Individual taxation
Individual income tax rate
- Up to TRY 22,000: 15%
- TRY 22,001–TRY 49,000: 20%
- TRY 49,001–TRY 120,000 (for employment income, TRY 49,001–TRY 180,000): 27%
- TRY 120,001–TRY 600,000 (for employment income, TRY 180,001–TRY 600,000): 35%
- Over TRY 600,000: 40%
Capital gains tax rate: same as income tax rates.
Residence
Individuals who are in Turkey for a continuous period (including temporary absences) of more than six months in any calendar year are deemed to be resident for tax purposes. However, foreign individuals who are on assignment in Turkey for a specific business project or mission, or those in Turkey for holiday, health care, or educational purposes are not regarded as resident, even if they stay for more than six months.
Basis
Residents are taxed on worldwide income; nonresidents are taxed only on Turkish-source income.
Taxable income
Taxable income is comprised of employment income, professional income, business income, income from agricultural activities, income derived from shares, income from immovable property, and other income (capital gains and nonrecurring income).
Rates
Individual income tax rates for income earned in the 2020 calendar year are progressive ranging from 15% to 40%. The income tax brackets are adjusted annually.
Capital gains
Capital gains derived from the sale of shares and capital market instruments are subject to income tax, with certain exceptions. Regardless of the holding period, gains derived from the sale of intangible rights, capital gains from the sale of shares/participations in limited liability companies, and gains derived from the alienation of an enterprise that has ceased operations are subject to income tax. Gains on the sale of immovable property within five years from the date of acquisition also are subject to income tax.
In determining the taxable gain, the acquisition cost is adjusted for inflation by the increase in the producer price index between the date of acquisition and the date of sale in certain cases.
Deductions and allowances
Available deductions depend on the type of income. For business income, the same general deductions as apply to corporations are available. The scope of deductions for income derived from professional services is narrower. For salaried employees, the deductions generally are limited to social insurance premiums.
Foreign tax relief
A tax credit is granted for foreign income tax paid that is personal in nature, up to the amount of Turkish income tax attributable to the foreign income. The foreign income tax paid must be documented through foreign tax office receipts approved by the Turkish consulate in the country in which the foreign income tax was paid. The documents must be submitted to the Turkish tax office.
Compliance for individuals
Tax year
The tax year is the calendar year or fiscal year.
Filing status
Each individual must file an individual income tax return; joint returns are not permitted. However, certain exemptions are available.
Filing and payment
An income tax return must be filed by all individuals that derive business or professional income. For other types of income (e.g., salary, income from securities, income from immovable property, capital gains, etc.), the obligation to file an annual return depends on the type of income, the amount, the applicable exemption limits, and whether the income is subject to withholding tax at source. Individuals whose salary income exceeds the amount in the fourth tax bracket (i.e., TRY 600,000 for 2020, subject to annual increases up to the revaluation rate of the previous year) must report their salary income when filing their annual income tax return even where the income tax has been withheld at source. Additionally, individuals who benefit from an income tax exemption on income derived from independent professional services are not eligible for the exemption where their income derived from such activities exceeds the amount in the fourth tax bracket (i.e., TRY 600,000 for 2020, subject to annual increases up to the revaluation rate of the previous year) and they are required to file an annual income tax return.
Individuals required to file an annual income tax return must submit the return between 1 and 31 March of the following calendar year. Income tax accrued must be paid in two equal installments in March and July.
Penalties
Penalties apply for late filing, failure to file, or tax evasion.
Rulings
A taxpayer may request an advance ruling on the tax treatment of specific transactions.
Controlled foreign companies
The CFC rules are triggered where a Turkish resident company controls, directly or indirectly, at least 50% of the share capital, dividends, or voting power of a foreign entity, and:
- 25% or more of the gross income of the CFC is comprised of passive income, such as dividends, interest, rents, license fees, or gains from the sale of securities that are outside the scope of commercial, agricultural, or professional income;
- The CFC is subject to an effective tax rate lower than 10% in its country of residence; and
- The annual total gross revenue of the CFC exceeds the foreign currency equivalent of TRY 100,000.
Where these requirements are met, the profits of the CFC are included in the profits of the Turkish company in proportion to the Turkish company’s share in the capital of the CFC, regardless of whether such profits are distributed, and taxed at the relevant corporate income tax rate (25% for 2021).
Foreign exchange control
The TRY is fully convertible, at least from the Turkish side, to the extent Turkey is recognized by the International Monetary Fund as having achieved article 8 status. (Under article 8, no limitation may be imposed on the purchase and sale of foreign exchange within the scope of current items in the balance of payments. Profits from these transactions must be freely convertible.)
Companies and individuals may open foreign currency denominated accounts and transfer funds abroad through banks (i.e., savings deposit banks, participation banks (formerly “special finance houses”), and development and investment banks). There are no restrictions on the export of capital, but a special form must be submitted to the Undersecretariat of the Treasury within 30 days following the export of capital of USD 50,000 or its equivalent.
Although the import and export of TRY and foreign currency are possible, the export of cash exceeding TRY 25,000 or the export of cash in foreign currency exceeding the equivalent of EUR 10,000 is subject to procedures established by the Ministry of Economy.
Turkish resident companies may grant loans to their foreign parent companies, affiliates, and group companies abroad in TRY or foreign currency, provided the requirements under the Commercial Code are met.
Measures have been introduced to protect the value of the Turkish currency, including prohibiting residents from executing certain agreements, imposing limits on foreign currency loans, requiring the proceeds from export transactions to be brought directly into Turkey following payment for the goods, etc.
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