Corporate tax legislation in Turkey has noticeably clear, objective and harmonized provisions which are in line with international standards. Corporations in Turkey are liable for corporate income tax (CIT) at a rate of 20% on net profits generated.
Entities subject to tax
Pursuant to Article 1 of the Corporate Tax Law (CTL) No. 5520, the income of the following entities is subject to corporate tax:
- Capital companies: Joint Stock Companies, Limited Companies, foreign corporations of the same nature, Investment funds: Cooperatives founded under Cooperatives Law or their special law and the foreign cooperatives of the same nature)
- Cooperatives: Commercial, industrial and agricultural undertakings belonging to the State, to provincial administrations, municipalities and other public administrations and establishments which have continuous activity and are not included in paragraphs a and b
- Public enterprises: Commercial, industrial and agricultural undertakings belonging to the State, to provincial administrations, municipalities and other public administrations and establishments which have continuous activity and are not included in paragraphs a and b
- Enterprises owned by foundations societies and associations:Commercial, industrial and agricultural undertakings belonging to societies and foundations and foreign investments of the same nature having continuous activity, and are not included in paragraphs a and b
- Joint ventures: Among the corporations above, those who have founded among themselves or personal partnerships or natural persons with a view to undertake and realize a given work together and share the profit and requested from the tax office to establish tax liability in this manner are joint ventures.
According to the Corporate Tax Law, taxpayers are assessed in two separate group:
- Full taxpayer entities (resident entities): Those legal entities whose legal head office or main business office is in Turkey have unlimited or full tax liability. The full taxpayer entities are taxed on their world-wide income.
- Limited taxpayer entities (non-resident entities): Those legal entities whose legal head office or main business office is located abroad have limited tax liability. The limited taxpayer entities are subject to tax only on income derived in Turkey.
The term “legal head office”, as used in the context of the Corporate Tax Law, means the office specified in the Articles of Association of the entities. However, “the main business office” is defined as the place in which the business activities are concentrated and supervised.
Taxable income of Limited taxpayers
Only the income derived in Turkey is subject to the corporate tax for limited liability entities. Limited liability entities can earn gain by operating in Turkey and also it is possible that they can earn gain without coming to Turkey.
Taxable income of limited liability taxpayers is comprised of the following:
- Income from commercial activities
- Income from agricultural enterprises in Turkey (if they have an establishment or a permanent representative in Turkey)
- Professional fees obtained in Turkey
- Income arising from rental of real estate, rights and movable property in Turkey
- Income obtained in Turkey from various types of securities
- Other income and revenue obtained in Turkey
If a non-resident company conducts business through a branch or a joint venture, it will have limited tax liability; i.e. fully subject to corporate tax on profits earned in Turkey on an annual basis.
If there is no presence in Turkey, withholding tax will generally be charged on income earned; for example, for services provided in Turkey. However, if there is an avoidance of double taxation treaty, reduced rates of withholding tax may apply.
The corporate income tax rate is 20% on the corporate earnings. Corporate income tax is calculated on the net corporate profit earned in the course of one fiscal year.
The tax on corporate profits imposed by central government. The tax authority is the Revenue Administration, which is established at national level and is responsible for collection of tax and enforcement of the tax law in Turkey. Provincial or municipal authorities isn’t authorized to impose corporate tax on entities.
In Turkey, taxation of income is based on declaration. Tax is paid by declaration and there are three types of tax return:
- Annual tax return: The annual tax return is applicable for the reporting of net corporate profits realized in the course of one accounting period. The corporate income tax returns are submitted to tax office with which the taxpayer is associated during the fourth month following the month in which the accounting period closes.
- Withholding tax return: Those who are obliged to make tax withholding are required to file a brief tax return to tax office associated with the place of payment or accrual of the payments which they have made during the month, or of the profits and revenues on which they have caused accrual to take place, as well as of the taxes which they have withheld from these, by the evening of the 20th day of the following month and they should pay by the evening of the 26th day of this month.
- Special tax return: Non-resident foreign corporations which have limited tax liability use special tax return for reporting certain profits and earnings. Special tax return is given in 15 days from the obtainment of earnings and profits