What are the tax types according to profits and income ?
Turkish direct taxation system consists of two main taxes; personal income tax and corporate income tax. An individual is subject to the personal income tax on his income and earnings, in contrast to a company which is subject to corporate income tax on its income and earnings. The rules of taxation for individual income and earnings are provided in the Personal Income Tax (PIT) Law dated 1960. Likewise, the rules concerning the taxation of corporations are contained in the Corporate Income Tax (CIT) Law dated 1949 (a new CIT Law introduced in 2006). Despite the fact that each is governed by a different legislation, many rules and provisions of the PIT Law is also applied to corporates, especially, in terms of income elements and determination of net income.
1. PERSONAL INCOME TAX
(Law No. 193, Official Gazette No. 10700 dated 06.01.1961)
1.1.Taxable Income Personal income tax
(PIT) is levied on the income of individuals. The term “individuals” means natural person. In the application of income tax, partnerships are not deemed to be separate entities and each partner is taxed individually on his/her share of profit. An individual’s income may consist of one or more income elements listed below: Business profits, Agricultural profits, Salaries and wages, Incomes from independent personal services, Incomes from immovable property and rights (rental income), Incomes from capital investment, Other incomes and earnings without considering the source of income.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
1.2.Tax Liability
In general, residency criterion is applied in determining tax liability for individuals. This criterion requires that an individual whose domicile is in Turkey is liable to pay tax for his worldwide income (unlimited liability). Any person who resides in Turkey more than six months in one calendar year is assumed as a resident of Turkey. However; foreigners who stay in Turkey for six months or more by the reason of a specific job or business or particular purposes which are specified in the PIT Law are not treated as resident. Therefore, unlimited tax liability is not applicable for them. In addition to residency criterion, within a limited scope, nationality criterion also applies regardless of their residency status, Turkish citizens who live abroad and work for government or a governmental institution or a company whose headquarter is in Turkey, are considered as unlimited liable taxpayers. Accordingly, they are subject to PIT on their worldwide income. Non-residents are only liable to pay tax on their income derived from the incomes in Turkey (limited liability). For tax purposes, it is especially important to determine in what circumstances income is deemed to be derived in Turkey. The provisions of Article 7 of the PIT Law regulate this issue. In the following circumstances, the income is assumed to be derived in Turkey. Business Profit: A person must have a permanent establishment or permanent representative in Turkey and income must result from business carried out in this permanent establishment or through such representatives.
Agricultural Income
Agricultural activities yielding income must take place in Turkey. Wages and Salaries: Services must be rendered or accounted for in Turkey, Fees, allocations, dividends and as such paid to the chairmen, directors, auditors and liquidators of the establishment situated in Turkey must be accounted for in Turkey. Income from Independent Personal Services: Independent personal services must be performed or accounted for in Turkey. Income from Immovable Property: Immovable must be in Turkey, Rights considered as immovable must be used or accounted for in Turkey. Income from Capital Investment (interest, dividends, etc.): Investment of the capital must be made in Turkey. Other Income and Earnings: The activities or transactions generating for other income, specified in the PIT Law, must be performed or accounted for in Turkey. The term “accounted for” used above to clarify tax liability of the non-residents means that a payment is to be made in Turkey, or if the payment is made abroad, it is to be recorded in the books in Turkey.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
1.3.Determination of Net Income
1.3.1.Business Profit Business
Profit is defined as profit arising from commercial or industrial activities. Although this definition is very comprehensive and includes all types of commercial and industrial activities, the PIT Law excludes some activities from the contents of business profits. Generally, activities performed by tradesmen and artisans who do not have permanent establishments are not assumed as commercial and industrial activities, and so they are exempt from income tax. Furthermore, in order to tax income resulting from commercial and industrial activities there has to be continuity in performing these activities. In other words, incidental activities in that nature are not treated as commercial or industrial activities and therefore, the PIT Law regulates these activities as the other income and earnings. The PIT Law does not list each commercial and industrial