Tax Exemptions in Turkiye: A Guide for Foreigners

Taxation System in Turkiye

Turkish taxes offer some of the lowest corporate rates in the OECD. Turkish corporate tax law has clear, objective provisions that align with international standards - these three areas comprise Turkiye's main areas of focus in regard to its corporate taxes:

1. Income Taxes
2. Taxes on Expenditure
3. Taxes on Wealth

Income taxes

Income Tax Turkish tax law includes two different income taxes: corporate and individual. Both regulations are quite similar when it comes to assessing income elements or calculating net income; however, their respective laws differ considerably.

• Personal Income Tax

Personal Income Tax Real persons must file income tax returns. Income is defined as all revenues and earnings earned within any one calendar year.

• Corporate Income Taxes (CIT)

Under Income Tax Law, certain income elements generated by corporations will be taxed accordingly and subject to corporate income taxes.

Related: What is The Annual Real Estate Tax in Turkey?

Taxes on expenditure

A tax expenditure refers to any incentive provided to an activity or group of taxpayers through taxes that is beneficial. While arrangements that impose extra costs as opposed to providing benefits qualify as negative tax expenditures, positive ones account for nearly all positive tax expenditures.

• Value Added Tax (VAT)

As of July 2023, two VAT rates in Turkiye will generally apply: 1% (10%) and 20% (20%). VAT can be levied on commercial, industrial, and agricultural goods as well as professional services provided within Turkey; as well as importation into Turkey of such services and deliveries related to other activities.

• Special Consumption Tax (SCT)

The Sales and Use Tax is levied at various rates on four major product groups by the SCT: petroleum, natural gas, and lubricating oil are subject to these taxes at various rates; solvents used as solvents fall within their purview as do tobacco, tobacco products, alcohol beverages, and luxury items.

• Banking and Insurance Transaction Tax

Bank and insurance company transactions remain exempt from VAT but are still subject to the Banking and Insurance Transactions Tax, imposed on income earned by these institutions like loan interest earned during transactions such as interbank accounts. While the general rate for all transactions is 10%, consumer loans will now incur as high as 15% taxes starting July 2023! Interest generated on interbank accounts however remains taxed at just 1% with 0.2% being applied against foreign currency sales transactions.

• Stamp Duty

Stamp duty can be applied to many different documents such as contracts, invoices, capital contributions, and letters of guarantee as well as financial statements and payrolls. Rates range between 0.189% and 0.948% of document value or as set prices depending on specific documents.

Taxes on wealth

Wealth taxes are calculated based on an individual's net worth minus liabilities - known as their market value for all their assets less their liabilities. Wealth tax bases can either be broad or narrowly specified depending on their circumstances.

Tax on wealth comes in three different forms.

• ​Property taxes
• Motor vehicle tax
• Inheritance and gift tax

Individual Tax Deductions in Turkiye

Charitable Contributions

Individual Tax Deductions in Turkiye Contributions to Charity You may make donations to specific institutions while at the same time deducting them from your taxable income as tax-deductible donations.

Education & Health Expenses

Individuals filing annual tax returns in Turkey may claim expenses related to education & healthcare incurred for themselves and their family from their declared income - up to 10% of the tax base is eligible.

Insurance Premiums

Individuals and their spouses or children can take a deduction for personal insurance premiums up to 15 percent of total taxable income or minimum wage annually.

Corporate Tax Exemptions and Incentives in Turkiye

Foreign Tax Credit

Foreign Tax Credit Turkish CIT provides credits for foreign taxes paid, up to an agreed-upon limit, up to three years later; unutilized credits can be carried forward and carried back. Foreign tax offices' receipts must then be presented for acceptance at a Turkish consulate within the country in which payment was made.

Participation Exemption for Dividends

Dividends are exempt from participation tax Turkish companies do not need to impose corporate income or dividend withholding taxes when paying dividends between themselves; under certain conditions, dividends received by a Turkish firm holding shares in an overseas firm can even be exempted from corporate tax altogether.

Exemption for Income from Foreign Construction and Repair Activities

Income generated from construction or repair activities undertaken abroad by Turkish corporations is exempted under Turkish CTL; losses caused by these foreign activities do not reduce domestic income tax liabilities.

Capital Gains Exemption

Certain conditions apply for exempting 75% of capital gains generated through selling company shares from corporate income taxes.

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Investment Incentives

Our investment incentive system comprises 12 incentives, two investment programs, five models of investing, and two programs of investments.

Related: How to Calculate Tapu Tax in Turkiye.

Conditions for Tax Exemption in Turkey

• Conditions for Tax Relief in Turkey In terms of conditions for tax exemption in Turkey, foreigners wishing to enjoy its advantages must submit a request to Turkish authorities in order to claim VAT exemption benefits.
• Investors from outside Turkey cannot reside here.
• There are currently no foreign companies with headquarters located within Turkey.
• Since you left Turkey more than six months ago, your life must have taken you in different directions.
• An invalid residence permit issued in Turkey the previous year had already lapsed.
• Turkey currently does not register an address.
• Cash transfers to Turkey must come from outside sources (ie: outside Turkey), with payment made in foreign currency.

Edited by Imtilak Real Estate ©

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