A Quick Look into the Turkish Tax System
Turkey which is the 18th economy in the world with its 2014 (1) GDP almost reaching 800 billons of US dollars plays a significant role in the global economy. We understand the importance of this role, not only through effects of changes in the Turkish economy on the rest of the world, but also by the fact that more and more foreign investors including huge multinational companies prefer to invest in Turkey. International actors pay attention to some indicators such as law system, political and economic stability, quality of human resources, tax system etc. while they make a decision related investment in Turkey. In this article we will describe one of these indicators: the Turkish Tax System. Before starting, we have to say that because of the impossibility to explain all things about Turkish tax system in a short writing, this article will be more like a summary of theTurkish tax system.
Turkish tax system consists of three main categories: Income taxes, taxes on expenditure and taxes on wealth.
- Income Taxes
In this group there are two types of taxes which are personel income tax and corporate income tax.
- Personal Income Tax (PIT)
The subject of the PIT is income and earnings obtained by an individual in a calendar year. In practice of this tax, an indiviudual means a natural person. The elements of taxable income listed in the article 2 of the Personel Income Tax Law no 193 are as follows:
- Business profits
- Agricultural profits
- Income from independent personal services
- Income from immovable property and rights
- Income from movable property
- Other income and earnings
- Corporate Income Tax (CIT)
The CIT is levied on the income and earnings obtained by corporations and corporate bodies in a calendar year. The elements of taxable income are the same as those of personal income tax. The CIT rate is 20 % and stable. Taxpayers of this tax are corporations and corporate bodies which are expressed in the article 2 of the Corporation Tax Law, No: 5520 such as:
- Capital companies and similar foreign companies
- Public enterprises
- Enterprises owned by foundations socities and associations
- Joint ventures
- Personal Income Tax (PIT)
- Taxes On Expenditure
In this category there are a lot of taxes, but we are going to explain some of them which are as follows:
- Value added tax
- Special consumption tax
- Stamp tax
- Banking and Insurance Transactions Tax
- Value Added Tax (VAT)
VAT, as the most important indirect tax in Turkey is levied on all delivery of goods and supply of services related to commercial, industrial, agricultural or independent professional activities, and taking place in Turkey. In addition, the importation of goods and services is also subject to VAT. Taxpayers of the VAT are the ones who do the transactions of delivery, supply and importation. However, the real burden of VAT is carried by final consumers. The rate of VAT on taxable transactions is determined as % 10 in the article 28 of the VAT Law No:3065. This article let also the Council of Ministres to change the VAT rates within certain limits. After the council of Ministres used this legal authority many times, the final situation is that the standart rate of VAT is 18% and that for several specific transactions the rate is 1% and 8%.
- Special Consumption Tax (SCT)
The subject of this tax is delivery or initial acquisition and importation of certain goods which are specified in four different lists attached to the Special Consumption Tax Law.
- Stamp Tax
Stamp Tax is levied on various legal documents such as contracts, agreements, letters of credit and gurantee, financial statements and payrolls. The rate or the amount of tax is determined according to the Annex 1 of The Stamp Tax Law. Meanwhile the Annex 2 of this law shows the documents which are exempt from stamp tax.
- Banking and Insurance Transactions Tax (BITT)
This tax is applied to only banks, bankers and insurance companies whose transactions and services are subject to BITT. The general BITT rate is 5% and there are some differerent rates for some specific transactions.
- Taxes On Wealth
In this group there are three taxes which are:
- Inheritance and gift tax
- Motor vehicle tax
- Property taxes
- Inheritance and Gift Tax
The subject of this tax is assets acquired as gifts or through inheritance. While Turkish citizens are liable for their worldwide acquired assets, resident foreigners are liable only for assets they acquire from Turkish citizens worlwide and for acquired assets located in Turkey. Finally nonresident foreigners are subject to this tax merely for the acquired assets located in Turkey. The progressive tax rate varies between 1% and 30% in this regard.
- Motor Vehicle Tax
The subject of the tax is vehicles that are classified into three categories. The amount of tax calculated according to age, number of seats, cylinder capacity, maximum gross weight of the vehicle is paid in two equal installments by those who officially owns the concerned vehicles.
- Property Taxes
The subjects to this tax are buildings and lands in Turkey. Their tax value is determined by related municapility where the buildings and lands are located. The tax rates varies from 0,1% to 0,3%. The amount of tax is payed in two equal installments to the local municapilty by the taxpayer who is the owner of the building/land, the owner of usufruct on the immovable property or the person that uses the building/land like its owner.
Some Statistics About Turkish Tax System
The following table (2) which represents the general budget tax revenue according to the kind of taxes for a five years period gives a general idea about the present composition of Turkish Tax System. As can be seen in the figure, the proportions of taxes don’t fluctuate substantially. While the avarage of income taxes is almost 31%, the avarage of taxes on expenditure goes up nearly to 49%. Taxes on wealth represents little part of the tax revenue: the avarage for five years is about 2%. These numbers shows us clearly that the Turkish Tax System founds on the indirect taxes such as Value Added Tax, Special Consumption Tax, Stamp Tax etc.