activity and only refers to the Turkish Commercial Law for the scope of these terms. However, several activities are listed namely for clarification in Article 37. These are as follows: Operating mines, stone and lime quarries, extraction of sand and pebbles, operations of brick and tile kilns, Stock brokerage, Operating private schools, hospitals and similar places, Regular operations of sale, purchase and construction of real estate, Purchase and sale of securities on someone’s behalf and on a continued basis, Fully or partly sale of land which has been obtained by purchase or barter and subdivided within 5 years of its date of purchase and sold during this period or in subsequent years, Earnings from dental prosthesis. Basically, the taxable income of a business enterprise is the difference between its net assets at the beginning and at the end of a calendar year. Two methods are used to compute business profits: Lump-sum basis and actual basis. In the former method, the PIT Law specifies estimated business profits for taxpayers who are qualified for such treatment according to the relevant provisions of the Law. The main assumption is that those taxpayers specified by the Law have difficulty to keep accounting books and to determine the income on the actual basis. Therefore, their income taxes are assessed on their estimated profits determined by the Law. In the latter method business profits is determined on the actual basis: Taxpayers are required to keep accounting books to record their actual revenues and expenses.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
In general, business related expenses paid or accrued related to business are deducted from revenues. Expenses to be deducted: In order to determine net amount of business profits on the actual basis, the following expenses may be deducted from revenues: General expenses made for earning and maintaining business profit, Food and boarding expenses provided for employees at the place of business or in its annexes, Expenses for medical treatment and medicine, Insurance and pension premiums, Clothing expenses paid for employees, Losses, damages, and indemnities paid based upon written agreements, juridical decrees, or by the order of law, Expenses for travel and lodging relevant to the business, Expenses for vehicles which are part of the enterprise and used in the business, Taxes in kind such as building, and consumption, stamp and municipal taxes and fees and charges, related to the business, Depreciations set aside according to the provisions of the Tax Procedure Law, Payments to the unions, The contribution payments paid by the employers to the retirement system on behalf of the wage earners. (Total contribution payments paid to the individual retirement system by the employers and the wage earners and considered in the determination of tax base, shall not exceed the rate and limits indicated in paragraph (3) of first subsection of Article 63 of the PIT Law), The production cost of foodstuff, cleaning, clothing and heating supplies donated to the charity and foundations operating to help the poor, within the procedures and principles set out by the Ministry of Finance. Payments which are not accepted as expenses: Those payments listed below are not considered as deductible expenses; Funds withdrawn from the enterprise by the owner or by his spouse or children, or other assets in kind acquired by them, Monthly salaries, wages, bonuses, commissions and compensation paid to the owner of the enterprise, to his spouse, or his minor children, Interest on the capital invested by the owner of the enterprise.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Interest based on the current account of the owner of the enterprise, his spouse, his minor children including interests on all form of receivables, Excluding the transactions mentioned in paragraphs 1 and 4, in case the entrepreneur purchases or sells commodities or services based on the charges or prices he determines with the associated bodies contrary to the principle of conformity with the market rates, the differences between the charges or prices in conformity with the market rates and those applied by the entrepreneur that materialize to the disadvantage of the enterprise are considered to have been withdrawn from the enterprise, All fines and tax penalties as well as indemnities arising from unlawful actions. Indemnities incurred as penalty clauses of contracts shall not be considered indemnities of a punitive nature, 50% of the advertising expenses for all kind of alcohol and alcoholic beverages, tobacco and tobacco products (current rate has been reduced to 0% by a Governmental Decree. The Council of Ministers shall be authorized to raise this rate up to 100% and reduce it to 0%), Depreciation and expenses of motor-driven sea crafts such as yachts, cutters, boats, speed boats and aircrafts such as airplanes and helicopters acquired by renting or registered in the establishment not related to the main field of operations of the enterprise, Expenditures related to indemnities paid against material and moral damages arising from acts through press or radio and television broadcasts.
