Blog: Business taxation in Turkey
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Business taxation in Turkey

14.12.2023

Turkish taxation system for Companies and sole proprietorships includes:

1. Taxes on:

  • value added (prime rate 18%, for medicines - 8%, for socially important products - 1%);
  • dividends paid to shareholders (the rate for non-residents is 15%, but may vary depending on international tax treaties);
  • banking and insurance operations;
  • property (levied on certain types of property or financial assets);
  • Property (annual property tax 0.3%-0.6% depending on the value of land and real estate - applicable if the company owns the property)

As of 2023, property tax rates for companies in Turkey are determined depending on the type and location of the property. Here are the general rates:

  • 0.2% for buildings in provinces and districts. -0.4% for buildings in municipal areas.
  • 0.1% for land in provinces and districts. -0.2% for land in municipal areas.
  • For commercial properties, the tax rate is generally higher and can be as high as 0.4% in provinces and districts and 0.6% in municipal areas.

2. Income tax for employees (withheld from employees' salaries at a progressive rate: from 15% to 35% depending on the employee's income level);

In Turkey, personal income tax is progressive and depends on the level of the taxpayer's annual income. In 2023, income tax rates are generally distributed as follows:

  • Up to 32,000 Turkish Liras (TRY) - 15%.
  • From 32,000 to 70,000 TRY - 20%.
  • From 70,000 to 250,000 TRY - 27%.
  • Over 250,000 TRY - 35%.

3. Insurance contributions (the employer must contribute to the social security system for each employee);

4. Corporate income tax (25%, levied on a company's net income and is the main tax that corporations and other legal entities must pay);

5. Stamp duty (Damga Vergisi) of 0.15 to 1.89% is levied as a percentage of the document's determinable value on various types of documents, including but not limited to contracts, agreements, financial documents and company registration documents.

Free Economic Zones.

Turkey does not have officially recognized offshore zones in the traditional sense of the term, as is common, for example, in some island states or territories with special tax regimes.

Instead of creating offshore zones, Turkey is focusing on developing Free Economic Zones, which offer various benefits, including tax incentives, simplified customs procedures and infrastructure support, making them attractive to many types of businesses and investments.

Turkey has 18 Free Economic Zones (FEZs), each with its own unique features and specialization, reflecting the diversity of economic activities and regional advantages. These zones are designed to stimulate economic growth, attract foreign investment and facilitate trade procedures.

  1. Adana-Yaumurtalık FEZ - Chemicals, metallurgy, engineering and logistics, convenient location for access to the Middle East.
  2. Ankara FEZ - Focus on high technology, electronics and software, high-tech manufacturing and research.
  3. Antalya FEZ - Light industry, export and tourism due to proximity to tourist areas.
  4. Bursa FEZ - Automotive, textile, engineering.
  5. Corfez FEZ - Located in the industrial zone of Kocaeli, mainly engaged in petrochemicals and related industries.
  6. Izmir FEZ - Wide range of activities including textiles (light industry), trade (logistics) and electronics, located in one of the largest port cities in Turkey.
  7. Istanbul Ataturk Airport FEZ - Uniquely located at the airport and focused on logistics and transportation.
  8. Istanbul FEZ - Financial and commercial services, including trade and distribution
  9. Istanbul Tuzla FEZ - Specializes in shipbuilding, ship repair and marine technology .
  10. Istanbul Trakya FEZ - Attracts investments in light and medium industries, logistics and warehousing.
  11. Kayseri FEZ - Areas of activity include machinery and household appliances, furniture, textiles and building materials.
  12. Konya FEZ - Focused on mechanical engineering and agricultural machinery.
  13. Mersin FEZ - Has a wide range of activities including trade, logistics and manufacturing.
  14. Rize FEZ - Focus on agricultural products and food industry (tea industry).
  15. Samsun FEZ - Focused on logistics, trade and agricultural processing.
  16. Tekirdag FEZ - Specialized in light industry, logistics, winemaking (agro-industrial sector).
  17. Trabzon FEZ - Focus on trade, logistics and tourism.
  18. Denizli FEZ - Textile Industry and Trade.

Opening a company in Turkey's Free Economic Zones (FEZs) offers a number of advantages that make them attractive to international investors and businesses. Here are the main ones:

  1. Tax benefits. Companies in FEZs often enjoy reduced corporate tax rates, value added tax (VAT) exemptions and other tax advantages.
    • Full or partial exemption from corporate tax (Companies registered in the FEZ and engaged in production may be exempt from corporate income tax. This exemption usually applies to profits derived from export activities).
    • Exemption from VAT and customs duties (Goods imported into FEZs are generally exempt from value added tax (VAT) and customs duties. This also applies to equipment and materials imported for use in production activities in the zone).
    • Dividend tax exemption (In some cases, companies in FEZs may be exempt from tax on dividends paid to foreign shareholders).
    • Reduced income tax rates for employees (Companies in FEZs may be entitled to reduced income tax rates for their employees, especially if they are engaged in export activities).
    • Exemption from certain local taxes and fees (Some FEZs provide for exemption from local taxes and fees).
  2. Simplified customs procedures. Many free economic zones have simplified customs procedures, which speeds up the processing of imports and exports of goods.
  3. No restrictions on foreign exchange transactions. FEZs usually have no restrictions on foreign exchange transactions, allowing companies to freely convert and move capital.
  4. Ease of access to international markets. Location in a free economic zone provides easy access to international trade routes, especially if the zone is close to ports or major transportation hubs.
  5. Modern infrastructure. FEZs usually have developed infrastructure, including transportation, logistics and communication networks, which provides convenient conditions for doing business.
  6. Government support. Companies in FEZs often benefit from government support in the form of various incentives, subsidies and assistance in obtaining necessary licenses and permits.
  7. Flexibility in hiring employees. Some FEZs provide incentives and simplifications in the hiring of local and foreign workers.

These advantages make Turkey's free economic zones attractive to various types of businesses, especially those that are export and international trade oriented.