Tax Declaration in Turkey

1-Annually

Corporate Income Tax Return (Final)

Official Declaration – Payment Deadlines

D: April 30 of the next year

P: April 30 of the next year

2-Quarterly

Withholding Tax Return (If there are no employees) Provisional Corporate Income Tax Return (always year to date)

D: Last week of April, July, October

P: Second week of May, August, No

3- Monthly

- Reverse Charge on VAT (If any related invoice is available)

- SSI Declaration

- Withholding Tax Return (If there is at least 1 employee)

- Stamp Tax Declaration (If any related agreement is available)

* BA & BS Declarations

- D: 28 of next month P: 28 of next month

- D: 26 of next month P: At the end of the next month

- D: 26 of next month F: At the end of the next month No payment is required.

Under the Income Tax law in Türkiye, any payments that are classified as wages are subject to income tax. Moreover, any other related income received in addition to the wage, including allowances, bonuses, annual gifts, indemnities, and other incentive premiums, is also subject to income tax. This comprehensive approach ensures that various forms of income related to employment are covered by income tax regulations.

Minimum Salary : TL 13.414,50 (Gross) SGK Wage Base : TL 11.402,32

Validity : 01.07.2023 / 31.12.2023

Up to 70,000:25

70,000-150,000:20%

150,000-550,000:27%

550,000-1,900,000:35%

1,900,000 and over:40%

According to the Income Tax Law in Türkiye, any payment characterized as a fee is liable to income tax. Additionally, fees, allowances, bonuses, annual unpaid gifts, severance pay, and other incentive premiums are also subject to income tax, just like any other source of income.

However, there is an exception to this rule. Any source of income up to the minimum wage, which is currently 10,008 TL per month, is exempt from both income tax and stamp tax. This means that income at or below the minimum wage threshold is not subject to taxation in these regards

Indeed, in addition to the gross salary paid to an employee, the employer in Türkiye is obligated to cover the employer's share of social security contributions, which also includes unemployment insurance premiums. This total cost, which encompasses the gross salary and the employer's social security contributions (including unemployment insurance), represents the overall financial commitment that the employer has for each employee.

Insurance Type Employer Share (%) Employee Share (%) Total (%)

Short Term Insurance Premium: 2 N/A 2

Disability, Old Age and Death Insurance Premium: 11:9:20

General Health Insurance Premium: 7,5 5:12,5

Unemploymentinsurance premium: 2:1:3

Minimum and Maximum Limits of

Social Security Premium Base

Total

15 22,5 37,5

Min: TL 13,414.50

Max: TL 100,608.90

Employees in Türkiye are entitled to severance pay if specific conditions are met. These conditions

include:

Having worked for the same employer for over a year.

Termination of the employment contract by the employer for reasons other than a breach of good will and ethical standards.

Termination of the employment contract by the employee due to reasons related to a breach of

good will and ethical standards or when work comes to a halt.

Resignation due to military conscription.

Becoming eligible for retirement.

Marriage (This is exclusively for female employees and is applicable within the first year of marriage).

Severance pay is also provided in case of the employee's passing away.

These conditions determine when employees are eligible for severance pay in Türkiye.

Service Length

Notice

Payment Amount

Less than 6 months 2 weeks14 days salary Between 6 months-1,5 years 4 weeks 28 days salary 4 weeks salary Between 1,5 years-3 years 6 weeks 42 days salary 6 weeks salary More than 3 years 8 weeks 56 days salary 8 weeks salary

When companies in Türkiye engage in transactions involving goods or services with related parties, and the prices or values set for these transactions deviate from the arm's length principle*, it can be seen as a hidden distribution of earnings through transfer pricing. In Türkiye, transfer pricing regulations are detailed in Article 13 of the Corporate Tax Law, which focuses on «disguised profit distribution via transfer pricing.»

In Türkiye, if companies buy or sell goods or services to related parties at prices that don't adhere to the arm's length principle, it's considered as a covert distribution of profits through transfer pricing. Related parties are individuals or companies linked to the company through ownership, management, or influence.

