Tax in Türkiye

Individuals who are resident in Turkey (full liability taxpayers) are subject to tax on their worldwide income. Non-residents (limited liability taxpayers) are taxed only on earnings and revenues derived in Turkey.

Residents include individuals with legal permanent residence in Turkey and those who reside in Turkey for more than 6 months in a calendar year. Temporary absence does not interrupt the continuity of residence in Turkey.

The civil law defines residency as an 'intention to settle down permanently.' The law does not specify any objective criteria for the determination of residency. However, factors, such as purchasing an apartment in Turkey, closing business operations abroad or having vital social and economic interests in Turkey, may be considered in determining Turkish residency.

An exception to the 6-month rule described above applies to expatriates such as businesspeople, scientists, experts, government employees or journalists who come to Turkey to perform temporary and predefined work. Those who have arrived for education, medical treatment, rest and travel are also exempt. People in these categories are considered to be non-residents even if they stay in Turkey longer than 6 months in a calendar year.

In general, if an individual is a non-resident of Turkey under these rules, the individual is also a non-resident for purposes of the application of Turkey tax treaties. This may affect the taxation of non-Turkish income in the source country.

Turkey has a unitary tax system under which income derived from different sources is aggregated and tax due is computed on the total aggregate income. Under the unitary system, withholding taxes are considered advance payments of tax and are credited against the tax due in the annual return.

Commercial income - Income derived from every kind of commercial and industrial operation through a place of business in Turkey, or through a permanent representative in Turkey, is considered to be income derived in Turkey.

Agricultural income - Income arising from agricultural operations carried out in Turkey is considered to be derived in Turkey.

Employment income – Salary, wages and monetary benefits are defined as money and goods given as compensation to employees in connection with a specific place of business. No distinction is made between salary and wages in Turkey. Wages include amounts paid as cash, indemnities, allowances, overtime, advances, subscriptions, premiums, bonuses, expense accruals or percentages of profits of enterprises that are not partnerships. Certain payments made by employers on behalf of employees, such as payment for rent and utilities are grossed up and taxed as salary and wage income.

Wage income is considered to be derived in Turkey by non-resident individuals if either of the following conditions is satisfied:

• the employment service is performed in Turkey
• the services are evaluated in Turkey. Services are considered to be evaluated in Turkey if the payment for the services is made in Turkey or if the payment for the services is made abroad and the amount of the payment is transferred to the account of or deducted from the profit of a Turkish resident entity

An employment service is considered to have been evaluated in Turkey if the salaries are booked as a cost or expense by a Turkish entity.

Individuals in Turkey who work for liaison offices and are compensated in foreign currency are not taxed on their salaries if all of the following conditions are met:

• the non-resident entity pays the salaries out of earnings derived abroad
• the salary payments are not charged as expenses against profits taxable in Turkey
• the amount of compensation is brought into Turkey as foreign currency

Self-employment earnings - Self-employment earnings include services rendered by a person who satisfies the following conditions:

• they work for themselves in their own name
• they use their own professional knowledge
• they work without being dependent on an employer

If benefits are derived from self-employment activities performed or evaluated in Turkey, the income is taxable to non-residents.

Recipients of services provided by resident and non-resident self-employed individuals must withhold a 20% tax from the amounts paid to the individuals and remit the withholding tax to the tax offices on behalf of the individuals. If the service provider is a non-resident, provisions of an applicable double tax treaty need to be taken into account.

Self-employed individuals engaged in a business or individuals who carry out commercial activities may carry forward business losses for five years. No loss carrybacks are allowed.

Revenues from immovable properties - Revenues derived from the rental of immovable assets and royalties for patents and rights are subject to withholding tax at a rate of 20%. For non-residents, this withholding tax may be eliminated or reduced under applicable double tax treaties.

Capital investment income - The following types of income are included in investment income:

• dividends from all types of share certificates
• earnings arising from participation shares
• profits distributed to the chairman and members of the board of directors of companies
• interest income derived from bonds and bills
• all interest income (time deposits, repurchase [REPO] agreements and others)

Resident and non-resident individuals are subject to withholding tax on dividends and interest. 15% withholding tax is imposed on dividends. The general rate of withholding tax on interest is 15%. The withholding tax rates for interest on term accounts are 15% for a term of up to 6 months, 12% for a term of up to a year and 10% for a term of more than one year. The withholding tax rates may be reduced under applicable double tax treaties.

Other earnings and gains - The following types of income are included in other earnings and gains:

• earnings arising from the sale of securities, rights, copyrights and patents
• earnings arising from the disposal of land, immovable properties and ships no more than 5 years after the acquisition of the assets
• earnings arising from the transfer of rights of partnership shares
• earnings arising from the disposal of part or all of an operation whose activities were halted
• incidental earnings

Taxation of employer-provided stock options - No specific rules in Turkey govern the tax treatment of employer-provided stock options. Under the general tax provisions, options are taxable as employment income at the time of exercise. The time of taxation may vary depending on the stock option plan. In addition, under certain circumstances, stock options are subject to stamp tax at a rate of 0.759% and may be subject to social security contributions.

