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Expat taxes in Turkey

Expat taxes in Turkey – that will be the topic of today’s article.

Nothing written here should be considered formal tax, financial, legal or any other kind of advice advice, and is for entertainment purposes only.

The facts might have also changed since this article was written, such as the implementation of new taxes in a post-Covid world, but we have done our best to ensure its accuracy. 

For any questions, or if you are looking to invest as an expat, you can contact me using  this form, or use the WhatsApp function below.

I specialise in expat investment and financial planning. The best time to review your situation is often when you are moving to a new country.

Introduction

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Expat taxes in Turkey 3

Turkey is a large country with over 84 million inhabitants located at the crossroads of Europe and Asia. The vast majority of local residents (99%) are Muslims. The Turkish state has a great history, culture and traditions, mainly a comfortable climate and beautiful nature. Immigration and life in Turkey for foreigners today is more attractive even in comparison with some EU member states.

Over the past decade, the Turkish economy has been developing intensively and, accordingly, the standard of living has increased. Nevertheless, political tensions within the country and military actions close to the borders somewhat constrain the welfare of the state.

Pros and cons of living in Turkey

Many of us most often visit Turkey for tourism purposes or for short-term employment in the retail trade or at one of the many resorts. Many come to study at Turkish universities and do business. But not every foreigner plans to obtain a residence permit in Turkey and stay here forever. Let’s highlight the positive and negative aspects of living in Turkish territory before we’ll understand the tax system of one of the oldest countries.

The pros of living in Turkey

  • Turkey has a favorable climate for life, many luxury resorts, ancient architecture, interesting culture and delicious cuisine.
  • The large and diverse economy allows for a lucrative business in Turkey and provides jobs for both local residents and labor migrants.
  • Most Turks are friendly and positive people.
  • Relatively low cost of living, especially in comparison with developed European countries.
  • Good service in both luxury hotels and regular retail outlets.

The cons of living in Turkey

  • Turkey has a difficult military-political situation and a high risk of terrorist attacks.
  • The huge influx of migrants in recent years has put significant pressure on the labor market and social security system in Turkey. For example, according to statistics published by the Immigration Office of the Turkish Ministry of Internal Affairs, the number of Syrian migrants alone today exceeds 3.2 million.
  • High taxes.
  • There is bureaucracy and corruption in the legal system, and freedom of speech is undermined.
  • Instability of the national currency (lira).

If you are interested in Turkey in terms of moving there and starting a business or working in enterprises and firms in the country, the first thing you need to find out is what are taxes in Turkey, and what are they for especially in 2021. Understanding this issue will allow you to make the right decision and properly dispose of funds.

That is why we are here to present all the taxes for both residents and non-residents starting from income taxes and finishing with taxes on the property you invested in.

Turkey’s fiscal legislation is one of the most cost-effective for promoting a business, doing business and buying real estate. The taxation system is the same for everyone and is not divided into citizens of the country and foreigners. 

General rules and any changes apply to everyone who has an income in the country. More than 80% of funds to the state treasury are brought by three main types of contributions:

  • indirect, including VAT;
  • income tax in Turkey, company deductions from profits, dividends;
  • welfare, including payments for inheritance and property.

Basic information about the tax system of the Republic of Turkey

It is not difficult for foreign citizens working in Turkey to understand Turkish taxation, since the system does not particularly divide enterprises and workers into friends and foes. The general rules are the same for everyone, and if there are any changes in the taxation system, they are relevant to everyone who receives income on the territory of the state.

In 2021, all taxes of the country are divided into three groups:

  • for income;
  • indirect;
  • for welfare.

The maximum tax rate in the country is currently 44%, for the majority it fluctuates around 33%.

Taxpayers of Income Tax in Turkey

Individuals – residents of Turkey are taxed on income received from anywhere in the world and bear the full tax burden in Turkey (full taxpayers). Non-residents are taxed only on earnings and income earned in Turkey and bear a partial tax burden in Turkey (partial taxpayers).

Residents include individuals who have a permanent residence permit in Turkey and those who stay in Turkey for more than 6 months in one calendar year (temporary absence cannot interrupt the duration of stay in Turkey).

Civil law defines resident status as “intention to settle”. And although the legislation does not highlight any objective criteria for resident status, the facts of acquiring housing in Turkey and the termination of business activity abroad, as well as the presence of vital interests (social and economic) in Turkey can be considered an intention to obtain resident status in Turkey.

The six months rule described above has a specific exception for expatriates such as businessmen, scientists, experts, government officials or journalists who come to Turkey to do temporary or pre-established work, as well as those who come to Turkey for the purpose of education, health care, recreation and tourism. Such persons will be considered non-residents even if they stay in Turkey for more than six months of the calendar year.

Generally, if an individual is not a resident of Turkey under the above rules, they will also be considered a non-resident for Turkish taxation rules, which can have an impact on the taxation of income earned out of Turkey, but in the source country.