The arm's length principle means that prices or values in transactions with related parties should resemble those established between unrelated parties. Records and documents related to calculations based on this principle must be maintained as evidence.

*The arm's length principle refers to setting prices or values for related party transactions at levels that would be considered fair and equitable between unrelated, independent parties.

Companies determine transaction prices with related parties using methods like comparable pricing, cost-plus, resale pricing, or transactional profit methods. If these methods can't be used reasonably, they can choose an appropriate method.

Any implicit profit distribution through transfer pricing is treated as distributed profits for taxpayers and is not considered as expenses. The acceptance of implicit profit distribution due to domestic transactions among full taxpayers and foreign corporations' offices in Türkiye is subject to the condition of Treasury loss.

If transfer pricing documentation obligations are fully and timely met, there's a 50% discount on tax loss penalties for taxes not accurately accrued due to implicit profit distribution, except in cases specified in Article 359 of the Tax Procedure Law.

Regarding the provision or intermediation of online advertisement services, the following withholding tax rates apply in Türkiye:

15% from payments made to individuals, regardless of their tax liability status.

15% from payments made to limited taxpayer corporations.

0% from corporations that are required to pay corporate tax.

The obligation to make withholding tax payments for these services has been in effect since January 1, 2019. This means that when payments are made for online advertisement services, the specified withholding tax rates must be applied, and the tax must be withheld and remitted to the tax authorities accordingly.

BEPS Action 13, which stands for Base Erosion and Profit Shifting Action 13, is a significant initiative introduced by the Organization for Economic Co-operation and Development (OECD). It was formally launched in July 2013 and finalized in August 2015 as part of the broader BEPS Action Plan.

One of the key aspects of BEPS Action 13 is the introduction of new documentation requirements aimed at preventing tax base erosion and profit shifting by multinational enterprises (MNEs). These requirements are now integrated into the Turkish Transfer Pricing Regulations, affecting entities operating in Türkiye.

Here's an overview of the main components of BEPS Action 13 and its integration into Turkish regulations:

Master File: This documentation component covers five main categories, including the organizational structure of the multinational group, descriptions of business activities, details of intangibles owned, intercompany financial transactions, and the financial and tax positions of the group. It provides a comprehensive overview of the MNE's operations.

Annual Transfer Pricing Report: The requirement for an annual transfer pricing report has been in place since 2007 in Türkiye, following Turkish Transfer Pricing Regulations. No significant changes have been introduced following the issuance of the new Decree, ensuring consistency in reporting practices.

Country-by-Country Report (CbCR): CbCR is a crucial component of BEPS Action 13, covering various financial and operational metrics for each country where the MNE group operates. These metrics include revenues, profit/loss before tax, income/corporate taxes paid, income/corporate taxes accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash and cash equivalents.

The determination of which companies are subject to independent audit in Türkiye is based on specific criteria outlined in Council of Ministers Decision number 2018/11597, which amended Council of Ministers Decision number 2016/8549 and was published in the Official Gazette on May 26, 2018.

According to this decision, companies that meet or exceed at least two of the following three criteria for two consecutive accounting periods are required to undergo independent audit starting from the following accounting period. In other words, a company becomes subject to independent audit if it consistently exceeds a minimum of two out of these three criteria over a period of two years:

Net Assets of TRY 75 Million or more.

Net Sales Revenue of TRY 150 Million or more.

Employing 150 or more employees.

This decision is aimed at ensuring that companies meeting these financial and employment thresholds are subject to independent audit to enhance financial transparency and regulatory compliance.

Goods delivered or services rendered should be invoiced within a maximum of 7 days. Furthermore, those receiving the goods or services are required to maintain copies of the invoices. It's important to note that there is a limit of TRY 4,400 for issuing invoices in the year 2023.

Foreign Currency Invoicing

In the case of invoices for domestic sales, they must be denominated in Turkish lira (TRY). However, these invoices are allowed to display the invoiced amount in a foreign currency, provided that the equivalent value in Turkish lira is clearly indicated on the invoice. Conversely, invoices for export sales have the flexibility to be issued directly in a foreign currency.

