Statera Consultancy





Turkish direct taxation system  consists of two main taxes; income tax and corporate tax. An individual is  subject to the income tax on his income and earnings, in contrast to a company  which is subject to corporate tax on its income and earnings. The rules of  taxation for individual income and earnings are provided in the Income Tax Law  1960 (ITL). Likewise, the rules concerning the taxation of corporations are  contained in the Corporation Tax Law 1949 (CTL). Despite the fact that each is  governed by a different legislation, many rules and provisions of the Income  Tax Law also apply to corporations, especially, in terms of income elements and  determination of net income.


Taxable Income:   The income tax is levied on the  income of individuals. The term individuals mean natural persons. In the  application of income tax, partnerships are not deemed to be separate entities  and each partner is taxed individually on their share of profit. An individual’s  income may consist of one or more income elements listed below:

– Business profits,

– Agricultural profits,

– Salaries and wages,

– Income from independent personal services

– Income from immovable property and rights (rental income)

– Income from movable property (income from capital  investment)

– Other income and earnings without considering the source  of income

Tax Liability:   In general residency criterion is  employed in determining tax liability for individuals. This criterion requires  that an individual who has his place of residence in Turkey is liable to pay  tax for his worldwide income (unlimited liability). Any person who remains in  Turkey more than six months in a calendar year is assumed as a resident of  Turkey. However, foreigners who stay in Turkey for six months or more for a  specific job or business or particular purposes which are specified in the ITL  are not treated as resident and therefore, unlimited tax liability does not  apply to them.   In addition to residency criterion, within a limited scope,  nationality criterion also applies regardless of their residency status,  Turkish citizens who live abroad and work for government or a governmental  institution or a company whose headquarter is in Turkey, are considered as unlimited  liable taxpayers. Accordingly, they are subject to the income tax on their  worldwide income.   Non-residents are only liable to  pay tax on their income derived from the sources in Turkey (limited liability).  For tax purposes, it is especially important to determine in what circumstances  income is deemed to be derived in Turkey. The provisions of Article 7 of the  Income Tax Law deal with this issue. In the following circumstances, the income  is assumed to be derived in Turkey.

Business profit: A person must have a permanent establishment or  permanent representative in Turkey and income must result from business carried  out in this permanent establishment or through such representatives.

Agricultural income: Agricultural activities generating income must take  place in Turkey.

Wages and  Salaries:

– Services must be rendered or accounted for in Turkey.

– Fees, allocations, dividends and the like paid to the  chairmen, directors, auditors and   liquidators of the establishment situated in Turkey must be  accounted for in Turkey.

Income from  Independent Personal Services: Independent personal services must be performed or  accounted for in Turkey.

Income from  Immovable Property:  

– Immovable must be in Turkey;

– Rights considered as immovable must be used or accounted  for in Turkey.

Income from  Movable Capital investmentInvestment  of the capital must be in Turkey.

Other Income and  Earnings: The  activities or transactions generating for other income,   specified in the Income Tax  Act, must be performed or accounted for in Turkey.

The term accounted for used above  to clarify tax liability of the non-residents means that a payment is to be  made in Turkey, or if the payment is made abroad, it is to be recorded in the  books in Turkey.

Determination of Net  Income:

Business Profit:   Business profit is defined as  profit arising from commercial or industrial activities. Although this  definition is very comprehensive and includes all types of commercial and  industrial activities, the ITL excludes some activities from the contents of  business profits. Generally, activities performed by tradesmen and artisans who  do not have permanent establishments are not assumed as commercial and  industrial activities and are exempt from income tax.   Furthermore, in order to tax income  resulting from commercial and industrial activities there has to be continuity  in performing these activities. In other words, incidental activities in that  nature are not treated as commercial or industrial activities and therefore,  the Income Tax Law deals with these activities as the other income and  earnings.   The ITL does not list each  commercial and industrial activity and only refers to the Turkish Commercial  Law for the scope of these terms. Yet several activities are listed namely for  clarification in Article 37.

