Statera Consultancy



Number Crunch

Begüm Kitiş and Ayhan Üstün, tax director and partner of KPMG Turkey, detail the steps for launching, operating, and working legally in a business in Turkey.


With its young and dynamic population and rapidly growing economy, Turkey has retained its position as one of the most attractive countries in which to invest, even during the global financial turmoil. Although Turkey has yet to overcome a handful of macro-economic challenges, this trend is expected to continue in the near future.

For entrepreneurs looking for a potential investment in Turkey, there are various tax and accounting issues that should be considered that may significantly impact the return on investment. Those issues may be numerous and need to be discussed on a case-by-case basis. Nevertheless, this article aims to provide a high-level overview of the key tax and accounting issues that we believe to be valuable for a potential investor planning to enter the market or expand to Turkey.


1. Forms of Doing Business in Turkey


Available Legal Forms

A foreign company may do business in Turkey in the form of a branch, subsidiary (a joint-stock company or a limited liability company), or a partner of a joint venture. For certain project-based activities, it may be possible to register only as a taxable presence (permanent establishment) in Turkey.

There are also certain partnership types, which are available under Turkish Commercial Law, but those are not generally utilized by foreign investors or large corporate investors in Turkey.

Turkey has a relatively liberal regime toward foreign investors and the establishment procedures for a foreign capital company are, to a large extent, similar to procedures required for local companies.


Tax Status

A joint-stock company (A.Ş.) and a Limited liability Company (Ltd. Şti.) are both capital companies regarded as resident taxpayers in Turkey and subject to taxation on their worldwide income.

On the other hand, a branch or permanent establishment of a foreign entity is regarded as a non-resident taxpayer in Turkey, subject to taxation only for Turkish-sourced income. However, due to its non-resident status, certain payments from Turkish companies to a permanent establishment or a branch may be subject to a withholding tax requirement.

From a company taxation perspective, the tax principles apply similarly to all types of companies (irrespective of having a foreign shareholder or not) and branches, in terms of determining their taxable base. However, there may be potential differences in taxation of shareholders’ capital gains upon the future exit from those entities that should be evaluated at the establishment stage.


2. Statutory Accounting and Auditing Requirements


Statutory Accounting Requirements

Currently, all Turkish companies have to comply with the statutory accounting rules, which are largely regulated by the tax laws. There are no specific accounting and reporting requirements except for certain regulated sectors such as banking and insurance.

The new Turkish Commercial Code (TCC), which came into force on July 1, 2012, has introduced major changes with respect to the accounting requirements for companies.

The new TCC has introduced the requirement of financial reports to be prepared in compliance with Turkish Accounting Standards (TAS), which will be in line with International Financial Reporting Standards (IFRS) for almost all companies in Turkey (some exceptions are available for companies with low business volumes), to be audited by independent auditing firms in accordance with the TAS, which are identical with International Standards on Auditing (ISA). The related clauses of the code will become effective on January 1, 2013.


Statutory Audit Requirements

Currently, the statutory audit requirement exists for joint-stock corporations and some limited liability companies; however, it is to a large extent seen as a procedural requirement, which is performed for the approval of financial statements at general assembly meetings.

After the New TCC becomes effective, companies will no longer be under the obligation to have an internal auditor as a statutory organ. Instead, the area of auditing will be regulated with a new set of rules, which aims to serve the purpose of compatibility with the international standards. According to this new set of rules, companies will be subject to independent auditing that shall be provided by external auditing firms. In this regard, the shareholders of an independent auditing firm shall be either an independent certified public accountant (CPA) or a sworn financial advisor (SFA). Small- and medium-sized enterprises (SMEs) will also receive independent auditing service from one or more CPAs or SFAs. Regardless of their size, companies’ financial reports and their
accounting procedures will be in line with Turkish Financial Reporting Standards, which have to be prepared in accordance with IFRS.


3. Corporate Tax Principles

The corporate tax rate in Turkey is 20% (which is in the low range compared to EU countries) and applies to all forms of companies and branches. Corporate taxes are computed for fiscal profits over a taxation period (i.e. the calendar year, unless a specific fiscal period is granted by the tax authorities) and after the consideration of certain additions to and deductions from the book profits as defined in the Corporate Income Tax Law.

The corporate income tax is payable until the end of the month in which the tax return was filed (i.e. April, if the fiscal period is the same as the calendar).

Corporations (including branches) are also required to pay advance corporate income tax based on their quarterly profits at the corporate tax rate (20%). The advance taxes paid during the year are offset against the ultimate corporate income tax liability of the companies.


There are certain corporate tax exemptions and incentives that may be available for investors, which include:

•Entities engaged in manufacturing activities in Free Trade Zones may be entitled to corporate tax exemption subject to certain conditions.

