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Personel Income Tax
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,
Unlimited liability taxpayers
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 taxpayers). 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 Income Tax Code (ITC)
are not treated as resident and therefore, unlimited tax
liability does not apply to them.
Foreign employees who are on an assignment in Turkey
for a specific business project or mission, or those who
are in Turkey for holiday or education are regarded as
nonresident, even if the duration of their stay exceeds
six months.
Most foreign employees working in Turkey are treated
as limited tax payers due to the above provisions.
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.
Limited liability taxpayers
In the absence of a tax treaty, tax residence of a
person is determined as per the ITC.
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
ITC 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 (rental
income): Immovable must be in Turkey;
rights considered as immovable must be used or accounted
for in Turkey.
Income from movable capital investment:
Investment of the capital must be in Turkey.
Other income and earnings (capital gains):
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 taxable Income
Business profit (accrual basis)
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 ITC
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 ITC deals with these activities as the
other income and earnings.
The ITC does not list each commercial and industrial
activity and only refers to the Turkish Commercial Code
(TCC) 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 methods are used to compute business
profits: Lump-sum basis and actual basis in the
former method, the Income Tax Code specifies estimated
business profits for taxpayers who are qualified for
such treatment according to the relevant provisions of
the Code. The main assumption is that those taxpayers
specified by the Code 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 Code.
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 Code;
- 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 Code;
- Payments to the unions;
Payments or expenses, which are not accepted
as expenses: Those payments or expenses 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 income (accrual basis)
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 farmer's gross
revenue or operational size of his farming enterprise is
less than the amount specified by the Income Tax Code,
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 Code (TPC) 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 % 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%
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 Code;
- 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 (legal and economic
possession basis)
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 Codes
or regulations,
- Payments made for pensions,
- Payments made for various insurances,
- Payments made for labor union membership,
Income from independent professional
services (cash basis)
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 is 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 (cash
basis)
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 Code. 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 (legal and
economic possession basis)
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-loss
participation notes and profit-loss 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 (legal and
economic possession and/or cash basis)
Capital gains non-recurring are dealt with by the
Income Tax Code under the heading "Other Income and
Earnings". Capital gains specified in the ITC 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 acted 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.
Tax rate
The lowest income tax rate is 15%, rising
progressively to a top marginal rate of 35%. Income tax
brackets are adjusted for inflation purposes annually.
Individual income tax schedule for the year 2009 as
follows.
Income tax
brackets in TL |
Tax rate |
0 -8,700 |
15% |
8,700-22,000 |
20% |
22,000-50,000 |
27% |
50,000 ... |
35% |
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