1.3.2.Agricultural lncome Income
derived from agricultural activities is also subject to the PIT. The term ‘’agricultural activity’’ means any activity performed in land, sea, lakes and rivers in forms of cultivating, planting, breeding, fishing, hunting and etc. For tax purposes, persons who engaged in such activities are referred to farmers. Agricultural earnings of farmers shall be taxed by the way of deduction over the proceeds as provided for in Article 94 of this Law. Earnings of farmers exceeding the dimensions of size of exploitation specified in Article 54 or the earnings of the farmers owning a reaper thresher or a motor vehicle of the same nature or more than two tractors up to the age of 10 years shall be taxed by determining their earnings according to the actual procedure (according to agricultural operations accounting or if they wish, according to the balance sheet principle). The farmers whose earnings are not taxed according to the actual procedure shall not submit tax return for such earning. However, the income derived from operation of reaper thresher, or any sort of motor vehicle, or more than two tractors up to age of ten that belong to the farmer but not included in the records of the agricultural exploitation, shall be taxed according to provisions relating to commercial earnings. Gross revenue arising from agricultural activities consists of the following elements:
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Sales revenues earned from selling every kind of agricultural products produced, purchased or obtained in other ways including the products remained from the previous years, Proceeds received in return of using agricultural machinery and equipment in the agricultural works of other farmers, Sales revenues derived from the selling of items expensed previously, Insurance compensations received for the products damaged before or after they were produced, Revenue arising from the selling of the fixed assets (except immovable used in agricultural activities). On the actual basis, the following expenses are deducted from the gross revenue to reach taxable income for the year: Expenditure incurred for supplying fertilizers, plants fodder, chemical products and like for farming, The price of livestock, agricultural products and other items purchased for resale, Payments made to persons employed on the farm for services, under the name of remunerations, premium and other, Expenses incurred for food, medical treatment and medicines for the workers, their insurance premiums, Expenses incurred for the operation and maintenance of farming installations, machinery, equipment and vehicles (fuel, lubricating oil, electricity, spare parts etc.) and their repair, The depreciation set aside according to the Tax Procedure Law, Payments made for means of production obtained on hire or paying its price, General expenses for the realization and maintenance of the agricultural earnings. a) Interest on money borrowed for and spent on the farm, b) Taxes, charges and levies paid, provided they are concerned with the farm, c) Travelling and residential expenses concerning the farm in proportion with the importance and volume of business (provided they are limited to the duration and necessity of the voyage, d) Rent paid for the farm, e) Other expenditures in general. Damages and compensation paid on the ground of an agreement or verdict or ordered by the law, provided they are concerned with the farm.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
In case of sale of economic assets subject to depreciation (excepting immovable used for agricultural production) the loses calculated according to Article 328 of the Tax Procedure Law, Total amount of depreciation and fifty percent of the expenses on the vehicles included in the business enterprise and used for also personal and family requirements, The products of the farmers carried forward from the past years and which are subject to taxation on the basis of actual assessment procedure shall be valued and shown as expenditures at the average cost of production stated in Article 45 of the Tax Procedure Law. 1.3.3.Salaries and Wages Income derived from dependent personal services is subject to the income tax. This income comprises such income from all kinds of employment in both public and private sector as salaries and wages, as well as associated supplementary income such as allowances, bonuses, anniversary gifts, gratuities, commissions, premiums, compensations and other wage and salary related remunerations including benefits in kind at market value. In determining taxable amount of salaries and wages, the following expenditures are allowed to be deducted from gross amount: Legal deduction made according to various laws or regulations, Payments made for pensions, Payments made for various insurances, Payments made for labor union membership.
1.3.4. Income from Independent
Professional Services The term ‘’independent professional services’’ means any activity performed by a person who is self-employed, and based on professional and scientific expertise rather than capital, income from such activities is subject to the income tax. The term includes services presented by such independent professionals as lawyers, accountants, doctors, consultants and engineers. Revenues received from independent professional services within a year as well as expenses paid are recorded on a simple accounting book. In general, all expenses related to independent professional services can be deducted from revenues. But, the scopes of those expenses are narrower than those specified for the commercial and business activities. The following expenses are allowed to be deducted from the gross revenue in reaching the profit from independent professional services: General expenses made to gain professional earning and survival of business, Alimentation and accommodation expenses of the servants and workers at the workplace or its premises, their medical treatment and drugs expenses, insurance premiums and retirement allowances.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Travel and accommodation expenses related to business trips (provided that it is limited to the period required by the object of the trip), Amortisation amount reserved according to the Tax Procedural Law for installations, fixed assets and the vehicles included in inventories, used in business activities, Expenses related to vehicles rented or included in the inventory, Amounts paid for business press, Cost of goods and services procured for performance of business activities, Registration and retirement allowances paid to the retirement funds for self employment activities and other subscription fees paid to the professional organizations, Proficiency, announcement and advertisement taxes paid for conducting business and obtaining earning as well as the charges and levies in kind related to workplaces, Compensations paid according to the laws, verdict and contracts related to business activities.
