Navigating Tax Exemptions in Turkiye: A Foreigner’s Guide
Taxation System in Turkiye
Turkiye’s tax system comprises three main categories: income taxes, taxes on expenditure, and taxes on wealth. The corporate tax rate is notably low compared to OECD countries, with clear provisions aligned with international standards.
Income Taxes in Turkiye
- Personal Income Tax: All revenues and earnings within a calendar year are subject to personal income tax.
- Corporate Income Taxes (CIT): Income elements generated by corporations are subject to CIT.
Taxes on Expenditure
- Value Added Tax (VAT): Applicable on goods and services, with rates generally set at 1% and 20%.
- Special Consumption Tax (SCT): Levied on petroleum products, tobacco, alcohol, and luxury items.
- Banking and Insurance Transaction Tax: Imposed on income earned by banks and insurance companies, with varying rates depending on the transaction.
Taxes on Wealth
Wealth taxes are based on the net worth of individuals, encompassing property taxes, motor vehicle tax, and inheritance and gift tax.
Individual Tax Deductions in Turkiye
- Charitable Contributions: Deductions for donations to specific institutions.
- Education & Health Expenses: Deductible expenses related to education and healthcare for the taxpayer and family.
- Insurance Premiums: Deductible for personal insurance premiums up to 15% of total taxable income.
Corporate Tax Exemptions and Incentives in Turkiye
- Foreign Tax Credit: Provides credits for foreign taxes paid, with provisions for carrying forward or backward unutilized credits.
- Participation Exemption for Dividends: Dividends between Turkish companies and certain dividends received from overseas are exempt from corporate tax.
- Exemption for Income from Foreign Construction and Repair Activities: Income generated from these activities by Turkish corporations is exempt.
- Capital Gains Exemption: Applicable under certain conditions for 75% of capital gains from selling company shares.
Investment Incentives in Turkiye
Turkiye’s investment incentive system includes various programs and models designed to encourage investment in the country.
Conditions for Tax Exemption in Turkey
Foreigners seeking tax exemptions must meet specific conditions, such as not residing in Turkiye or having income sourced from outside the country.