These are as follows:

– The operation mines, stone and time quarries, extraction  of sand and pebbles operations of brick and tile kilns;

– Stock brokerage;

– Operating of private schools, hospitals and similar  places;

– Regular operations of sale purchase and construction of  real estate;

– Purchase and sale of securities on someone’s behalf and  on a continued basis;

– Fully or partly sale of land which has been obtained by  purchase or barter and subdivided within five years of its date of purchase and  sold during this period or in subsequent years;

-Earnings from dental prosthesis.

Basically, the taxable income of a  business enterprise is the difference between its net assets at the beginning  and at the end of a calendar year.   Two method are used to compute business profits: Lump-sum  basis and actual basis in the former method, the Income Tax Law specifies  estimated business profits for taxpayers who are qualified for such treatment  according to the relevant provisions of the Law. The main assumption is that  those taxpayers specified by the Law have difficulty to keep accounting books  and to determine then income on the actual basis. Therefore, their income taxes  are assessed on their estimated profits determined by the Law.

In the latter method business profits is determined on the  actual basis: Taxpayers are required to keep accounting books to record their  actual revenues and expenses which occur within the calendar year. In general,  business related expenses paid or accrued related to business are deducted from  revenues:

Expenses to be deducted:   In order to determine net amount of  business profits on the actual basis, the following expenses may be deducted  from revenues:

– general expenses made for earning and maintaining  business profit;

– food and boarding expenses provided for employees at the  place of business or in its annexes;

– expenses for medical treatment and medicine;

– insurance and pension premiums;

– clothing expenses paid for employees;

– losses, damages, and indemnities paid based upon written  agreements, juridical decrees, or by order of law;

– expenses for travel and lodging relevant to the business;

– expenses for vehicles which are part of the enterprise  and used in the business;

– taxes in kind such as building, and consumption, stamp  and municipal taxes and fees and charges, related to the business;

– depreciations set aside according to the provisions of  the Tax Procedure Law;

– payments to the unions;

Payments, which are not accepted as expenses:   Those payments listed below are not  considered as deductible expenses;

– funds withdrawn from the enterprise by the owner or by  his spouse or children, or   other assets in kind taken by them;

– monthly salaries, wages, bonuses, commissions and  compensation paid to the owner of the enterprise, to his spouse, or his minor  children;

– interest on the capital invested by the owner of the  enterprise;

– interest based on the current account of the owner of the  enterprise, his spouse, his minor children including interests on all form of  receivables;

– all fines and tax penalties as well as indemnities  arising from unlawful actions. Indemnities incurred as penalty clauses of  contracts shall not be considered indemnities of a punitive nature;

– % 0 per cent of the advertising expenses for all kind of  alcohol and alcoholic beverages, tobacco and tobacco products (current rate has  been reduced to 0 percent by a Governmental Decree).


Agricultural lncome:   Income  derived from agricultural activities is also subject to the income tax. The  term agricultural activity means any activity performed in land, sea, lakes and  rivers in forms of cultivating, planting, breeding, fishing, hunting and etc.  For tax purposes, persons who engaged in such activities are referred to  farmers.   Small farmers are exempt from tax if a farmers gross  revenue or operational size of his farming enterprise is less than the amount  specified by the Income Tax Law, then he is accepted as a small farmer for the  application of income tax and exempt from the income tax.   The farmers who are not exempt from  the tax fall into two categories in determining their agricultural income. The  income of farmers, whose annual proceeds or yields are less than the amount  specified by the Council of Ministers for each year, is determined on a  lump-sum basis. In this method, only the gross revenues of farmers are  calculated on the actual basis. While expenses are determined simply by  applying an estimated expense rate to the gross revenues. On the actual basis,  both revenues and expenses are computed in their real amounts. Therefore,  farmers need to keep accounting books to record their revenues and expenses  accrued in the relevant year.

Gross revenue arising from  agricultural activities consists of the following elements:

– sales revenues earned from selling every kinds of  agricultural products produced,   purchased or obtained in other ways including the products  remained from the previous years,

– proceeds received in return of using agricultural  machinery and equipment in the agricultural works of other farmers.

– sales revenues derived from the selling of items expensed  previously,

– insurance  compensations received for the products damaged before or after they were  produced.

