Income TAX

Overview

Income tax (sometimes known as personal income tax) is a tax levied on the wages and income of real people. The Turkish Income Tax Law defines income as the total of an individual’s receipts and profits over a calendar year.

Because partnerships in Turkey lack legal personality apart from their partners, the partners, rather than the partnership, are individually taxed on their portion of the earnings.

Responsibilities

In the Turkish tax system, income taxpayers are classified into resident and non-resident taxpayers.

Residents’ tax liability is unrestricted, meaning they must pay tax on all of their income, whether earned in Turkey or elsewhere.

The following individuals are deemed resident taxpayers under Turkish income tax law:

Individuals who permanently reside in Turkey

Those who spend more than six months in Turkey in a calendar year, (1) and those who spend more than six months in Turkey in a calendar year,

Turkish nationals worked overseas for the Republic of Turkey’s government or a corporate headquarters in Turkey.

Non-resident taxpayers, on the other hand, are people who do not live in Turkey but work or own property there.

Persons with the following earnings and revenues, among others, will be considered non-resident taxpayers under Turkish Income Tax Law:

(Commercial) revenue generated in Turkey through a permanent establishment or a permanent representation

Wages earned in Turkey as a result of delivering services

Rental income from a Turkish real estate property, for example.

As seen from the instances above, non-resident taxpayers’ responsibility is restricted to income earned in Turkey.

Taxable earnings

Individual income may be subject to income tax under Turkish tax legislation if it is obtained from one or more of the following income types:

Commercial revenue,

Agricultural earnings,

Salaries and wages (2)

Earnings from self-employed professional activities,

Income generated by real estate (e.g., rent),

Interest and dividend payments, as well as income from capital investments

Other earnings and revenues (For example, revenue from patent sales).

Gains on Investments:

Under current Turkish tax rules, capital gains are exempt from income tax under ordinary circumstances.

The capital gains made on the transfer of shares in a publicly traded joint-stock company are not subject to income tax. If a shareholder of an unlisted Turkish joint-stock company transfers their shares after holding them for at least two years, the capital gains arising from the transfer will be tax-free. It’s worth noting that this exemption does not apply to capital gains resulting from the transfer of limited-liability company shares. As a result, regardless of how long a real-person shareholder has owned shares in a limited-liability corporation, the capital gains from such a transfer are liable to income tax.

Deductions

The Turkish Income Tax Law can deduct different expenses from their gross income when determining a person’s taxable income.

As income taxes can deduct numerous expenses from an individual’s total income. The following deductibles are provided as examples to give the reader a general idea:

Individuals who engage in commercial activities can deduct business-related expenses from their gross revenues (rental payments, utility costs, professional chamber membership fees, and so on).

Social security contributions and unemployment insurance premiums (the amounts that the employee is required by law to pay) can be taken from the employee’s gross compensation.

10% of the individual’s, spouse’s, and children’s education and health expenditures, if paid within Turkey, can be deducted from gross income.

Donations to specific non-profit organizations, such as the Turkish Red Crescent or similar groups, are tax-deductible.

The income tax legislation also recognizes the depreciation of fixed assets.

Exemptions

Individuals’ earnings and revenues are not subject to income tax unless they reach specific levels. The ministry of finance adjusts these levels on an annual basis.

Returns to tax returns

Local tax offices file annual income tax returns. 

The income tax return is usually filed between March 1st and March 25th of the following year.

When the income is exclusively commercial and is calculated using the single-entry accounting system, the tax return is filed between February 1st and February 25th of the following year.

Rates of Income Tax

The Turkish Income Tax Law employs a cumulative system for calculating an individual’s earnings and income.

As shown in the tables below, whether an individual’s source of income is from employment or non-employment impacts the amount of income tax that the company owner must pay.

Payment Information:

Companies pay taxes in two installments under current laws. The first installment must be paid by the end of March, and the second installment must be paid by the end of July the following year.

Contingent Loss

Individuals who participate in commercial activity have a five-year window to carry forward their losses.