Understanding Turkish taxation for businesses
Understanding Turkish taxation is crucial for businesses operating in Türkiye, as the country’s tax landscape can be complex and subject to frequent updates. As of 2024, several key changes and regulations have been implemented that businesses need to be aware of to ensure compliance and optimize their tax strategies.
Corporate income tax
The corporate income tax rate in Türkiye stands at 25% as of 2024, following the enactment of Law No. 7456 published on July 15, 2023. This rate applies to the corporate income obtained by companies in 2023 and subsequent years. For financial institutions, the rate is slightly higher at 30% for the same period. However, reductions are available for specific types of income:
- A five-point reduction to 20% for income derived exclusively from exportation activities.
- A one-point reduction to 24% for income from manufacturing activities of corporations holding industrial registration certificates.
Türkiye has also implemented the OECD Pillar Two global minimum tax and a domestic minimum corporate income tax. The global minimum tax applies to multinational enterprise groups with a revenue exceeding the Turkish lira equivalent of EUR 750 million in at least two of the preceding four years. These groups must calculate their Effective Tax Rate (ETR) and pay a top-up tax if their ETR per jurisdiction falls below the 15% minimum rate.
The domestic minimum corporate income tax ensures that the calculated corporate income tax cannot be lower than 10% of the corporate income before deductions and exemptions. Detailed reports for these taxes must be filed annually within specific deadlines provided by the regulations.
Value-added tax (VAT)
Value-Added Tax is another significant consideration for businesses in Türkiye. The standard VAT rate is 18%, with reduced rates of 1% and 8% applicable to certain goods and services. VAT is imposed on services provided within the country, exports, and imports, making precise compliance essential.
Other taxes and contributions
Aside from corporate income tax and VAT, businesses face other taxation aspects such as the banking and insurance transactions tax, digital service tax, special consumption tax, and social security contributions, which are pivotal in tax planning. The social security rate for companies stands at 20.5%, with an employee rate of 14%.
Branch taxation
For companies with branches in Türkiye, it’s important to understand that branches are treated as non-resident entities and taxed only on profits made in Türkiye at a 25% rate. Profits transferred to headquarters may attract a dividend withholding tax at a 10% rate, potentially reduced by Double Taxation Treaties.
Economic free zones
Businesses considering registering in one of Türkiye’s eighteen economic free zones may benefit from exemptions from corporate tax, alongside other incentives such as lowered VAT rates and other tax benefits, offering an attractive prospect for investment.
Conclusion
In conclusion, navigating the multifaceted Turkish tax system requires a comprehensive understanding of various rates, exemptions, and compliance obligations. Staying informed of legislative changes like the global minimum tax is essential. Businesses should consult with tax professionals and closely monitor tax law changes to ensure compliance and maximize tax efficiency.
For businesses aiming to expand or initiate operations in Türkiye, assessing the total tax landscape in relation to their business strategy is crucial. The mix of competitive tax incentives, particularly for export and manufacturing industries, along with economic free zone benefits, positions Türkiye as an appealing investment locale.
