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1. Doing Business in Turkey
This Doing Business in Turkey handbook explains the current
arrangements for accounting and auditing in Turkey and gives insight
into the new Turkish Commercial Code. There is reference to
accounting principles, how to setup a business in Istanbul, including
liaison offices, limited and branch companies, payroll costs and VAT
mechanism.
Keywords you’ll find in our Tag Cloud for this report are Tax, Turkey, VAT,
company, business, invest, employment, legal, incentives, accounting, commercial,
labor, limited, registry, audit, stamp tax, accountant, Istanbul, IFRS, payslip, payroll,
EU, doing business, Commercial Code, ledger, outsourcing, set up, setup, bookkeeping,
invoicing, Germany, UK, Russia, export, import and website.
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2. Doing Business in Turkey
Foreword
The Republic of Turkey’s standing as a cultural and geographic crossroads spanning
Europe, Asia, the Middle East, the Mediterranean and North Africa underscores the country’s
growing importance as an economic and geopolitical power.
The large and growing domestic market, mature and dynamic private sector, its leading role
in the region, liberal and secure investment environment, supply of high quality and cost-
effective labor force, customs union with EU countries and its neighbours, developed
infrastructure, a growth economy and competitive tax system make Turkey an attractive
place to do business. Coupled with the traditional cornerstones of the Turkish way of life,
hospitality and tolerance, the country is wide open for business and for foreign investors.
Turkey has its place on the Silk Road of the Third Millennium which is home to some of the
world’s largest energy producers, wealthiest investors, fastest growing economies and more
than half the world’s population.
• It is estimated that Turkey will overtake Canada in 2020 on GDP and Italy in 2024
according to PWC Price Waterhouse Coopers
• Nearly 60 percent of Turkey’s overall exports carried out by small or medium
enterprises - businesses employing less than 250 people.
• SMEs and micro enterprises dominate the Turkish Market. They represent 99% of the
number of companies and 75% of employment, and 46% of business turnover
• The top ranked foreign trade was occupied by industrial exports and a majority of the
business was done in EU countries. The largest Trading Partners are Germany (10%)
and United Kingdom (8%).
• Positive points are stronger-than expected growth but high energy prices, inflation
and renewed global financial unrest pose risks to Turkey.
• Presidential elections are due to take place in 2014
Business in Turkey is personal and often done with friends and relatives and those whom are
liked and trusted. So build friendships and networks first, and expect to make long-term
relationships. A seemingly endless trail of tea and coffee cups will lead you to the decision
maker. Constantly pushing for yes or no answers does not bring results, but talk football and
doors will open. Most of all be patient and the rewards of doing business in such an
historically and culturally rich environment will come.
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3. General Features of Turkey
The Republic of Turkey is a Eurasian transcontinental country that stretches from Southern
Europe to Western Asia. It borders eight nations, Bulgaria, Greece, Georgia, Armenia,
Azerbaijan, Iran, Iraq and Syria. To the south is the Mediterranean Sea, to the west the
Aegean and Marmara Seas and the Black Sea to the north. The coastal areas of Turkey in
the south have a temperate Mediterranean climate, the central plateau of the interior has
sharply contrasting seasons and in the west winter temperatures are cold and summers hot
and dry. The time zone is GMT + 2 hours.
Turkey is 37th largest country in the world with a territoryof over 780,000 square kilometers
subdivided into 81 provinces in seven regions. Ankara is the capital while the largest city and
the country’s business heart is Istanbul with 13 million people. The total population is
78,785,548 (July 2011 est.) people and growing at 1.2% per year. 70.5% of the population
live in urban centers. Turkey is a democratic, secular, constitutional republic whose political
system was established in 1923 by Mustafa Kemal Ataturk, following the fall of the 500 year-
old Ottoman Empire after World War I.
The official language is Turkish with a number of Kurdish speakers. The free-floating national
currency is the Turkish Lira (TL). Office hours tend to be Monday to Friday, 9 – 6pm with
workers working a 45 hour week. Public holidays of 14 days per year are a mix of secular
and religious holidays.
Turkey is a rapidly developing country and the largest national economy in Central and
Eastern Europe. Turkey's dynamic economy is a complex mix of modern industry and
commerce along with a traditional agriculture sector that still accounts for about 30% of
employment while industry accounts for (18.5%) and construction for (4.5%) of employment.
It has a strong and rapidly growing private sector, yet the state remains a major participant in
basic industry, banking, transport, and communication.