– revenue  arising from the selling of the fixed assets (except immovable used in  agricultural activities).

The Tax Procedure Law specifies the  rates that will be applied to gross revenue in determining the amount of the  estimated expenses on the lump-sum basis. Thus, 80 per-cent of gross revenue is  accepted as the amount of expenses in determining net income resulted from the  sales of animals, animals’ products and fishing and hunting products. This rate  has been laid down as 70 per-cent for other agricultural products.

On the actual basis, the following  expenses are deducted from the gross revenue to reach taxable income for the  year.

– expenditures made for obtaining seed, fertilizers,  seedling plants, animal feeds and similar materials;

– expenditures made for purchasing animals, agricultural  products and other materials which are acquired for the purpose of resale;

– salaries and wages paid to the employees;

– operation and maintenance expenses of agricultural  machinery; equipment, and vehicles;

– depreciation expenses;

– rents and fees paid for machinery and equipment,

– interest injured for loans received and used for  enterprise,

– general expenses made for earning and indemnities paid  based upon written agreements, juridical decrees, or by order of law;

– losses injured in the selling of fixed assets (except  immovable used in agricultural activities) which are part of the enterprise;

– full depreciation expenses and half of other expenses of  the vehicles which are part of the enterprise and also used for personal and  family needs.

Salaries and Wages :

Income derived from dependent  personal services is subject to the income tax. This income comprises such  income from all kinds of employment in both public and private sector as  salaries and wages, as well as associated supplementary income such as  allowances, bonuses, anniversary gifts, gratuities, commissions, premiums,  compensations and other wage and salary related remunerations including  benefits in kind at market value.

 In determining taxable amount of  salaries and wages the following expenditures are allowed to be deducted from  gross amount:  

– Legal deduction made according to various laws or  regulations,

– Payments made for pensions,

– Payments made for various insurances,

– Payments made for labor union membership,

Income from Independent Professional Services :   The  term independent professional services means any activity performed by a person  who is self-employed, and based on professional and scientific expertise rather  than capital, income from such activities is subject to the income tax.   The term includes services given by  such independent professionals as lawyers, accountants, doctors, consultants  and engineers.   Revenues received from independent  professional services within a year as well as expenses paid are recorded on a  simple accounting book. In general, all expenses related to independent  professional services can be deducted from revenues. But, the scope of those  expenses are narrower than those specified for the commercial and business and  business activities.

The following expenses are allowed to be deducted from the  gross revenue in reaching the profit from independent professional services:

– rents paid for the leased premises in which  the professional services are carried out.

– overhead expenses;

– expenses paid for illumination, heating, phone, wages and  salaries of bureau employees, and other office overheads;

– vocational and advertisement taxes as well as taxes in  kind, including excises and fees paid occupational purposes;

– expenses for occupational books and periodicals;

– payments made for membership of occupational  associations;

– traveling and lodging expenses regarding the profession  carried on;

– expenses made for tools, equipment, and other materials  necessary to perform the profession;

– depreciation expenses for the fixed assets in performing  the profession;

– retirement payments;

– losses, damages, and indemnities paid based upon written  agreements, juridical decrees, or by order of law.

Income  from Immovable Property :   Immovable property means real  property which includes land buildings, and permanent leasehold rights. Ships,  boats, aircraft and other types of transportation vehicles are also regarded as  immovable property in the application of the Income Tax Law.

Income from  immovable property comprises:

– rental income arising from the lease land, buildings  (furnished or unfurnished), and the rights to work mineral deposits, sources  and other natural sources including mines, sand and gravel quarries, and  property accessory to immovable property;

– rental income from fishing place of  every kind;

– rental income from property to immovable property which  may be subject to independent leasing;

– rental income from the right to use any copyright of literary,  artistic or scientific work, any patent, trade mark, design or model, plan,  secret formula or process, or for information concerning industrial, commercial  or scientific experience or for the use of   or the right to use, industrial, commercial or scientific equipment;

– rental  income from the lease of ships, boats, aircraft and other transportation  vehicles.

