Corporate Income Tax rate 25%.
Dividend Withholding Tax rate 10%.
Subsidiaries, whether JSC or LLC, that have their legal or business centers located in Türkiye are considered residents and are therefore subject to Corporate Income Tax on their worldwide income generated in Türkiye. Branches, on the other hand, are only taxed on income derived within Türkiye.
The corporate tax rate applied to business profits is 23% for the year 2022 and 25% for the year 2023. Corporate income tax is assessed based on the annual fiscal profits of the company, be it a JSC, LLC, or Branch. The standard fiscal year runs from January 1st to December 31st.
In cases where the calendar year does not align with the nature of the business, taxpayers may select an alternative period for their fiscal year, provided they obtain permission from the Ministry of Finance. Annual corporate income tax returns must be submitted by April following the conclusion of the fiscal year.
• 75% of the profits resulting from the sale of participation stocks held in a corporation's assets for a minimum of two full years are eligible for exemption from Corporation Tax.
• 25% of the profits generated from the sale of immovable properties held in a
corporation's assets for at least two full years are exempt from Corporation Tax.
• 100% of the profits earned by corporations through their participation in the capital of another corporation are not subject to Corporation Tax.
• 50% of the profits derived from specific services provided to foreign companies, such as architecture, engineering, design, software development, medical reporting, accounting, record-keeping, call center services, product testing, certification, data storage, data processing, and data analysis, are eligible for exemption from Corporation Tax.
• Manufacturing companies operating within Free Zone Areas enjoy a complete exemption from Corporation Tax on their profits.
• Profits generated in technology development zones are exempt from Corporation Tax until the end of 2023.
TREATMENT OF LOSSESCopy
Tax losses can be carried forward for a period of five years, but it's essential that the losses for each year are individually accounted for in the corporate income tax returns. It's important to note that tax losses cannot be carried back to previous years. In cases where a company experiences losses that lead to the impairment of its share capital or results in insolvency, which is referred to as "technical bankruptcy," shareholders are obligated to take the required measures to restore the equity in compliance with Article 376 of the New Turkish Commercial Code, effective since July 1, 2012.
CASH CAPITAL INCREASE & INTEREST DEDUCTIONCopy
In accordance with the amendment to the Tax Procedure Law and certain other laws introduced by Law No. 7338, the 50% notional interest rate for capital contributions will be increased to 75% if the contribution is made from abroad.
The amendment mentioned came into effect on October 26, 2021, and is applicable to cash contributions made after the publication date of the amendment.
Furthermore, with the enactment of Law No. 7417, published in the Official Gazette on July 5, 2022, and numbered 31887, a limitation was introduced regarding the benefit derived from notional interest deduction related to cash capital increases. This limitation restricts the deduction to a period of 5 years, starting from the taxation period of 2022.
Cash capital contribution from abroad =5.000.000
Average interest rate announced by CBRT=13.47%
Interest Deduction Rate=75%
Date of capital increase (March 2022)=10/12
Interest Deduction Amount=421.000
RESTRICTION ON DEDUCTION OF FINANCIAL EXPENSESCopy
Presidential Decree No. 3490, which introduced financial expense restrictions, was officially announced in the Official Gazette on February 4, 2021, under the reference number 31385.
This decree aligns with previous efforts to encourage companies to utilize their internal resources for financing rather than relying heavily on borrowing. These efforts were initially introduced through Law No. 6322, which was published in the Official Gazette on June 15, 2012, and resulted in amendments to Article 41 of the Income Tax Law (Law No. 193) and Article 11 of the Corporate Income Tax Law (Law No. 5520).
The Decree, numbered 3490, enforces the application of these financial expense restrictions. According to this resolution, a restriction of 10% on financing expenses was established for taxation periods beginning on January 1, 2021, and onward.
According to the first clause of Article 11 in the Corporate Income
Tax Law (Law No. 5520), applicable to companies whose liabilities exceed their shareholders' equity (excluding banks, financial institutions, financial leasing companies, consumer financing companies, and factoring companies), certain payments such as interest, commission, delay charges, dividend payments, exchange differences, late payment interest, and similar types of payments related to the amount of liabilities exceeding shareholders' equity cannot be deducted from the Corporate Tax Base. However, it's important to note that financing expenses that are capitalized and added to the cost of the investment are not subject to this restriction.
1 - Equity = 200.000
2 - Liabilities = 300.000
3 - (2-1) Difference =100.000
4 - Interest Expense =50.000
5 - (3/2) Difference/Liabilities =0,33
6 - (4*5) Interest Expense Restricted =16.500
7 (6*0,1) Non-Deductable Expense =1.650
Income items other than business income earned by non-resident corporate entities are subject to withholding tax at the following rates:
Professional service earnings, including consulting, supervision, technical assistance, and design fees: 20%
Earnings from the sale or transfer of intangible assets like copyrights, patents, and trademarks: 20%
Dividends distributed: 10%
Branches of foreign companies in Türkiye are regarded as having limited tax liability, and their tax obligations are based on the income they generate within Türkiye. Business income earned by a Turkish branch of a foreign entity has been subject to corporate income tax at a rate of 20% since January 2006, as stipulated in the new Corporate Income Tax Law. This 20% tax rate will continue to apply in 2023.
