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Concise Tax Guide for Turkey 2009

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Concise Tax Guide for Turkey 2009 Concise tax guide for Turkey 2009 6 PREFACE The information in this booklet is current at 6 January 2009 and intended to provide a general and concise guidance on Turkish taxation system only. Because of rapidly changing and complex legal regulations, readers are strongly advised to obtain updated and detailed information before engaging in any transaction or making any decision. Ernst & Young Turkey assumes no responsibility in respect of the contents of this guide. If the readers, in any way, choose to rely on the contents of this guide, they do so entirely at their own risk. All information contained in this publication is copyrighted in the name of Ernst & Young Turkey and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express consent of the publisher. Contents I. Individual taxation .................................................................................4 A. Income tax .............................................................................................5 1. Tax rates.................................................................................................5 2. Who Is liable..........................................................................................6 3. Income subject to tax .........................................................................7 4. Taxation of employer-provided stock options............................10 5. Deductions ............................................................................................11 6. Tax credits on salary/wage ..............................................................11 7. Relief for losses ..................................................................................12 B. Filing and payment procedures ........................................................12 C. Tax relief on foreign income ..............................................................13 D. Social security......................................................................................13 II. Corporate taxation..............................................................................15 A. Corporate income tax.........................................................................16 1. Tax rates................................................................................................16 2. Participation exemption...................................................................18 3. Turkish international holding companies.....................................19 4. Capital gains........................................................................................19 5. Administration...................................................................................20 6. Dividends ............................................................................................20 7. Foreign tax relief...............................................................................20 B. Determination of trading income ....................................................22 1. General..................................................................................................22 2. Provisions............................................................................................23 3. Tax depreciation................................................................................23 4. Investment allowance......................................................................24 5. Research and development (R&D) expenditures......................24 6. Relief for losses.................................................................................24 C. Miscellaneous matters ......................................................................25 1. Foreign-exchange controls..............................................................25 2. Transfer pricing.................................................................................25 3. Debt-to-equity rules (thin capitalization)....................................26 4. Controlled foreign companies (CFCs)..........................................26 5. Anti-avoidance measures ...............................................................26 6. Mergers and acquisitions ................................................................27 7. Other incentives on R&D activities ...............................................27 III. Other taxes.........................................................................................28 III.i. Taxes on expenditure......................................................................30 A. Value added tax (VAT).......................................................................30 1. General .................................................................................................30 2. VAT rates............................................................................................30 3. Exemptions ..........................................................................................31 4. VAT assessment base......................................................................32 5. Non-deductible VAT .........................................................................32 6. Reverse charge VAT.........................................................................32 B. Banking and insurance transaction tax (BITT).............................33 C. Special consumption tax (SCT) .......................................................33 D. Stamp tax.............................................................................................34 E. Special communication tax ..............................................................35 F. Tax on customs....................................................................................35 III.ii. Taxes on wealth ..............................................................................36 A. Inheritance and gift tax ....................................................................36 B. Motor vehicle tax................................................................................36 C. Real Estate tax....................................................................................36 III.iii. Other taxes, charges and duties.................................................37 A. Municipal taxes ...................................................................................37 B. Duties....................................................................................................37 Appendices...............................................................................................38 Appendix 1: Taxability of income items ..............................................38 Appendix 2: Sample individual income tax calculation ...................39 Appendix 3: WHT rates applicable under double tax treaties.......40 I. Individual taxation 4 A. Income tax 1. Tax rates In principle, individual income and gains are subject to income tax at progressive tax rates which vary between 15% and 35% and calculated on a cumulative basis. The brackets for the year 2009 and relevant income tax rates are provided below. Taxable Income Exceeding TL Not Tax On Lower Tax Rate On Exceeding TL Amount TL Excess 0 8,700 - 15% 8,700 22,000 1,305 20% 22,000 50,000 3,965 27% 50,000 - 11,525 35% On the other hand, certain individual (both for resident and non-resident) income and gains are subject to withholding tax (WHT). WHT is withheld and filed by the local company which provides income to resident or non- resident individuals. In the presence of Double Tax Treaty (DTT) it might be possible to reduce the tax rates or omit the taxation in Turkey for the income and earnings derived by non-resident individuals. Please see Appendix 3 for the list of countries with which Turkey has concluded DTT. 5 Major individual income and gains which are subject to WHT and relevant local WHT rates are summarized in the table below. Individuat income Non- subject to WHT Resident resident Employment income (wage, bonus, fringe benefits etc.) 15-35 % 15-35 % Income from professional services 20 % 20 % Progress billings on long-term constructions 3 % 3 % Income from sales of rights, other intangible assets N/A 20 % Rental income (both tangibles and intangibles) 20 % 20 % Dividend income (e) 15 % (e) 15 % Time deposit interest and repo gains 15 % 15 % Interest income from Turkish Government bonds and Treasury Bills (a) 10 % 0 % Capital gains from sale of Turkish Government bonds and Treasury Bills (b) 10 % (b) 0 % Capital gains from sale of shares traded at Istanbul Stock Exchange (ISE) and held less than 1 year. (c) 0 % (c) 0 % Capital gains from sale of shares of investment trusts traded at Istanbul Stock Exchange (ISE) 10 % 0 % Income from investment funds (d) 10 % 0 % (a)0% for those issued before 01.01.2006 (b)The capital gains derived from the sale of Government bonds and Treasury bills that are issued before 01.01.2006 are not subject to WHT. They are subject to declaration. (c)Capital gains derived from sale of shares which have been acquired before 01.01.2006 or those which are traded at ISE and held more than 1 year are not subject to tax. (d)WHT is not applicable for investment funds formed by shares constituting at least 51% of the portfolio and which is registered at Istanbul Stock Exchange and held more than 1 year. (e)Conversion of profits into capital
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