The following groups of taxpayers are mandated to transition to the implementation of e-invoicing:

Taxpayers with gross sales revenues exceeding TL 4M or more in 2020 and subsequent financial periods. Specifically, taxpayers who reported gross sales revenues of 4 Million TL or higher in the years 2020 and 2021 are required to adopt e- invoicing starting from July 1, 2023. For taxpayers who achieve gross sales revenues of TL 3M or greater in 2022 or any subsequent financial periods, the shift to e-invoicing must occur within the 7th month following the relevant financial period.

It's important to note that e-invoices can be generated either through the government portal or by utilizing authorized private integrators. Additionally, please be aware that e- invoices cannot be issued from foreign countries to companies operating within Türkiye.

The E-Invoice in Türkiye is required to contain the following

Document Number and Issuance Date of the E-Invoice.

Name and Surname of the Recipient, along with their Trade Name, Registered Tax Office (if applicable), and Tax ID.

Details of the Goods and Services, including their type, quantity, price, applicable tax type, and the amount of tax payable.

Information about the waybill and the date of goods delivery.

A Barcode or QR code on the E-Invoice, provided by the Turkish Revenue Service (GİB) for verification and monitoring purposes.

Name and Surname of the Issuer, as well as their Trade Name (if applicable), Business Address, Registered Tax Office, and Tax ID.

These details are crucial for ensuring accurate and transparent financial transactions in compliance with e- invoicing

The enactment of FDI Law No. 4875 in Türkiye has granted international investors the same rights and obligations as local investors.

International investors are allowed to perform money transfers abroad in any currency.

International investors are permitted to transfer abroad, through profit,banks, dividends, their net sales proceeds, amounts resulting from liquidation, and compensation related to their activities and transactions in Türkiye.

International investors have the capability to engage in the buying and selling of foreign currencies through banks, as well as other authorized financial institutions and entities authorized to sell foreign currency abroad.

The returns derived from investments linked to Ministry of Economy- issued investment incentive certificates are eligible for reduced corporate tax rates starting from the accounting period when the investment is partially or fully operational until the investment contribution target is met.

These Investment Incentive Certificates typically come in two distinct categories: Expansion Investments and Complete Investments.

For Expansion Investments, if the profit can be accurately ascertained by maintaining separate accounts within the context of overall business operations, the reduced tax rate applies solely to that profit. If it's not possible to isolate the profit separately, the reduced tax rate is determined by dividing the expansion investment amount made by the company at the end of the period (including ongoing investment sums) by the total fixed asset value recorded in the company's balance sheet. During this calculation, the fixed asset values are considered at their revalued amounts. The reduced tax rate is applicable starting from the provisional tax period when the investment becomes partially or fully operational.

In the case of Complete Investments, it's mandatory to track the gains obtained in distinct accounts within the framework of business integrity, and the reduced tax rate is exclusively applied to these gains.

A deduction from the calculated investment contribution amount allows for the application of reduced corporate tax to gains earned from an investor's other activities during the investment period. However, this deduction is subject to certain conditions:

The deduction cannot surpass the actual investment expenditure. It must not exceed eighty percent (80%) of the total investment contribution amount.

Specifically, for investments covered by the incentive certificate as per Decision No. 2012/3305, reduced corporate tax can be applied to gains from other activities starting

The investment has commenced.

The usable investment contribution amount does not exceed the proportion set by the President (formerly the Council of Ministers) for the total investment contribution amount.

The usable investment contribution amount does not surpass the investment expenditure incurred as of the application period.

The application period coincides with the investment period.

Between January 1, 2017, and December 31, 2022, investments in the manufacturing sector (US 97 Code: 15 37) under specific incentive certificates will enjoy significant benefits. Investment contribution rates will increase by 15 percentage points in all regions, guaranteeing a full 100% reduction in corporate tax or income tax. This 100% reduction also extends to gains from other activities during the investment period.

The investment contribution rate measures government support for investments through reduced corporate tax, as a proportion of the total investment. The reduced corporate tax rate signifies the percentage by which the standard corporate tax rate is lowered.

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