1.3.5.Income from Immovable Property
Immovable property means real property which includes land buildings, and permanent leasehold rights. Ships, boats, aircraft and other types of transportation vehicles are also regarded as immovable property in the application of the PIT Law. Income from immovable property comprises: Land, buildings, mineral water, mines, quarries, sand and pebble pits, brick and tile kilns, salinas, together with their integral parts and accessories, Large fishing nets and traps, Integral parts and accessories of buildings, all their installations, inventory and furniture, leased independently from the building, Rights registered as real estate, Exploration, exploitation and concession and license, patent rights (The incomes earned by leasing the patents by the inventors or their legal heirs shall be the earnings of self-employement), the right of utilization or rights such as usage privileges on all kinds of trade mark, brand, trade name, all technical drawings, design, model, plan, cinema and television films, sound and video tapes; information acquired in the fields of industry, commerce and science, secret formula or production method (Also the costs of the material and equipment necessary for the utilization of such rights shall be considered as revenue from immovable), Copyrights (Earnings derived from the letting of such rights by the author or his legal heirs shall be considered as professional earnings), Ships and shares in ships (Without any consideration for their tonnage and whether they have an engine or not) and all motor vehicles of loading and unloading,
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Motorized transport and towing vehicles, all motor vehicles, machinery, installations and their attachments. In computing net income from immovable property, costs related to maintenance, management, renovation and running, and depreciation may be deducted from the gross income on the actual basis; it is also allowed to make a lump-sum deduction instead of actual costs, except for the income from the lease of the rights mentioned above. In such cases, lump-sum deduction is 25% of the rental income.
1.3.6.Income from Capital Investment
(Interest, Dividends, etc.) Income from capital investment means any income such as interest, dividend, rent and as such derived from capital in cash or capital in kind. (Income from business activities, agricultural activities and independent personal services is not considered as income from capital investment.) However, such capital income is not considered as income from capital investment, should they are earned (gained) through business, agricultural or independent professional activities. Regardless of their sources, the following earnings are deemed to be income from capital investment: Dividends from stocks of every kind including jouissance shares, founder’s shares and interests and other remunerations paid to the stockholders in the preparatory stage of the corporation and earning from the securities issued by investment funds and investment trusts, Earnings from participation shares including the shares of limited companies, cooperatives and joint ventures, Dividends paid to the chairmen and the members of the board of directors, For institutions with limited tax liability and that submit annual or special tax return according to the Corporate Income Tax Law, the portion that remains after deduction of the corporation tax from the corporation earnings calculated before the deduction of the reductions and exemptions, Interests of every kind from bonds, treasury bonds, and earning from the securities issued by the Housing Development Administration and the Public Participation Administration, Interest from debt-claims of every kind particularly interest from banks and other financial institutions, Deposit rates, Profits from selling coupons of stocks and bonds before their maturity, Income from selling of dividends not accrued yet to the owners of the shares, Amount of discount received in return for all bills discounted,
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Dividends paid to those who lend money without interest and dividends paid in return of profit-Ioss participation notes and profit- Ioss participation accounts, Income from repurchasing agreement on bonds and securities, The income payments made by the retirement funds in the nature of legal entity aid funds, retirement and insurance companies, Income from Individual Pension System, All types of earnings derived from capital market instruments issued due to Capital Market Law. In determining net income from capital investment, costs related to and allowed to be deducted from gross income include insurance costs, collection costs, and taxes and other levies, excluding income tax, paid for securities. The mentioned elements are included in business profit when they are connected to the business activity of the recipient. In such case, this income is treated as business profit and become subject to the rules described earlier. 1.3.7.Other Income and Earnings Capital gains and non-recurring income are regulated by the PIT Law under the heading “Other Income and Earnings”.
