sulphates.
- Phosphinates, phosphonates, phosphates and polyphosphates, nitrates.
- Manufacture of chemical fertilizers and nitrous compounds.
- Manufacture of glue and gelatin.
- Manufacture of synthetic rubber and plastic raw materials.
- Manufacture of modeling pastes that include wax used in dentistry, the adhesive tapes, and fillers and compounds for fire extinguishers
- Manufacture of preparations used in cleaning of metal surfaces