How does Turkey’s corporate taxation system work?
Turkey is one of the most attractive countries for foreign investors because of the pleasing tax regulations in the country. Turkey has a competitive corporate tax rate from the list of countries included in the Organization for Economic Cooperation and Development (A.K.A. OECD).
Corporate taxation in Turkey consists of remarkably clear, objective, and synchronized provisions under international standards.
The amount of corporate income taxation in Turkey is determined by the taxable profit derived from a company’s business activity throughout a given financial year. The revenue earned by corporation tax rates is one of the Turkish government’s most important sources of revenue.
As per; “Corporate Tax law No. 5520” established in 2006, foreign investors have to pay 22% corporate tax per year, but as per the updated law in 2021, this corporate tax rate in Turkey has been reduced to 20%.1 This is a great relief to the foreign investors who are considering investing in Turkey.
The Turkish government proposed draft legislation to the Turkish parliament on April 2, 2021, which was amending the legislation on “Collection Procedures of Public Receivables and Other Certain Laws.” According to the draft legislation proposal, corporation taxation would be imposed at a rate of 25% for the tax year 2021 and 23% for the tax year 2022.
For the tax year 2021, Turkey’s corporation tax rate is set at 20%.2 For the fiscal years 2018, 2019, and 2020; this rate was temporarily 22%. If the proposed draft legislation becomes official, the company tax rate will be raised to 25% for the 2021 tax year and 23% for the 2022 tax year.
No provisions have been included in this draft proposal regarding the application of withholding tax on corporate revenue regardless of distribution, which has been on the public and media’s attention since February 26, 2021.
How does corporate tax in Turkey work?
In recent years, the tax legislation in Turkey has become so simple and straightforward and is completely aligned with international standards and regulations. You must know that a Turkish company has to pay the corporate tax in Turkey which is calculated on the total income of the company throughout the world.
On the other hand, a company with economic activity in Turkey, but registered in another country also has to pay corporate tax in Turkey, which is calculated on the total income acquitted in Turkey.
When it comes to Turkey’s direct taxation system, corporate tax is one of the most important tax forms. A company has to agree on the corporate taxation in Turkey, on the total sum of the earned profits. But, the partnerships are excluded from paying any corporate tax.
All OECD countries, including Turkey, levy a corporate tax on profits, but the rate of taxation and the tax base differ. Corporate income tax is thought to be the most damaging tax to the country’s economic progress. However, these negative consequences can be minimized by implementing lower corporate tax rates and generous capital allowances.
Capital allowances, in this way, openly impact corporate opportunities for new investments. Many countries are working to prevent businesses from deducting a large number of capital investments all at once. Instead, these businesses can deduct this sum over several years. As a result, the tax burden on new investments increases.
Is corporate taxation in Turkey the same for Turkish residents and foreigners?
Yes, corporate tax in Turkey is indeed the same for both residents and foreigners. If you are a foreign investor, you must know that if companies in Turkey are restricted or unrestricted as taxpayers. For unrestricted companies that have a registered office in Turkey, the corporate income tax is calculated depending on the income obtained in Turkey.
What are the different types of corporate taxation in Turkey?
Capital Gains Taxation
The long-term gains of a company are taxed as ordinary income, where it involves 75% exception of capital gains as a result of the sale of shares. These shares have been detained for a minimum of two years, whereas the gains from the sale are to be held in a reserve account for a minimum of five years.
Also, the capital gains of a company from the sale of Turkish property held for a minimum of two years are excluded from up to 50% of tax going to be paid. The capital gains from the sale of foreign contributions that are held for a minimum of two years by a Turkish international holding company are excluded from corporate income tax in Turkey.
Would you like to learn about; “Company Dissolution and Liquidation in Turkey“? Check out our article on the topic.
Main Allowable Deductions and Tax Credits
- Some expenses can be deducted from the base of corporate income tax. These expenses include essential expenses sustained in the development of general business, property tax associated with business, bad debts, and R&D expenses.
- The expenses of start-ups are also reflected under deductible expenses.
- Donations to charities and for building educational institutions, health centers, and scientific research organizations are held to be deductible at 5% of the gross profit of the company. Also, the payments for pensions as well as termination benefits of an employee are deductible for corporate tax.
- The investments in the production of products that involve the maximum imports are deductible of up to 100% of corporate income tax.
- The tax losses are allowed to carry forward for up to five years. Keep in mind that carryback of losses is not allowed at all. The royalties’ charges and interest funded to foreign associates are deductible for corporate taxation in Turkey.
Other Corporate Income Taxes in Turkey
- Buildings, properties, and lands owned in Turkey are held for an annual property tax at different rates.
- Property transfer is held for a tax which is calculated as 4% of the transfer value. This value is divided equally among both buyer and seller parties.
- Stamp tax is applied to various documents, such as financial statements, payrolls, etc. Salary payments are included in stamp tax at 0.759% on the gross amounts.
- Banking and insurance transaction tax is applied at a rate of 5% on bank and insurance charges.
- Social security contributions are applied to both employer and the employee at a rated total of 35.5% of an employee’s salary. Here, 14% has to pay by the employee, while the remaining 20.5% is paid by the employer.
- Unemployment tax is 3% of the salary. Here, 1% tax is applied to the employee and 2% is to be paid by the employer.
Did you know that you can ask for corporate tax minimization in Turkey? Simply contact an experienced Turkish attorney who will supply you with all of the necessary information on tax minimization strategies that can be approved in your business.
You will be recommended to pay your credits in advance if you want to save money on taxes. Charity is another excellent choice for a business interested in lowering its taxes. This is because charitable contributions are tax-deductible.3
The best way to grasp corporate tax policy in Turkey is to seek the advice of an experienced Turkish attorney. The attorney will provide all available legal guidance regarding corporation tax concerns.