The turkish tax system

Posted on 20.11.2018

The direct tax system in Turkey

The direct tax system in Turkey is made up of two main taxes; income tax and corporation tax. An individual is subject to income tax on his income and profits, while a company is subject to corporation tax on its revenues and profits. The tax rules for individual income and profits are set out in the Income Tax Law of 1960 (ITL). Similarly, the rules for corporation tax are contained in the Corporation Tax Law of 1949 (CTL). Although everyone is governed by different legislation, many of the rules and provisions of the Income Tax Law also apply to companies, particularly to do with revenue items and the calculation of net revenues.

Income from property: Property means real estate that is made up of buildings erected on land and permanent mining rights. Ships, boats, aircraft and other types of transport vehicles are also considered as property under the Income Tax Law. Property revenues include:

- Rental income from the lease of land and buildings (furnished or unfurnished) and the right to exploit mineral deposits, springs and natural springs, including mines, sand and gravel quarries, and incidentals linked to property; 
- Rental income from the location of all types of fishing;
- Rental income from property that may be rented independently;
- Rental income that gives the right to use copyright over a literary, artistic or scientific work, a patent, trademark, drawing or model, a plan, a formula or a secret process, or over information concerning it, experience or the use or the right to use industrial, commercial or scientific equipment;
- Rental income from the hire of ships, boats, aircraft and other types of transport vehicles. In calculating the net income from property, the costs linked to maintenance, administration, renovation, execution and depreciation may be deducted on an actual basis from gross income; it is also permitted to make a lump-sum deduction instead of an actual-costs deduction, except for income from the lease of the rights mentioned above. In such cases, the lump-sum deduction is 25 per cent of the rental income.

Investment income (non-property):

Investment income is any income such as interest, dividends, rents and other derived from capital in cash or capital in kind. (Earnings from commercial activities, agricultural activities and freelance personal services are not considered to be investment income). However, income such as capital is not considered as earnings derived from property if they are earned through companies, agricultural activities or freelance professional activities. Irrespective of their source, the following earnings are considered to be investment income: 
- share dividends of all kinds, including dividend shares, founders’ shares and interest and other forms of remuneration paid to shareholders in the company’s preparatory phase, and securities issued by investment funds and trusts;
- profits from equity shares, including shares in limited companies, cooperatives and joint enterprises; 
- dividends paid to the chairman and members of the executive board;
- earnings after corporation tax which are subject to annual declaration or special declaration; 
- interest on all types of bonds, Treasury bonds and securities issued by the mass housing authority (MHA) and the public participation authority (PPA);
- interest on debts of all kinds, including interest from banks and other financial institutions; 
- profits from the sale of share and bond coupons before their maturity date;
- income from the sale of dividends not yet paid to the share owners; 
- dividends paid to people who lend money interest-free and dividends paid in return for participation profit and loss notes and participation profit and loss accounts;
- tax receivables, calculated at one third of the dividends received by the shareholders;
- income from a purchase agreement on bonds and securities issued by the MHA and PPA. In calculating net investment income, related expenses that may be deducted from gross income include insurance costs, collection costs and taxes and other deductions, excluding income tax, paid on the securities. The items mentioned are included in the company’s results when they are linked to the receiver’s activities. In this case, this income is treated as company profit and is subject to the rules described above relating to company profit.


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