In computing net income from  immovable property, costs related to maintenance, management, renovation and  running, and depreciation may be deducted from the gross income on the actual  basis, it is also allowed to make a lump-sum deduction instead of actual costs,  except for the income from the lease of the rights mentioned above. In such  cases, lump-sum deduction is 25 per-cent of the rental income.


Income from Movable Property :   Income from movable property means  any income such as interest, dividend, rent and the like derived from capital  in cash or capital in kind. (Income from business activities, agricultural  activities and independent personal services is not considered as income from  movable property.).

However, such capital income is not  considered as income from movable property, should they are earned (gained)  through business, agricultural or independent professional activities.

Regardless of their sources, the following earnings are  deemed to be income from movable property:    

– dividends from stocks of every kind including joussance  shares, founder’s shares and interests and other remunerations paid to the  stockholders in the preparatory stage of the corporation and earning from the  securities issued by investment funds and investment trusts;

– earnings from participation shares including the shares  of limited companies, cooperatives and joint ventures;

– dividends paid to the chairmen and the members of the  board of directors;

– after tax income of the corporations which are subject to  annual declaration or special declaration;

– interests of every kind from bonds, treasury bonds, and  earning from the securities issued by the Mass Housing Administration (MHA) and  the Public Participation Administration (PPA);

– interest from debt-claims of every kind particularly  interest from banks and other financial institutions;

– profits from selling coupons of stocks and bonds before  their maturity;

– income from selling of dividends not accrued yet to the  owners of the shares;

– dividends paid to those who lend money without interest  and dividends paid in return of profit-Ioss participation notes and profit-Ioss  participation accounts;

– tax claims, calculated one third of dividends received by  the stockholders;

– income from repurchasing agreement on bonds and  securities issued by the MHA and the PPA.

In determining net income from  movable property, costs related to and allowed to be deducted from gross income  include insurance costs, collection costs, and taxes and other levies,  excluding income tax, paid for securities.   The  mentioned elements are included in business profit when they are connected to  the business activity of the recipient. In such case, this income is treated as  business profit and become subject to the rules described earlier related to  the rules described earlier related to the business profit.

Other Income and Earning :   Capital gains non-recurring is  dealt with by the Income Tax Law under the heading “Other Income and  Earnings”.

Capital gains specified in the ITL are as follows:      

– earning exceeding certain amount TL from the selling of  securities before or within one year after acquisition, except those acquired  free of charge;

– income exceeding certain amount TL from the selling of  intellectual rights which are treated as immovable property for tax purposes;

– income from the selling of participation rights and  shares;

– profits from the wholly or partly alienation of an  enterprise which ceased its operations,

– profits derived from the alienation of land, buildings,  the rights to operate mineral deposits, sources and other natural sources,  fishing place of every kind, the rights registered as immovable property, and  ships, boats, aircraft and other transportation vehicles, within four years  after their acquisition.

Net amount of capital gains is  determined by deducting acquisition costs and the costs incurred to the  alienation of the capital assets from the proceeds received in return of the  alienation.

Non-recurring income comprises:

– income derived from the business activities and  independent professional services   performed on occasion;

– proceeds received not to start or to stop a business  activity, agricultural activity or independent professional  service, or in return for not bidding for  contracts;

– proceeds received to transfer leasehold rights or to  evacuate leased immovable property;

– income derived by the taxpayers from their previous operations;

– income  derived by the limited liable taxpayers from transportation activities  performed on occasion.


Taxable Income:   The corporate tax is levied on the  income and earning derived by corporations and corporate bodies. The income  elements by Corporate Tax Law are the same as those covered in the Income Tax  Law. In other words, the Corporate Tax Law sets provisions and rules applicable  to the income resulted from the activities of corporations and corporate  bodies, whereas the income Tax Law deals with the income derived by  individuals. Corporations and corporate bodies specified by the Law as  taxpayers in respect to the corporate tax are as follows:

– Capital companies and similar foreign companies;

– Cooperatives;

– Public enterprises;

– Enterprises owned by foundations societies and  associations;

– Joint ventures.