Taxable Income Tax Base in Turkey

Turkey has a unified tax system whereby revenues from different sources are aggregated and the total aggregate income is taxed. Under the unified system, income tax in Turkey is levied in advance and credited against tax liabilities in the income for the year. 

The tax is levied on a calendar year basis. Income received in Turkey by residents and non-residents is divided into 7 types:

  • Commercial income
  • Agricultural income
  • Salaries and remuneration
  • Self-employment income
  • Proceeds from real estate properties (including royalties)
  • Capital gains (interest and dividends)
  • Other earnings and income (capital gains)

The source of income matters (within or outside Turkey).

Foreigners bearing the full tax burden in Turkey are subject to taxation on income earned both in Turkey and abroad.

The sources of income in Turkey for taxpayers bearing a partial tax burden (non-residents) are as follows:

  • Commercial income
  • Income earned from any kind of commercial or industrial activity conducted within the framework of a business or representative office in Turkey is considered income earned in Turkey.
  • Agricultural income
  • Income from agricultural work carried out in Turkey is considered to be received in Turkey.
  • Salaries and remuneration. Wages and benefits are considered cash and goods issued as compensation to employees of the organization at the location of the organization, as well as bonuses that can be provided to them in cash.

In Turkey, there is no distinction between salaries and remuneration, that is, salaries are also referred to as “remuneration”. In the event that awards are paid in cash, guarantees, benefits, overtime payments, advances, subscriptions, bonuses, bonuses, accrued interest or percentage of profits not attributable to equity participation, the essence does not change. Specific payments paid by the employer on behalf of workers, such as rent and utility bills, are aggregated and taxed as wages and benefits.

How income and profits are taxed in Turkey?

The interest rate is 20% for amounts calculated based on the financial results of companies. They are withheld from corporate profits received in the country or in any other country in the world. The exception is income from investment activities related to investments in special sectors of the economy or priority regions.

Companies that are registered in Turkey are taxed – in this case, deductions are made from profits received in the country and outside the state. Companies that do not have a representative office in the state receive an advantage in the form of limited requirements for fiscal penalties – deductions from the proceeds accumulated within the jurisdiction are subject to payment.

Income tax in Turkey is calculated on the basis of a calendar year, however, organizations, if they wish, can set a different 12-month fiscal period, which is most convenient, taking into account the specifics of the business.

Income tax in Turkey is determined by:

  • rental income;
  • income from business activities;
  • investment;
  • other sources of profit.

It is possible to reduce the fiscal burden when paying capital gains tax (75% of this value is not taken into account in the base for the calculation) if:

  • own property for at least two years;
  • the consideration from the sale of assets is received at the end of the second year after the conclusion of the transaction;
  • the amount forming the gain is kept for five years from the date of sale on a special account under the share of the shareholder.

The minimum amount on the basis of which the income tax in Turkey is calculated is 15%. Further, there is a progressive system (as income increases) up to 35%. Just like legal entities, individuals are divided into:

  • payers-citizens of the country – in addition to those born and permanently residing here, these are people who have been in Turkey for more than 6 months out of 12 calendar months;
  • non-residents – stay in the country for less than six months in a calendar 12 months or more, provided that they are on a business trip, for treatment, in a sanatorium.

The basis for calculating the payment for the first category is the worldwide income; in the second, the amounts accumulated in the country. The tax base includes:

  • funds from employment;
  • income from agricultural activities;
  • receipts from securities (dividends and interest);
  • lease payments;
  • one-time income.

Income tax in Turkey must be paid in installments: in July and March.

Indirect taxes, VAT: specifics of calculation, payment

Indirect taxes in Turkey include:

  • VAT;
  • banking fee;
  • consumption tax;
  • stamp duty.

Value added tax is one of the main payments in this group. Its base value is 18%. It is considered indirect because it is not paid directly to the budget, but is included in the price of manufactured goods and services provided. Thus, the total cost increases by this amount. The following activities / goods are subject to VAT:

  • agricultural products;
  • the result of industrial activity;
  • commercial services;
  • trade activities related to the supply of goods to the country;
  • services and products from the main types of professional activities.

According to the law, the export of goods and services is not subject to VAT, as well as any activity related to road transport, excavation of petroleum products on the ground and servicing sea vessels. As for banks and insurers, VAT does not apply to such structures, since there are separate deductions for them.

In addition to the standard one, a reduced rate can be used – 8%. This relaxation applies to the performance of the pharmaceutical industry, basic food products. Periodicals and finance leased equipment include VAT at an even lower rate of 1%.

The current consumption tax within the country is set at 5%. The basis for its calculation is the interest received on loans. It applies to products of four groups:

  • Alcohol and tobacco products.
  • Transport vehicles.
  • Petroleum products, natural gas.
  • Luxury goods.