Furthermore, any branch profits, after deducting the 20% corporate income tax, are also subject to a 10% withholding tax when those profits are transferred. This withholding tax is applied when profits are repatriated abroad.
For a detailed understanding of the tax burden on a branch, you can refer to table below, which provides a sample computation of the tax obligations for such entities.
Branch Profits Before Tax 100
Corporate Income Tax (25%) 25
Profit after CIT (Withholding Tax Base) 75
Withholding Tax (10%*75) 7,5
Total Tax Burden 32,5
Advance Corporate TaxCopy
ACIT Advanced Corporate Income TaxCopy
Efforts to aggregate innovation and integrate schemas are imperative. It's important to assertively harmonize cross-platform e-business strategies rather than focusing solely on enterprise growth strategies.
In the realm of taxation, it's worth noting that all resident and non-resident companies, earning commercial or professional income, and obligated to submit annual corporate income tax returns, are also mandated to file an Advance Corporate Income Tax (ACIT) return at a rate of 25% based on actual quarterly profits. However, it's important to clarify that ACIT is not required for multi-year construction projects subject to taxation based on completed project basis.
Any ACIT paid during the year can be offset against the final taxes calculated on the annual corporate income tax return. If there is an excess payment and no other tax liabilities, it is refundable upon making a claim within one year.
Dividents Paid to Non-Resident CompaniesCopy
DIVIDENDS Withholding Tax on Dividends 10%Copy
When dividends are distributed, the company is required to withhold 10% of the dividend amount. It's important to note that dividends paid to a Turkish resident entity (such as a Turkish holding company) or a Turkish branch of a foreign company are not subject to this withholding tax. Additionally, a share capital increase funded with retained earnings by the company is not considered taxable as a dividend.
Withholding Tax on Branch ProfitsCopy
For branch profits of non-resident companies, there is a withholding tax applicable when these profits are remitted to the company's headquarters. This withholding tax is set at a rate of 10%. It's calculated on the amount remaining after deducting corporate income tax from taxable branch profits.
It's essential to consider that bilateral income tax treaties may provide for special tax rates, so it's advisable to confirm the applicable rates with the specific treaties that have been signed.
WITHHOLDING TAX RATESCopy
%20Professional Fees / Management FeeRent Fee / Royalties / Sale proceeds of copyrights, patents, trademarks etc.
%10 Interest%10 Dividends and interests %5 Construction in progress
Capital Gains TaxCopy
SALE OF IMMOVABLE PROPERTY AND SHARESCopy
When a company is the seller of an immovable property, the tax rate for capital gains is 20% for the year 2023.
For gains arising from the disposal of shares in a joint stock company, they are exempt from taxation if these shares are held for more than 2 years.
However, in the case of limited liability companies, the income derived from the sale of shares is subject to income tax under the category of "capital gains," irrespective of the period for which the shares have been held.
VAT & SPECIAL CONSUMPTION TAXCopy
The standard Value Added Tax (VAT) rate in Türkiye is 20%, and it is typically applied to all supplies of goods or services unless a specific measure prescribes a reduced rate or exemption.
Special Consumption Tax (SCT) is classified as an excise tax and is levied on the import, manufacturing, and initial acquisition of various goods.
Types of Supply Rate (%)
Most Supplies (Including Services) 20
Basic Foodstuff 1
Agricultural Products Sold as Raw Materials, Newspapers 1
Delivery of the textile and leather products 10
Luxury goods & entertainment services rendered by discos, bars etc. 20
Medical products and devices 10 Automobiles 20
• When a Turkish resident company receives certain services from non-residents, such as professional services like engineering or legal consultancy, under specific conditions defined by the VAT legislation, the Turkish company is required to pay VAT under the "reverse charge mechanism." This means that the responsibility for paying VAT shifts from the non-resident service provider to the Turkish company that purchases or imports the service. The Turkish company must then file a monthly Reverse Charge VAT return (VAT Return No. 2) for the month in which the transactions occur.
• The VAT paid by the Turkish resident company under the reverse charge mechanism is treated as Input VAT, which can be offset against the output VAT declared on the Regular VAT return (VAT Return No. 1). However, if there is not enough output VAT to offset, the VAT paid on a reverse charge basis can become a cash flow burden for the Turkish company that has acquired the services in question. In such cases, the Turkish company may need to manage its cash flow to account for the additional VAT payment.
REAL ESTATE TAX & STAMP TAXCopy
In Türkiye, agreements are typically subject to a stamp tax at a rate of 0.948 percent. However, this tax is capped at TRY 10,732,371.80 for the year 2023. It's important to note that there are certain exemptions from stamp tax depending on specific conditions or types of agreements.
Additionally, there is a separate tax called real estate tax, which
varies depending on the type of property:
For residential properties, the real estate tax rate is 0.2 percent of the property's value.
For commercial properties, the rate is 0.4 percent of the property's value.
For land, the rate is 0.6 percent of the value, which is calculated using the value per square meter set by the authorities.
These tax percentages are generally applicable in larger cities, and in smaller cities, the percentages may be lower.