Tax Law in Turkey: A Tax Guide for Foreign Investors

Turkey offers a dynamic economic environment that continues to attract foreign investors. Understanding the country’s tax system is essential for investors to navigate the legal landscape effectively and benefit from the available incentives. This guide provides an overview of the key tax obligations, incentives, and processes that foreign investors should be aware of when doing business in Turkey.

Turkey’s tax system is governed primarily by the Tax Procedure Law (Vergi Usul Kanunu), Income Tax Law (Gelir Vergisi Kanunu), and the Corporate Tax Law (Kurumlar Vergisi Kanunu). The system includes various types of taxes, including income tax, corporate tax, value-added tax (VAT), and withholding tax.

1. Income Tax (Gelir Vergisi): Applied to individuals’ income earned within a calendar year. Income tax rates are progressive, ranging from 15% to 40%, depending on income brackets.
2. Corporate Tax (Kurumlar Vergisi): Applied to the profits of companies operating in Turkey, including foreign-invested enterprises. The current corporate tax rate is 25%.
3. Value-Added Tax (Katma Değer Vergisi - KDV): Applied to the supply of goods and services. The standard VAT rate is 18%, though reduced rates of 1% and 8% apply to specific goods and services.
4. Withholding Tax (Stopaj Vergisi): Applied to various payments made to non-residents, such as dividends, interest, and royalties. The withholding tax rate varies depending on the type of payment and applicable tax treaties.
5. Special Consumption Tax (Özel Tüketim Vergisi - ÖTV): Applied to specific goods such as fuel, vehicles, tobacco, and alcohol. The rates vary depending on the product category.

Turkey offers several incentives to encourage foreign investment, particularly in certain sectors and regions:

1. Free Zones: Companies operating in Turkey’s free zones are exempt from corporate income tax, VAT, and customs duties. These zones are designed to promote export-oriented investments.
2. R&D Incentives: Businesses engaged in research and development activities benefit from tax deductions on R&D expenditures, with certain conditions allowing up to 100% tax deductions.
3. Investment Incentive Programs: Turkey offers incentive schemes that provide tax exemptions, reduced VAT, and customs duty exemptions for investors in priority sectors such as technology, renewable energy, and manufacturing.
4. Tax Treaties: Turkey has signed numerous double taxation treaties with other countries, reducing or eliminating withholding taxes on dividends, interest, and royalties for foreign investors.

Turkey’s Double Taxation Treaties are designed to prevent foreign investors from being taxed both in Turkey and in their home country on the same income. These treaties regulate the taxation of dividends, interest, royalties, and capital gains, often providing for reduced tax rates or exemptions.

An individual is considered a tax resident in Turkey if they reside in the country for more than six months in a calendar year. Tax residents are subject to taxes on their worldwide income, while non-residents are only taxed on income derived from Turkey.

Foreign investors must adhere to Turkey’s tax filing deadlines to avoid penalties:

• Corporate tax returns must be filed by the end of the fourth month following the close of the financial year.
• Income tax returns for individuals must be filed by the end of March each year.
• VAT returns must be filed monthly.

Turkey offers a favorable tax environment for foreign investors, with a range of incentives and exemptions aimed at attracting investment in key sectors. However, understanding the country’s tax system and complying with tax regulations is crucial for avoiding penalties and optimizing tax benefits. It is advisable for foreign investors to seek professional tax advice to navigate the complexities of Turkey’s tax laws and ensure compliance.