Capital gains are normally considered to be ordinary income. However, capital gains derived from transfers of shares are exempt from income tax in certain cases.

Under a Council of Ministers’ Decree, the withholding tax rate is reduced to 0% for capital gains derived by resident and non-resident individuals from the sale of shares traded at the ISE. This is the final taxation.

Capital gains derived from the disposal of the shares without the intermediation of a bank or an intermediary institution (that is, capital gains derived by resident and non-resident individuals from the sale of shares not traded on the ISE) are subject to tax at the general progressive income rates and reported in the annual income tax return. However, if the shares are issued by Turkish resident companies and held for more than two years, the gain is not subject to income tax.

For 2020, beneficiaries of inheritances and gift recipients are subject to inheritance and gift tax at rates ranging from 1% to 30%. The tax is paid over three years in two equal instalments, in May and November. For 2020, inheritances amounting to TRY 306,603 and gifts amounting to TRY 7,060 are exempt from tax.

Turkish citizens are subject to inheritance and gift tax on worldwide assets received. Resident foreigners are subject to inheritance and gift tax on worldwide assets received from Turkish citizens and on assets located in Turkey received from resident foreigners or non-residents. Non-resident foreigners are subject to inheritance and gift tax on assets located in Turkey only.

Buildings and land in Turkey are subject to real estate tax. The taxpayer is the owner of the building or land, the owner of any usufruct over the building or land, or if neither of these exist, any person that uses the building or land as its owner. A partial exemption of 25% of the tax value is granted for buildings or apartments used as residences. This partial exemption applies for five years from the year following the year of completion of construction.

The tax base for the real estate tax is the tax value of the building or land. The tax value is the value recorded at the Land Registry. The rate of building tax is generally 0.2%, but this rate is reduced to 0.1% for buildings used as residences. The rate of land tax is 0.1%, and the rate of parcelled land tax is 0.3%. These rates are increased by 100% within the frontiers of a metropolitan municipality and contiguous regions as defined by law.

A declaration is submitted to the municipality where the building or land is located if a modification is made that might lead to a change in the tax value. Taxes are paid annually in two equal instalments, the first at any time during the period from March through May and the second in November.

The Turkish social security system was previously based on three institutions each regulated by its own law. These institutions were the Social Security Institution (for private sector employees), the Pension Fund (for public sector employees) and the Bag-Kur (for self-employed people). Effective from 1 October 2008, the Social Security and General Health Insurance Law No. 5510 unified the prior three social security regimes.

Employers and employees pay monthly contributions at varying percentages calculated on gross salary, subject to upper and lower limits stated in the law. For the period of 1 January 2020 through 31 December 2020, the upper limit for monthly salary subject to social security contributions is TRY 22,072.50, and the lower limit for monthly salary subject to social security contributions is TRY 2,943.00. Employees pay contributions at a rate of 14%. Employers pay contributions at a rate of 20.5%. Five percent of the employers’ contribution can be reimbursed by the Republic of Turkey Prime Ministry Undersecretariat of Treasury if certain conditions are fulfilled by the employer. The rates of unemployment insurance premiums are 1% for employees and 2% for employers.

Employees who are subject to social security contributions in their home country may not be subject to social security contributions in Turkey if they prove their social security status by submitting legal documents obtained from the relevant foreign social security institution.

A taxpayer who derives commercial or self-employment income must file and pay advance income tax quarterly. The advance tax amount equals 15% of net income. The advance payments must be made by the 17^th day of the second month following the end of the quarterly tax period. Advance tax paid is deducted from the income tax payable in the final tax return.

Non-residents are generally not required to file income tax returns if they only have earnings subject to withholding tax. Turkish citizens who reside in Turkey with the intention of staying, or non-resident individuals who derive income not subject to withholding tax, must file annual income tax returns for other sources of earnings, including commercial income. If non-residents with such earnings leave Turkey, they must file an 'occasional' tax return 15 days before their departure.

Non-residents who don't need to file an annual income tax return must file a special tax return for certain gains listed in the Income Tax Code. The special tax return must be filed within 15 days of deriving the gains. For gains related to self-employment earnings, the special tax return must be filed no more than 15 days after the self-employment activities end.

Tax resident individuals may claim a credit for taxes paid abroad on income derived outside Turkey and subject to tax in Turkey. This credit can be applied against the tax payable in Turkey. A foreign tax credit is not available to non-residents.

The tax amount allowed as a foreign tax credit for a resident is limited to the amount of tax to be paid in Turkey for the same amount of income. Accordingly, if the tax rate applied in the other country is greater than the tax rate applicable in Turkey the difference cannot be considered in calculating the foreign tax credit. The portion of the income tax corresponding to the earnings derived in foreign countries is calculated based on the ratio of such income to worldwide income.

To claim the foreign tax credit, both of the following conditions must be met:

• the tax paid in the foreign country must be a personal tax levied on the basis of income
• the payment of the tax in a foreign country must be substantiated with documents obtained from competent authorities. They must be attested to by the local Turkish Embassy or Consulate, or if these institutions do not exist, by similar representatives of Turkey in that country

Turkey has entered into double tax treaties with 85 countries.