1.3.7.1.Capital Gains Capital
gains specified in the PIT Law are as follows: Earnings obtained from disposition of securities and other capital market instruments, except the shares that are acquired without consideration and those that belong to fully taxable corporations, and which have been kept for more than two years, Earnings arisen from disposal of the rights enumerated in paragraph 5 of the first subsection of Article 70 of the PIT Law (excluding patent rights), Income exceeding certain amount of Turkish Lira from the selling of intellectual rights which are treated as immovable property for tax purposes, Income from the selling of participation rights and shares, Profits from the wholly or partly alienation of an enterprise which ceased its operations, Profits derived from the alienation of land, buildings, the rights to operate mineral deposits, sources and other natural sources, fish farming facilities, the rights registered as immovable property, and ships, boats, aircraft and other transportation vehicles, within five years after their acquisition. Net amount of capital gains is determined by deducting acquisition costs and the costs incurred to the alienation of the capital assets from the proceeds received in return of the alienation.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
1.3.7.2.Non-recurring Income Non-recurring income comprises: Income derived from execution of commercial transactions or from acting as intermediary for such transactions on occasion, Proceeds received not to start or to stop a business activity, agricultural activity or independent professional service, or in return for not bidding for contracts, Proceeds received to transfer leasehold rights or to evacuate leased immovable property, Proceeds received due to independent professional services performed on occasion, Income derived by the taxpayers from their previous operations, Income derived by the limited liable taxpayers from transportation activities performed on occasion.
1.4.Other Deductions Allowed on the Tax Return
In the determination of the income tax base, taxpayers shall be entitled to make the following deductions from the income they will declare in their annual declarations: Insurance premiums such as life (%50 of the premiums paid for life insurance shall be deducted), death, accident, illness, disability, maternity, birth and education, belonging to the taxpayer himself/herself and his/her spouse and children underage, provided that it does not exceed 15% of the declared income and total amount of the minimum wage, Education and health expenditures made related to the taxpayer himself/herself, his/her spouse and children underage, provided that they do not exceed 10% of the declared income and that they are made in Turkey and confirmed with documents to be received from real or legal persons subject to corporate income tax, Annual deduction calculated for the declared income of the disabled who are engaged in self employement or who are taxed according to the simple procedure, according to the principles stated in article 31 (Self-employed persons and employees who are liable to look after a disabled person shall be entitled to benefit from this deduction (including the deduction base), Of the total donations and help made against a receipt, and to the public administrations under government budget or with special budget, to special provincial administrative bodies, to the municipalities and villages, to the foundations that are granted tax exemption by the Cabinet of Ministers, to the associations that work for public interest and to the institutions and establishments that are engaged in scientific research and development activities, up to 5% of the declared income, All kinds of expenses made for the construction of schools, medical facilities, student hostels and child care centers with a capacity of at least 100 beds, orphanages, retirement homes, care and rehabilitation centers, or all kinds of donations.
Usage Note: This document includes unofficial translation and explanatory notes regarding Turkish tax laws. This note shall not
have legal bindingness. It shall not be used as an official document in any official and private corporations and institutions and
national and international courts. It shall not be quoted for official documents. Our administration cannot be held responsible for
any legal results that may occur with the use of this note. The Turkish version of the laws are binding for official and private
operations, quotes and legal processes.
Are given to these institutions for the construction of such facilities, as well as all cash and real donations and help rendered for the continuation of their activities, The production cost of foodstuff, cleaning, clothing and heating supplies donated to the charity and foundations operating to help the poor, within the procedures and principles set out by the Ministry of Finance, 100% of the expenses, donations and help made and given against receipt, in respect of activities which are realized by the above mentioned institutions or supported by the Ministry of Culture and Tourism for the promotion, development and preservation of cultural, artistic and historical values, For the amateur sport branches, the whole amount, and for professional sport branches 50% of the sponsorship expenses, A “R&D deduction” as much as 100% of the expenses that the taxpayers shall make for the research and development work within their enterprises, in search for new technologies and knowledge, All cash and real donations that are made against receipt, upon natural disasters for taken a decision to launch an aid campaign, Except for their economic enterprises, of all cash donations and help that are made against a receipt to the Turkish Red Crescent and the Turkish Green Crescent, The portion not exceeding 10% of the tax revenue that is declared of the amount set aside as venture capital investment funds. 1.5.Tax Return Annual tax return is used for consolidation of earnings derived from various sources in the calendar year and the decleration time for annual tax return is between the dates of 1-25 March. Also, special tax return is used by taxpayers subject to limited tax liability, to declare profits and earnings for which they are not obliged to file annual tax return and the special tax return must be filed in fifteen days from acquirement. In 2015, 21.04% of the General Budget Tax Revenues comes from PIT and the total amount of tax revenues derived from PIT is 85.753.179.000 TL (Turkish Lira).