Tax Liabilities:   According to the Corporate Tax Law,  those legal entities covered by the law, which their legal head office situated  in Turkey, or the place of effective management in Turkey are taxed on their  world-wide income (unlimited liability). By specifying two criteria the law  intends to prevent any problem, which may arises in determining tax liability.  The term legal head office, as used in the context of the Corporate Tax Law,  means the office specified in the written agreements of the mentioned entities.  Therefore, it is not difficult to as certain where the legal head office of a  company is located. However, the place of effective management, which is  defined as the place in which the business activities are concentrated and  supervised, is not easy to determine in some cases.   As may be expected, the Law defines  the term limited tax liability quite parallel to term unlimited tax liability,  as the liability requiring to tax only the income derived in Turkey, provided  that both legal head office and the place of effective management are abroad.

Determination of Net Taxable Income:   In essence, the provisions of the  income Tax Law concerning the determination of business profit also applies to  the procedure required in determining corporate income. Basically, net  corporate income is defined as the difference between the net worth of assets  owned at the beginning and at the end of the fiscal year. In addition to the  expenses mentioned in article 40 of Income Tax Code allowed  to be deducted from revenues, the followings may  also be deducted regarding to the determination of business profit, by  corporations:

– expenses related to the issuance of stocks and shares;   – initial organization and establishment expenses;   – expenses incurred for general board meeting as well as  expenses made for mergers dissolutions, and liquidations;   – in case of insurance companies, technical reserves  required for the insurance contracts still valid at date of inventory;   – profits shares accrued to active partners of partnerships  in commendams limited by shares;   – profit shares accrued to partners by participation banks  for participation accounts;   – research and development deductions calculated as %40 of  new technology and know-how research expenses realized within business.

In determining net corporate  income, the following deductions are not allowed:

– interests paid or accrued on the basis of equity;

– interest, exchange difference and other costs paid or  accrued on the basis of disguised capital;

– disguised earning distributed by transfer pricing;

– any kind of reserves;

– the corporate tax, fines, tax penalties and late payment  penalties and interest.;

– leased or registered motor vehicles’ depreciation and  other expenses not related with business activities;

Corporate Tax Return:   Like income tax, the corporate tax  is also assessed on the base declared through tax returns filled annually by  taxpayers. Tax returns contain the results of related taxation period. In  principle, every taxpayer is required to file only one single tax return, even  if he has derived the income through different business places or branches and  those places and branches have their own accounting and allocated capital.   The corporate tax return is filled until  the 25th day evening of the fourth month of the year following the  month in which the fiscal year ends and the assessed taxes are paid until the  end of that month. However, if a limited liable taxpayer leaves the country for  sure the corporate tax return has to be submitted to the authorized tax office  in the 15 days preceding. In such case, taxes are paid in the same period of  time as forth for the declaration.               If the  income earned by the foreign companies which are subject to the limited  liability in respect to the corporate tax, consists of capital gains and  non-recurring income discussed in the preceding sections (except for income  earned from sale and transfer of intangible rights like license, know-how, and  royalty), then the income is declared to the authorized tax offices those  taxpayers (or the persons acting on behalf of them) in the fifteen days after  the income has been earned. This procedure is called “special declaration”.

If there  is no presence in Turkey, withholding tax will generally be charged on income  earned; for example income earned from sale and transfer of intangible rights  like license, know-how, and royalty, income from movable and immovable property  and income from independent professional services provided in Turkey. However,  if there is an avoidance of double taxation treaty, reduced rates of  withholding tax may apply.


Tax Rates:

Corporate  income tax is applied at 20 % rate on the corporate earnings.

Taxpayers  (only for income from commercial activities and agriculture in  limited tax liability cases) pay provisional  tax at the rate of corporate tax, these payments are deducted from corporate  tax of current period.

tax or taxes concept with word on business folder index





In Turkey, there are several  indirect taxes  but most important  indirect tax is V.A.T.

The beginning of the studies on  Value Added Tax (VAT) in Turkey goes back to 1970. In 1974, a draft VAT law,  which was the result of studies of a technical group, was prepared. The subject  (VAT)was discussed by different levels of public opinion and some project games  were organized to test the drafts with the volunteer enterprises. After the  appreciation of the results of these discussion and games, seven law drafts  were prepared between 1974-1984. The 8th draft was enacted on November 2nd ,  1984 and entered into force on January 1st , 1985. By the VAT Law, eight  indirect taxes on consumption were abolished.

