Introduction

As a growing hub for international business, Turkey offers numerous investment opportunities for foreign investors. However, understanding the tax obligations and legal requirements is essential to ensure compliance with Turkish tax law. This guide outlines the primary taxes applicable to foreign investors and provides insights into key legal considerations in 2024.

Applicable Rate:

• The corporate income tax (CIT) rate in Turkey is set at 23% for 2024. This applies to the worldwide income of companies that are registered in Turkey, including foreign-owned entities.

• All Turkish-resident companies, including subsidiaries of foreign firms, are subject to CIT. Non-resident companies with a permanent establishment or income-generating activities in Turkey are also subject to tax on income sourced in Turkey.

• Investors can deduct certain expenses, including interest, R&D expenditures, and depreciation. Additionally, companies in Free Zones may benefit from CIT exemptions, particularly for export-oriented activities.

General VAT Rate:

• The standard VAT rate in Turkey is 18%, but reduced rates of 8% and 1% apply to certain goods and services such as basic foodstuffs, books, and medical products.

• Foreign investors must register for VAT in Turkey if they provide taxable goods or services. Companies engaged in import-export activities or selling to Turkish consumers will need to adhere to VAT regulations, which include periodic filings and payments.

• Foreign businesses involved in export activities may qualify for VAT refunds, which can be claimed on goods and services purchased within Turkey that are later exported.

Rates and Applicability:

• Withholding tax (WHT) applies to certain types of income, including dividends, royalties, and interest payments made to non-residents. The standard WHT rate is 15%, but it can vary depending on double tax treaties (DTT) between Turkey and other countries.
• Turkey has signed numerous DTTs that can reduce or eliminate WHT on certain income streams.

• Foreign investors should consult Turkey’s double tax treaties to determine their WHT obligations. These treaties prevent the same income from being taxed twice—once in Turkey and again in the investor’s home country.

Capital Gains on Property:

• Foreign investors who sell property in Turkey are subject to capital gains tax. If the property is held for less than five years, the capital gains tax will apply. However, gains from property sales after five years of ownership are exempt.

• Gains from the sale of shares or stakes in Turkish companies are also subject to capital gains tax. The tax rate can vary depending on the duration of ownership and the nature of the investment.

Applicable Documents:

• Stamp duty is levied on a wide range of legal documents, including contracts, leases, and company formation documents. The rate varies, but it typically ranges between 0.189% and 0.948% of the contract’s value.

• Foreign investors should be aware of stamp duty obligations when entering into business agreements or registering their company. Stamp duty is usually paid when the relevant document is signed or submitted for registration.

Investment Incentive Program:

• Turkey offers an Investment Incentive Program aimed at foreign and local investors in priority sectors. Incentives include tax reductions, VAT exemptions, customs duty exemptions, and land allocation.

• Companies operating in Technology Development Zones or Free Zones benefit from significant tax advantages, including CIT exemptions and customs duty relief. These zones are ideal for foreign investors looking to invest in high-tech industries.

Updated CIT Rate:

• In 2024, the CIT rate was increased to 23% as part of Turkey’s fiscal strategy to balance public finances while encouraging foreign investment through targeted incentives.

• Turkey introduced a digital services tax aimed at foreign companies that provide digital services in Turkey. The tax rate is 7.5%, and it applies to digital advertising, data services, and e-commerce platforms with significant revenue generated within the country.

Foreign investors in Turkey must navigate a complex but rewarding tax landscape. Understanding corporate income tax, VAT, withholding tax, and capital gains tax is crucial for ensuring compliance. Moreover, taking advantage of Turkey’s investment incentives can help reduce tax liabilities and increase the profitability of investments.