Turkey has the sixth largest economy in Europe and the 5th largest labor force. It is the 15th
largest economy in the world. Turkey’s gross domestic product (GDP) exceeded 1 trillion
Turkish lira (nearly 644.3 billion USD) in 2010. Turkey’s economy showed an 8.9 percent
growth in first three quarters of 2010. Turkey is ranked the 15th most attractive destination
for foreign direct investment (FDI) in the world (UNCTAD World Investment Prospects
Survey, 2008-2010). Turkey stands to gain from the forthcoming liberalization of trade in the
Euro-Mediterranean Area which includes all 27 member states of the European Union, along
with 16 partners across the Southern Mediterranean and the Middle East.
Turkey’s population has an average age of 28.5 years with 28% of the population under 14
years old and 64% are between 14 and 60 years old. In 2050 Turkey will have 25% of its
population in the over 60 years-old group; a cushion against the ageing demographic of other
nations in Europe. The per capita GDP is $ $14.090 (PPP). GDP in third quarter of 2010
increased by 6.4% compared to the same quarter of previous year, seasonal and GDP
increased by 1.1% compared to previous quarter. However, Turkey has bounced back
quicker than other economies and forecasts growth of 5% in 2012.
Since 2002, after the Bank Financial Crisis of Turkey, structural reforms aimed at increasing
the role of the private sector in the Turkish economy, enhancing the efficiency and resiliency
of the financial sector and putting social security system on a more sound footing have been
made. The Turkish banking sector, with its strong capital base (around 18%) and effective
risk management practices, is healthy and profitable. With its prudent fiscal policy, Turkey
has reduced its debt stocks, becoming one of the best performers among OECD economies
and has been meeting the EU Maastricht Criteria since 2004.
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4. In fact, a monetary policy framework and notable structural reforms have helped to produce
the best economic performance in Turkey’s modern history.
Foreign trade, both in exports and imports, has grown rapidly and industrial products have
now overtaken the predominant role of agricultural products. Turkey became a member of
the World Trade Organization (WTO) in 1995. Following and agreed a Customs Union with
the European Union on January 1, 1996. In 2008, the share of the European Union member
countries in overall Turkish exports was around 50%. Between 2002 and 2008, Turkey’s
exports to the member countries of the Black Sea Economic Cooperation (BSEC), the
Organization of Islamic Conference (OIC) and the Commonwealth of Independent States
(CIS) increased, and the total export value reached $67 billion with a share of 51% in 2008.
Germany has the top place in a list of countries to receive the largest volume of Turkish
exports in 2010 with $11.4 billion, according to Turkey's statistics authority. Britain and Iraq
followed Germany in the second and third spots with $7.2 billion and $6.5 billion,
respectively. Iran emerged as a rising trade partner for Turkey in 2010 which saw a 50.3
percent increase in its imports from Turkey with $3.1 billion. Iran's exports to Turkey also was
up by 124.5 percent to reach $7.6 billion. Russia (a major supplier of natural gas) was the
top country to make the largest volume of exports to Turkey with $21.6 billion. Turkey ran a
trade deficit of some $17 billion with exports stood at $4.6 billion that marked an increase of
45.2 percent over the previous year.
Turkey's exports amounted to $113.9 billion and imports reached $185.9 billion in 2010. Rise
in foreign trade deficit increased 84.5 percent as imports has risen more than exports. Deficit
in foreign trade balance is calculated as 71.6 percent.
In 2010, capital inflows, excluding changes in reserves (CBRT and banks) were USD 43.9
billion. Portfolio investments and the rise in deposits in domestic banks became the main
drivers of capital inflows. Capital inflows, excluding changes in reserves (CBRT and banks)
were USD 2.9 billion in January 2011. The level of Central Bank reserves is quite robust, with
USD 86.2 billion as of March 25, 2011, serving as an insurance for external shocks.
Energy is a massive growth sector with Turkey as a major energy hub with an annual transit
capacity of 221 million tons of oil and 43 billion M3 of natural gas. Turkey is also a leader in
producing high standard Voluntary Emission Reductions (VERs) from renewable energy
projects and has ratified the Kyoto Protocol in 2009. Voluntary carbon trading projects in
Turkey have increased rapidly.
The current account deficit is a structural problem of Turkey mainly due to her high energy
dependency. That is why Turkey has been applying structural and medium term policies for
reducing the dependency of intermediate goods imports. Energy sector reform program
including issues such as nuclear energy, renewable energy, energy efficiency and
privatization of distribution and generating companies has been carried out since 2003.