The Turkish Tax System levies value  added tax on the supply and the importation of goods and services. The Turkish  name for Value Added Tax is Katma Değer Vergisi, abbreviated to KDV.

Liability for VAT arises;

(a) when a person or entity performs  commercial, industrial, agricultural or independent professional activities  within Turkey,

(b) when goods or services are  imported into Turkey.

VAT is  levied at each stage of the production and the distribution process. Although  liability for the tax falls on the person who supplies or imports goods or  services, the real burden of VAT is borne by the final consumer. This result is  achieved by a tax-credit method where the computation of the VAT liability is  based on the difference between the VAT liability of a person on his sales  (output VAT) and the amount of VAT he has already paid on his purchases (input  VAT).

The  Turkish VAT system employs multiple rates and the Council of Ministers is  authorized to change the VAT rates within certain limits.



VAT taxpayers are defined in the  VAT Law as those engaged in taxable transactions, irrespective of their legal  status or nature and their position with regard to other taxes.    


The  following people or entities are liable to VAT:

  • Those       supplying goods and services,
  • Those       importing goods or services,
  • Those       required to complete customs formalities in case of transit of goods

through Turkey,

  • General       Directorates of the Authorized Public Lotteries, including Spor-Toto and       National Lottery,
  • General       Directorates of Postal Services (PT and Telecom) and radio and television       corporations,
  • Organizers       of horse races and other betting activities,
  • Organizers       of shows, concerts and sporting events with the participation of       professional artists and professional sportsmen,
  • Lessors       of goods and rights stated in Article 70 of the Income Tax Law.

Goods and rights set out in Article  70 of the Income Tax Law including immovable property such as land, buildings,  mines and rights which are in the nature of immovable property; and. other  goods and rights.. such as all kinds of motor vehicles, machines and equipment,  ships, literary, artistic and commercial copyrights, commercial or industrial  know-how, patents, trademarks, licenses and similar intangible properties and  rights.

VAT Responsibility and Reverse  Charge VAT

In the event that the taxpayer is  not resident or does not have a place of business in Turkey, a legal head  office or place of management in Turkey, or in other cases deemed necessary,  the Ministry of Finance is authorized to hold any one of the people involved in  a taxable transaction responsible for the payment of tax.

According to the Turkish VAT law,  there is a so-called reverse charge VAT mechanism, which requires the  calculation of VAT by resident companies over payments to abroad. Under this  mechanism, VAT is calculated and paid to the related tax office by the Turkish  company or customers on behalf of the non-resident company (foreign company).  On the other hand, the local company treats this VAT as input VAT and offsets  it in the same month.

  • Toll-manufacturing       and ready-made materials (textiles) are subject to partial withholding:       Only 1/3 of the calculated VAT is paid to the seller by the purchaser.       Therefore, the purchaser will be responsible for paying 2/3 of calculated       VAT to the tax office directly.
  • Junk       metal, waste paper, junk plastic material deliveries are exempted from       VAT: In the case of the renouncement of the above mentioned exemption, the       purchaser pays 10% of the calculated VAT to the seller. Therefore, the       purchaser will be responsible for paying 90% of the calculated VAT to the       tax office directly.

In  the case of the deliveries of the petroleum products by the sellers, excluding  importers, refineries, fuel oil distribution companies and fuel oil agents,  only 1/10 (10%) of the Value Added Tax is paid to the seller by the purchaser.  Therefore, the purchaser will be responsible for paying 9/10 (90%) of the VAT  to the tax office directly.

     Taxable Base

The taxable base of a transaction  is generally the total value of the consideration received, not including the  VAT itself. The VAT Law deals with the taxable base under four headings, namely  the taxable base on deliveries and services, on importation, on international  transportation, and special types of taxable base.   In case a consideration does not  exist, is unknown or is in a form other than money, the taxable base is the  market value. Market value is the average price payable in the market for  similar goods and services and is determined with reference to the Tax  Procedural Law.

