However, many businesses operate through partnerships or separate limited companies and these are taxed in Turkey on their own account.
There are two bases upon which they can be taxed. Some businesses have the right to choose which method will apply but, once they’ve chosen, they can’t change their mind for a period of five years.
Video guides to tax in Turkey
You can learn about taxes and taxation in Turkey by watching our series of video interviews with Turkish accountant Burak Orkun. You can also scroll down and read his written guide to Turkish company taxes, and read our other tax guides for Turkey.
VAT in Turkey
VAT (Katma Deger Vergisi (KDV)) operates pretty much in the same way in every country that uses the VAT system, and Turkey is no exception.
A company based in Turkey or selling goods or services in Turkey must charge Turkish VAT on the total value of those goods or services. Currently the general rate of VAT is 18%, but many services or goods are subject to the lower 8% or 1% rates. These include hotels and restaurants (8%); clothing (8%); and staple foods (1%).
The business will then submit a VAT tax return to the Government of Turkey every month and pay all the VAT due to the tax authority.
To calculate the amount of VAT due, the company will deduct any VAT that it has paid in connection with its business. This will include the VAT it has paid to the suppliers of the goods that it has sold and the VAT it has paid on all its incidental expenses such as rent, telephone charges, delivery charges etc.
Having said this, there are three main points that foreign businesses need to consider when planning their affairs in Turkey.
The first is that there is no VAT minimum limit or threshold. In some countries, the law does not require a business to register for VAT until its turnover during the year reaches a certain mount. Until then, it does not need to collect any VAT and so, of course, it doesn’t need to pass it onto the government. Of course, it also can’t recover any VAT on any goods or services it pays for.
In Turkey, even if your business only generates TRY100 per month, you will need to charge VAT on that amount and pass that onto the government, less any permissible VAT deductions.
The second point is that, in the case of small businesses, you will often find that the VAT that you have spent on providing the goods or services that you have supplied might be higher than the amount of VAT that you have gathered. In this case, the rest of the allowable VAT deductions will be transferred to the next month (or months – it’s an unlimited period) instead of you being entitled to a cash refund from the government, as it is in most EU countries. However, the government has said that the VAT refund process will be coming soon.
The final – and perhaps most important – point is that Turkey imposes heavy penalties on those who are late in filing their VAT return or who do not pay the VAT that is due. These penalties are much higher than in many other countries. For example, failure to file your VAT return on time incurs a penalty of TRY1,400 (£270/€300/$370) plus a surcharge of between 100% and 300% of the VAT due.
Special Consumption Tax (SCT) in Turkey
This is, in international terms, an unusual tax but very important to Turkey. In 2015, 25.98% of the General Budget Tax Revenues came from SCT – totalling TRY105,902,496,000 (over US$27.5billion)!
SCT is levied only once in the consumption process of goods, so it is different from VAT, and it is only levied in respect of the goods listed in the four annexes to the SCT Law.
It is listed in this guide because the ultimate payer of this tax is the business making or distributing the goods.
Which goods are taxed in Turkey?
There are four main groups of products that are subject to SCT at different tax rates:
- List 1 is related to petroleum products, natural gas, lubricating oil, solvents and derivatives of solvents.
- List 2 is related to land, air and sea vehicles (cars and other vehicles, motorcycles, planes, helicopters, yachts etc.).
- List 3 is related to alcoholic beverages, and cola/soda drinks, cigarettes and other tobacco products.
- List 4 is related to other luxury goods (caviar, furs, mobile phones, white goods and other electrical household machines etc.).
Who pays the tax?
The taxpayers for SCT are, generally:
- For Lists 1, 3 & 4, the manufacturers and importers of the goods
- For List 2, the traders of the vehicles
How much tax is paid?
The rates vary with the type of goods concerned. For example, on petrol (gasoline) it is between TRY2.37 and TRY2.49 per litre. On cars it is between 60% and 160% of the vehicle’s base price. For cigarettes, tax is TRY3.75 per pack of 20.
The tax is declared electronically and paid monthly.