Turkey Tax & Business Guide - Deloitte

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Basic facts
Population 74.3m Inflation 9.6% (2006)*
Main languages Turkish (official), minority languages GDP per head US$5,340*
Currency Turkish lira (NTRL) GDP growth 5.2% (2006)*
Economic communities OECD, WTO
GDP sources 11.3% agriculture, 28.6% industry, 60.1% services
*Economist Intelligence Unit estimates.
Political environment

Turkey is a secular democratic state.

Recep Tayyip Erdogan is the prime minister. The next elections are due in May 2007 (presidential) and November 2007 (parliamentary).
Foreign trade and investment
Exports US$84.1bn (2006)* Imports US$126.1bn (2006)*
*Economist Intelligence Unit estimates.

Main exports: Clothing and textiles, metals, and motor vehicles and parts.

Leading export markets: The EU, particularly Germany, the UK and Italy.

Foreign investors enjoy local treatment (no limitation on equity, no restrictions on sectors, and free transfer of profits and repatriation of capital). Foreign firms are often held to strict standards, particularly in labour relations and pollution.
Business and financing
Business forms Joint stock companies, limited liability companies, branches, partnerships

Non-resident legal entities may invest in Turkey through joint stock companies (Anonim Sirket, or AS), limited liability companies (Limited Sirket, or LS), branches and partnerships. The AS is popular with larger foreign investors, particularly in manufacturing, but an LS faces fewer restrictions in convening general meetings and changing its articles of incorporation, and incurs lower administrative expenses. The LS form is considered more convenient for sales and distribution enterprises that are best administered by a few partners. Banks and insurance firms must take the AS form.

Istanbul is the financial centre.
Labour environment
Unemployment rate 10.2% (2006)* Minimum wage (gross) NTRL 562.50 (monthly)
*Economist Intelligence Unit estimate.

Only 12% of the workforce (but 44% of insured workers) is unionised. The monthly minimum gross wage is NTRL 562.50 (between January 1st and June 30th 2007) and NTRL 585 (between July 1st and December 31st 2007).

Employees make social security contributions at 14% of a minimum gross salary of NTRL 562.50 and a maximum of NTRL 3,656.25 per month (effective between January 1st and June 30th 2007). Employers contribute 19.5% of gross salaries. There is also a compulsory contribution to the Unemployment Benefit Plan of 1% (employeeÌs portion) and 2% (employerÌs portion) of the gross salary (minimum and maximum bases are the same as those for social security contributions).

Enterprises (both Turkish and foreign) seeking to employ foreign staff must obtain work permits from the Ministry of Labour and Social Security.
Taxation
Corporate tax
Main rate 20%

Resident companies are taxed on their worldwide income, with a credit for foreign tax; non-resident companies are taxed only on their Turkish-source income. A company is resident for tax purposes if its legal seat or place of effective management is in Turkey. The corporate tax rate is 20%. Dividends received from resident companies are exempt, and dividends from foreign participations may also be exempt provided certain conditions are satisfied.
Individual tax
Progressive rates varying between 15Ò35%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on their Turkish-source income. A person whose legal domicile is in Turkey (as defined in the Civil Code) or who stays in Turkey for more than six months in a calendar year is considered resident for tax purposes. Income tax is charged at progressive rates up to 35% for employment income. Resident individuals are taxable on only 50% of dividend income, and the withholding tax on the dividends is fully creditable against the income tax to be calculated on the dividend amount.
Capital gains
Company gains generally taxed as income

Capital gains of companies are generally taxed as income. Where a resident company sells immovable property or a participation in another company, the gain is exempt from corporate tax under certain circumstances. Individuals are generally taxable on gains on shares and securities, intangible property and immovable property. A corporate tax exemption is granted for 75% of capital gains derived from the sale of participations and immovable property that has been held for at least two years if the gains from such transactions are recorded in a special fund under ÏShareholdersÌ EquityÓ and the consideration for the sale is collected by the end of the second calendar year following the year of sale. Capital gains derived from the sale of foreign participations that have been held for at least two years by an international holding company resident in Turkey are exempt from corporate tax in certain cases.

Capital gains derived by individuals from the sale of immovable property are exempt if the property is held for more than four years.
Indirect tax
VAT standard rate 18% Lower rates 8%, 1%

Value-added tax (VAT) applies to most transactions at the standard rate of 18%. A lower 8% rate applies to basic foodstuffs, some entertainment services, books, private education and medical services. A 1% rate applies to the supply of agricultural products, used cars, newspapers and some immovable property. Zero-rating applies to the export of goods, the supply of services abroad, international transport, the supply of ships and aircraft, and the supply of goods and construction services for the construction and maintenance of harbours and airports. Exemptions include transactions that are subject to the banking and insurance transactions tax, the leasing of immovable property by individuals who do not derive commercial income and pipeline transport of crude oil and petroleum.

Registration for VAT is compulsory in all cases where delivery of goods and services takes place in Turkey, except where a reverse charge applies. Non-resident businesses without a permanent establishment in Turkey cannot register for VAT purposes only.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies make quarterly advance payments of tax based on actual income, and must file a final corporate tax return by the 25th day (and make the final tax payment by the 30th day) of the fourth month following the year-end. Employment income of individuals is taxed by withholding. A simple method of taxation is available for individuals who personally work in their businesses. Where business income is received, quarterly advance payments of tax are made and a tax return must be submitted by the 15th day (and tax paid by the 30th day) of March following the year-end (or 15th and 28th of February if the simple method of taxation is used).
Additional tax information
Withholding taxes Dividends 15%, Interest on loans 0% (for foreign banks and financial institutions), 10% for other interest (ie interest on loans obtained from non-financial entities), Royalties 20% (for both the right to use and the sale of an intangible right) (effective from January 1st 2007). Rates may be reduced by an applicable tax treaty.
Tax treaties Turkey has concluded more than 60 tax treaties.
Dividends Dividends are exempt for resident companies and taxable for individuals.
Revenue protection There are transfer-pricing, CFC, thin-capitalisation and general anti-avoidance rules.
Groups There is no provision for group taxation.
Incentives Software development and R&D incentives; VAT exemption on machinery and equipment purchases made within the scope of an investment incentive certificate.
Other taxes Banking and insurance transactions tax, Import duties, Inheritance and gift tax, Lottery games tax, Motor vehicle tax, Real estate tax, Special consumption tax, Stamp duties, Special communications tax (on mobile-phone operation, satellite and telecommunications services).