Exclusions From the Taxable Base

The taxable base for goods  delivered and services rendered does not include the VAT itself or any  discounts, provided that they are at a reasonable rate with regard to  commercial practice and are explicitly listed in all invoices or similar  documents.

Tax  Rates

Standard  rate:

The standard rate of VAT on taxable  transactions is set at 10% in the VAT Law, but this rate was increased to 18%  as of 15 May 2001.

Special  rates:

  • For  the deliveries and services mentioned in List No. I ……1% (e.g. agricultural  products such as raw cotton, dried hazelnuts, supply and leasing of goods  within the scope of the Finance Leasing Law)
  • For  the deliveries and services mentioned in List No. II………..8%  (e.g. basic food stuffs, books and similar  publications)

            The Credit Mechanism


VAT is collected at every stage of  the production and distribution process from the initial sale by the producer  to the final sale to the consumer. At each of these stages, the amount of tax  payable is the difference between the total amount of tax charged on the  invoices issued by the taxpayer and the total amount of tax charged on invoices  issued to the taxpayer during the same period. Thus the VAT is initially computed  by applying the appropriate rate of taxation to the taxable base for goods and  services supplied by the taxpayer during a taxable period. This amount is then  reduced by a credit for VAT previously paid on importation and on goods and  services supplied to the taxpayer.

Non-deductible  VAT (Cost or non-deductible item or capitalized)

In the  following cases, VAT may not be credited from the VAT computed on taxable  transactions.

(a) VAT on purchases of cars (which  should be recorded as an expense or cost) (except for businesses related with  lease or operation of cars)

(b) Missing and stolen stocks,

(c) VAT on expenses accepted as  non-deductible in determining  income  according to Income Tax Law and Corporate Tax Law,

(d) Input VAT on exempt deliveries  listed in Article 17 of the VAT Law.


            VAT Refund

Value Added Tax (input VAT) shown on  invoices and similar documents related to the transactions which are exempt  from the tax, such as:

  • Exportation       of goods and services,
  • Exemption       for vehicles, petroleum exploration and investments made under an       investment incentive certificate (IIC),
  • Transit       transportation,
  • Diplomatic       exemption ,

are deducted from the Value Added Tax (output VAT) to be  calculated on the transactions of the taxpayer which are subject to VAT. In the  absence of transactions subject to VAT, or if the output VAT is less than the  input VAT, then the input VAT which cannot be deducted is refunded to those who  perform such transactions, on the basis of principles to be determined by the  Ministry of Finance.


Stamp tax:

Stamp Tax applies to a wide range  of documents, including but not limited to, contracts, agreements, notes  payable, letters of credit and letters of guarantee, financial statements and  payrolls. Stamp duty is levied as a percentage of the value stated on the  document at rates ranging from 0.15% to 0.75%. The Stamp Tax Law provides that  each relevant party shall be responsible for payment of the total amount of  stamp tax on the agreements. Each original document is separately subject to  stamp tax.

Motor vehicle tax:

The  subject of the tax is motor vehicle. Taxable event is registration of the motor  vehicles in the traffic, municipality and docks.

Taxpayers  are real and legal persons who have motor vehicles that are registered to their  own names in the traffic, municipality and docks register and the civilian  air-vehicle register maintained by the Ministry of Transportation.

Tax  is assessed and accrued annually in the beginning of January. The motor vehicle  taxes are paid in two equal installments, in January and July, every year.

Motor vehicles are classified into  four categories in terms of motor vehicle tax:   – List 1  : cars, special utility vehicles and motorcycles,   – List 2:  minibuses, panel vans, motorized caravans, busses, pickups, trucks etc.   – List 3  : yacht-cutter and all sorts of motor ships   – List 4  : planes and helicopters

The  amount of Motor Vehicle Tax for land transportation vehicles is determined  according to their weight, age, cylinder capacity and the fuel used and for  2006 it ranges from 36 YTL to 10.988 YTL for cars and 121 YTL to 1.647 YTL for  buses, trucks and the like.

