Overview of the Turkish Taxation System

The Turkish tax system is a modern and comprehensive framework, categorized into three main pillars. Understanding these categories is essential for maintaining compliance and optimizing financial performance for both individuals and corporations.

1. Income Taxes

Income tax is the primary direct tax in Turkey, levied on both individuals and legal entities.

• 1. Personal Income Tax (PIT):
  The income of real persons is subject to PIT. Income is defined as the net amount of all earnings and revenues derived within a single calendar year. The Turkish Income Tax Law identifies seven elements of income:
  • Business profits
  • Agricultural profits
  • Salaries and wages
  • Income from independent personal services
  • Rental income (income from immovable property)
  • Income from movable property (capital investments)
  • Other income and earnings

Tax Rates for 2026:

Individual income tax rates are progressive, ranging from 15% to 40%. Tax brackets are adjusted annually by the Ministry of Treasury and Finance based on revaluation rates. For the most up-to-date brackets, please consult our specialists.

• 2. Corporate Income Tax (CIT):
  Legal entities are subject to CIT on their business profits. Taxpayers defined under the law include:
  • Capital companies (JSCs and LLCs)
  • Cooperatives
  • Public economic enterprises
  • Economic enterprises owned by associations and foundations
  • Joint ventures

Standard Corporate Tax Rate: The corporate income tax rate in Turkey is currently 25%. (Note: Specialized rates may apply to financial institutions or companies exporting/manufacturing).

2. Taxes on Expenditure

These are indirect taxes applied to various commercial transactions:

• Value Added Tax (VAT):Standard rate is 20%, with reduced rates of 1% and 10% for specific goods and services.
• Special Consumption Tax (SCT):Applied to specific product groups (luxury items, fuel, tobacco, alcohol).
• Banking and Insurance Transaction Tax (BITT).
• Stamp Tax:Applied to a wide range of documents, including contracts and financial statements.

3. Taxes on Wealth

Applied to the ownership or transfer of assets:

• Property Tax:Levied annually on buildings and land.
• Inheritance and Gift Tax.
• Motor Vehicle Tax (MVT):Based on the age and engine capacity of vehicles.

2.TAXES ON EXPENDITURE 

Taxes on Expenditure and Wealth in Turkey

1. Taxes on Expenditure

Indirect taxes on expenditures play a significant role in the Turkish tax landscape. These include VAT, SCT, BITT, and Stamp Duty.

• 1.1. Value Added Tax (VAT)
  The standard VAT rate in Turkey is 20%, with reduced rates of 1% and 10% applied to specific goods and services.
  • Mechanism: VAT is managed through the “Input-Output” system. Input VAT paid on purchases is offset against Output VAT collected on sales.
  • Filing & Payment: VAT returns are typically filed and paid by the 28th of the following month. If input VAT exceeds output VAT, the balance is carried forward to future periods.
  • Refunds: Cash refunds are generally restricted to specific transactions, such as exports, international transportation, and deliveries to persons/entities with diplomatic immunity.
  • Reverse Charge VAT: Resident companies must calculate and pay VAT on behalf of non-resident service providers (e.g., digital services, consulting). This ensures tax compliance for services rendered by foreign entities.
• 1.2. Special Consumption Tax (SCT)
  SCT is a one-time tax levied on specific product groups:
  • Petroleum products and lubricants.
  • Motor vehicles (automobiles, motorcycles, planes, yachts).
  • Tobacco and alcoholic beverages.
  • Luxury items.
    Unlike VAT, SCT is charged only at a single stage (usually production or first import).
• 1.3. Banking and Insurance Transaction Tax (BITT)
  Banking and insurance services are exempt from VAT but subject to BITT.
  • Rate: The general rate is 5% on income earned by banks (such as loan interest).
  • FX Transactions: Since recent regulations, a tax (currently 0.2%) is applied to foreign exchange sales, with certain exceptions for interbank and corporate transactions.
• 1.4. Stamp Duty
  Stamp duty applies to a wide range of legal documents, including contracts, financial statements, and payrolls.
  • Rates: It is calculated either as a percentage of the document value (0.189% to 0.948%) or as a fixed fee. Most contracts are subject to the 0.948% rate, with an annually updated ceiling (cap) per document.

2. Taxes on Wealth

Wealth taxes are levied on the ownership or transfer of assets within Turkey.

• 2.1. Real Estate (Property) Tax: Applied to buildings and land at rates ranging from 0.1% to 0.6%. An additional “Contribution to the Conservation of Immovable Cultural Property” (10% of the property tax) is also applicable.
• 2.2. Motor Vehicle Tax (MVT): An annual tax based on the vehicle’s age, engine capacity, and value.
• 2.3. Inheritance and Gift Tax: Applied to the free-of-charge transfer of assets. Rates range from 1% to 30%, depending on the value of the asset and the degree of relationship between the parties.