•Profits derived from new technology development activities in technoparks may be exempt from corporate tax.

•Companies engaged in R&D activities can enjoy a specific R&D incentive regime in Turkey, which also includes allowance for eligible R&D expenses from the corporate tax base.

•Companies that obtain a valid Investment Incentive Certificate can be entitled to reduced corporate tax rates on their profits up to a certain contribution rate announced by the government (see the explanation under Investment Incentive Regime in the following sections).


4. Taxation of Profit Distribution

Dividends paid out of a Turkish company are subject to dividend withholding tax at the source when they are paid or distributed to an individual shareholder (resident or non-resident), or to non-resident corporations. Dividends paid between Turkish corporations are entitled to participation exemption rules. The transfer of net profit (profit after tax) of a branch to a foreign parent company is also subject to withholding tax on a remittance basis, similar to a company.

The rate of dividend withholding tax is 15%, but the rate can be reduced subject to certain conditions under the Double Tax Treaties (usually reduced up to 10% or 5%).

Please also note that the TCC sets forth legal reserve requirements, hence all profits are not available for distribution.


5. Value-Added Tax (VAT)

Turkish VAT Law applies to all supply of goods or services in the course of commercial, industrial, agricultural, or independent professional activities performed in Turkey by taxable entities or persons, and the import of goods and services into Turkey.

Any entity that has a fixed place of business or regularly carries out commercial or professional activities in Turkey must register. VAT registration is granted automatically by the tax office when a business registers for corporate income tax purposes; there is no separate VAT registration.

In Turkey, the standard VAT rate is 18%. Reduced rates of 1% and 8% are also applicable for specific transactions.

According to the Turkish tax legislation, the transactions of banks and financial institutions are exempt from VAT since they are subject to Banking and Insurance Transactions Tax (BITT), which is an indirect tax alternative to VAT.

Certain transactions stated under the law are exempted from VAT (e.g. export of goods and services, deliveries under an Investment Incentive Certificate, etc).

VAT Returns have to be filed on a monthly basis. The input VAT (paid on purchases) can be offset against the output VAT (collected from sales). The excess output VAT has to be remitted to the tax authorities, whereas the excess input VAT cannot be refunded in cash but carried to future months. This usually represents an additional financing burden for start-up companies.

A cash refund of the input VAT may be available only in specific cases (e.g. input VAT incurred for “full exempt” activities such as export of goods and services).


6. Personal Income Taxes

Personal income taxes are applied at rates from 15% to 35% on a progressive income scale. The top marginal rate of 35% applies for income that exceeds TL58,000 (for non-employment income) and that which exceeds TL88,000 (for employment income) in 2012.

The taxation of employment income has to be done through the payroll of companies, which represents the final taxation for the employee. The liability for the proper calculation and payment of income tax and social security premiums rests on the employer. For other sources of income, an annual income tax declaration may need to be filed by individuals.

There is also an official and mandatory social security scheme that has to be contributed by both the employee and employer during an employment period.

Note that Turkish Labor Law requires foreigners to obtain work and residence permits before they can start to work in Turkey.


7. Double Tax Treaty (DTT) Network of Turkey

Turkey’s DTT network consists of 81 countries, 75 of which are already in effect. Five new DTTs have been signed but are not yet in effect and one DTT has been signed for renewal. In addition, the previous Germany DTT has been abolished, effective from January 1, 2011 and is expected to be replaced by the new DTT signed on September 19, 2011 after the legislative procedures in both countries are complete, which is expected to be in 2012.


The updated list of DTTs is on the Turkish Revenue Administration website at


By structuring an investment in Turkey through the DTT, it may be possible to achieve certain tax advantages, some of which are listed below (subject to conditions specific to each DTT that need to be evaluated case by case):

•Avoidance of double taxation on the same income separately in both countries.

•Elimination of the need for a taxable presence in Turkey for certain short-term or auxiliary activities.

•Elimination of potential taxation on capital gains upon the disposal of shares or assets in Turkey.

•Reduction of the withholding tax rate on dividends (from the domestic rate of 15%).

•Reduction of the withholding tax rate on royalty and IP payments (from the domestic rate of 20%).

•Elimination of the withholding tax requirement on payments of certain professional service fees.


However, the anti-abuse rules and the respective substance requirements in both countries have to be carefully considered before the application of such structures.


8. Incentives for New Investments

The government has recently announced that the investment incentive regime in Turkey will be changed with the aim to increase the available incentives for new investors, in particular for investments in strategic sectors and the relatively less developed regions of Turkey.

Turkey is divided into six regions in terms of their development index for the application of this regime.

The table below provides an overview of the available tax incentives that have been announced by the government, based on the draft law, which is currently under discussion (and is expected to come in force in the following months).


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

TBY would like to thank KPMG Turkey for compiling this analysis.