Banking and  Insurance Transactions Tax (BITT):

The subject of the tax is  transactions and services produced by banks, bankers and insurance companies.

Taxpayers are banks,  insurance companies and bankers.

All transactions and  services produced by banks and insurance companies. There will be the tax upon  the money, which they collect under the name of interest, commission and  expenditure because of the services they produced on behalf of them. Bankers’  certain transactions and services produced and stated in Law are the subject of  the tax. Other transactions of bankers are subject to VAT.

Banks and insurance  companies are exempt from VAT, but are subject to BITT at a rate of 5%, which  is due on the gains of such companies from their transactions. The purchase of  goods and services by banks and insurance companies is subject to VAT but is  considered as an expense or cost for recovery purposes. Foreign exchange  transactions are subject to 0.1% BITT.

Taxation period in BITT  is each month of the calendar year. Taxpayers declare their taxable  transactions up to the evening of the 15th day of the following month.

Gambling Tax :

The subject of the tax is betting,  lotteries and other forms of gambling. Taxpayers are composers of gambling  activities and Gambling Tax is calculated by applying fixed or specific rate of  tax.   Taxation period in Gambling Tax is  each month of the calendar year. Taxpayers declare their taxable transactions  and pay the accrued tax up to the evening of the 20th day of the following  month.

Inheritance and Gift  Tax:

Items acquired as gifts or through  inheritance are subject to a progressive tax rate ranging from 10% to 30% and  1% to 10%, respectively, of the item’s appraised value. Tax paid in a foreign  country on inherited property is deducted from the taxable value of the asset.  Inheritance and Gift Tax is payable in biannual installments over a period of 3  years.

Property Taxes:

Property taxes are paid each year  on the tax values of land and buildings at rates varying from 0,1% to 0.3%. In  the case of the sale of a property a 1% levy is paid on the sales value by both  the buyer and the seller. Property tax returns are filed in every four years  and annual taxes are paid in two equal installments, the first being in March,  April or May and the second in November.

Communication Tax:

All types of installation, transfer  and telecommunication services given by mobile phone operators are subject to  25% Special Communication Tax. The tax base for Special Communication Tax is  the same as the Value Added Tax base. Mobile phone operators will declare the  communication tax on the VAT returns and pay the accrued tax by the 15th day of  the following month.

Education Contribution  Fee:

Transactions and certain documents stated  in the related law are subject to Education Contribution Fee in different  amounts. Education Contribution Fee is taken as a fixed levy according to the  document or the transaction. Education Contribution Fee is a temporary fee  applicable until 31 December 2010.

Customs  Duty :     

Goods imported from  abroad are the subject of the tax. Taxable events are free circulation of  goods, registration of customs declaration, and temporary importation in case  of partial exemption.   Taxpayer is principally person who declare to the customs office.

Customs duties are  assessed on written declaration by the taxpayer and paid within 10 days dating  from communication.


There are different types of fees: Judgment Fees, Notary  Fees, Tax Judgment Fees, Title Deed Fees, Consulate Fees, Ship and Harbor Fees,  Permit of License and Certificate Fees, Traffic Fees, Passport, Visa and  Ministry of Foreign Affairs. Certification Fees.


Special Consumption  Tax:  

            Goods in the Lists attached to the  Special Consumption Tax Law are the subject of the tax. For goods in the Lists,  Special Consumption Tax is charged only once.

There  are mainly 4 different product groups that are subject to special consumption  tax at different tax rates

·  I is related to  petroleum products, natural gas, lubricating oil, solvents and derivatives of  solvents.

· II is related to  automobiles and other vehicles, motorcycles, planes, helicopters, yachts.

·  III is related to  tobacco and tobacco products, alcoholic beverages and cola.

·  IV is related to luxury  products.

The Taxpayers of the Special Consumption Tax

Taxpayers  are different according to the lists.

They are;   For List I; manufacturers and  importers of the petroleum products,

For List II; merchants of motor  vehicles, exporters for using or sellers through auction

For List III; manufacturers,  exporters or sellers through auction of tobacco, alcoholic beverages and cola.

For  List IV manufacturers, exporters or sellers through auction of luxury products.