Consumption tax is a type of deductions, the amount of which varies depending on the characteristics of the taxable object. For example, if we are talking about vehicles, then the percentage of fiscal deductions will be calculated taking into account the volume of the car’s engine.

State duty or, in other words, stamp duty is levied on the purchase of shares, bonds and other securities. The amount of deductions is calculated as a percentage, depending on the type of investment documents.

Welfare tax

Taxes are levied on objects that characterize the well-being of citizens. These are:

  • real estate;
  • vehicles
  • inherited assets.

If the last two points affect the citizens of the country, then the first point relating to real estate will become relevant for non-residents – high-quality real estate at an acceptable cost is readily redeemed by foreigners. 

Several types of fiscal payments are imposed on it: for the ownership of property, its purchase or sale. 

When purchasing or selling real estate, both the sales agent and the buyer pay a certain percentage, which depends on the purchase amount. The percentage set for the seller and the buyer is 1.65%. Further, the state receives 3.3%.

The owners will have to pay the state annually from 0.1 to 0.6% if they bought a house, villa or apartment. If the real estate belongs to the cultural heritage of the country, an additional 10% is added, and payment will have to be made twice a year.

Real estate taxes in Turkey are lower compared to other countries. Thus, apartment owners will have to pay the state no more than $ 75 per year. For those with a preference for large houses and mansions, this amount can rise to $ 100 per year.

Taxes when buying real estate in Turkey in 2021

Turkey among foreign citizens is famous for its excellent conditions for recreation by the sea, developed resort infrastructure, high standards of service, favorable climate, amazing nature, rich historical heritage. 

In addition to an ideal holiday, today the Republic of Turkey can offer investors from abroad good opportunities for profitable investments in resort real estate. The market offers a variety of liquid property options: houses, luxury villas, inexpensive flats and luxury apartments, commercial real estate, land plots and much more.

The popularity of investments in square meters in Turkey is due not only to the country’s favorable location, affordable prices, a simple and safe purchase procedure, high quality construction and excellent prospects for the future, but also to the relatively low cost of maintenance, as well as fairly low taxes.

Property Acquisition Tax in Turkey

Expenses for buying an apartment in Turkey for taxes in comparison with other states are relatively small. They are charged both from the buyer and from the seller, and for foreigners the amount does not differ from similar payments of Turkish citizens. Which, of course, can be considered a great advantage for foreign investors.

In 2019, the Turkish government made significant changes to the laws on the purchase of real estate, in order not only to control the market situation and the amount of tax deductions to the treasury, but also to protect investors from abroad from fraud. 

According to the amendments, the tax on registration of real estate in Turkey is calculated after the official appraisal of the property and the establishment of its cadastral price.

 By order of the General Directorate of Land Register and Cadastre of the Republic of Turkey, before buying a property and concluding a transaction, the buyer needs to provide a document on the appraisal of real estate.

Property tax in Turkey for foreigners is 4% of its cadastral value indicated in the appraisal document. As a rule, the cadastral price is lower than the market price.

Annual property tax

Annual property tax in Turkey is paid by every property owner. The amount of the payment directly depends on the location and type of object (commercial, residential area, land plot), and is calculated based on the value specified in the TAPU (certificate of ownership).

Thus, every year real estate owners in Turkey pay a state fee in the amount of 0.2% – 0.6% of its value. Typically, for residential real estate, the annual tax is in the order of 0.2%. By the way, home owners only need to pay the tax on housing; such payment is not required on the land plot under the house.

How to pay taxes?

You can pay the tax on an apartment in Turkey in two installments – in May and November (until the end of the month), or once a year at the city administration or belediye. To do this, you need to have a copy of the TAPU with you. The final cost is calculated on the spot and is about 70 – 100 euros. The whole process does not take long.

The second payment option is via the Internet. You need to go to the official website of the city municipality at the location of the property, where your TIN or individual tax number is entered in a special column. The screen will display all debts for the annual tax and, for example, for garbage collection. The owner selects all debts that he intends to pay and deposits using a bank card in Turkey. You can save the generated and paid invoice electronically or print it out.

In case of late payment of the annual property tax, a penalty is provided – a certain percentage for late payment.

It is worth noting that taxes in Turkey, in comparison with other European countries, are really quite low and allow you to maintain property without a big loss of the family budget. The Turkish government, for its part, is interested in foreign capital injections into the economy, so every year it introduces useful amendments to the legislation to simplify taxation for foreigners.

Here it is, the Turkish tax system, which can be enough good for investors and suitable for purchasing either property or founding a business. We hope this article was enough informative for you and we helped you.

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  • How can people, realistically, start a $1million a year business? What are the practical steps which increase your odds of success? What are some of the key mistakes business owners tend to make along the way?
  • What type of business would I never want to own?

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