The banking sector maintained its robust position during the crisis period as well. Net profit of
the sector, which increased by 50,4 percent in 2009, rose by 9.6 percent in 2010 and
reached TL 22.1 billion. Net return on equity of the banking sector was 20.1 percent in 2010.
Capital adequacy ratio remained high with 18.4 percent as of January 2011 which is well
above the legal rate of 8 percent and targeted ratio of 12 percent.
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5. Turkey-EU Association Council established 8 sub-committees on 11April 2000 to carry out
an analytical examination of the level of harmonization of the Turkish legislation with the
acquis communautaire. The European Council approved the Accession Partnership on 8
March 2001. After the approval of the Accession Partnership, Turkish government
announced its own National Program for the Adoption of the Acquis (NPAA).
A Revised Accession Partnership was approved by the European Council on 23 January
2006 which set the short/medium-term priorities for Turkey. Turkey’s Program for
Harmonization with the EU acquis was published on 17 April 2007. The said Program that
includes the necessary legislative changes for the period 2007-2013 set a roadmap for the
harmonization efforts within the framework of accession negotiations. The 13th Progress
Report on Turkey was published on 9 November 2010, together with the Enlargement
Strategy Document.
However, Turkey claims that ‘what we do not understand is how the process is taken hostage
by narrowly defined interests of some Member States.’ And that 18 out of 22 chapters
pending to be opened are blocked on political grounds.
Turkish standardization in foreign trade regime: The new web-based Product Safety System
(System), sought to carry out electronically import and export controls required by legislation,
was launched in spring 2010 by the Under secretariat of Foreign Trade (UFT). Designed to
be reached from the web using e-Signature, the new control system's objective is to provide
safe and quality products to consumers and firms, to rationalize the allocation of resources in
terms of the control of "risky" products, to reduce the waiting time at the customs, and overall
to render Turkish trade policy more effective.
In 2010, 28.6 million tourists visited Turkey and the country ranked 7th most visited holiday
destination in the world and 9th in terms of revenue from the tourism sector. According to
TÜROFED (The Turkish Hotel Federation), 31 million Tourists are being expected to visit
Turkey in 2011.
Turkey has signed 27 FTAs, of which 10 of them have been terminated due to the
enlargement of the EU in May 2004 and January 2007. Currently, 16 of these FTAs are in
force (EFTA, Macedonia, Croatia, Bosnia-Herzegovina, Albania, Israel, Palestine Authority,
Morocco, Tunisia, Egypt, Syria, Georgia, Montenegro, Serbia, Chile and Jordan.) The FTAs
with Lebanon will enter into force once the internal ratification processes are completed.
Currently, negotiations are ongoing with 11 countries/country groups (Gulf Cooperation
Council, MERCOSUR, Faroe Islands, Ukraine, Libya, Mauritius, Seychelles, South Korea,
Malaysia, Cameroon and Democratic Republic of Congo), and we have initiated to launch
negotiations with 11 countries/country groups (Algeria, Mexico, South African Customs
Union, ASEAN, ANDEAN Community, Central America, African Caribbean States, India,
Indonesia, Canada and Moldova). Turkey is a member of the The Euro-Mediterranean
Partnership established in 1995 which has 44 members including the 27 European Union
member states and 16 partner countries :
Albania Algeria Bosnia & Herzegovina
Croatia Egypt Israel
Jordan Lebanon Mauritania
Monaco Montenegro Morocco
Palestine Syria Tunisia
And with the Free Trade Agreement with Jordan on 1st March 2011, Turkey has
established Free Trade Zones with all Euro-Mediterranean countries except Algeria.
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6. Since 1962, Turkey has been negotiating and signing agreements for the reciprocal
promotion and protection of investments. Turkey has signed bilateral investment treaties
with 80 countries, including with the United States, United Kingdom, Germany, the
Netherlands, Belgium, Luxembourg, Denmark, Austria, Sweden, Switzerland, Spain, Finland,
Italy, Portugal, Hungary, Poland, Romania, Tunisia, Kuwait, Bangladesh, China, Japan,
South Korea, Indonesia, Croatia, Cuba, the Czech Republic, Estonia, Russian Federation
(Russia), Azerbaijan, Kazakhstan, Georgia, Tajikistan, Ukraine, Uzbekistan, Belarus,
Lithuania, Latvia, Slovakia, Macedonia, Pakistan, Turkmenistan, Moldova, Kyrgyzstan,
Albania, Bulgaria, Argentina, Bosnia, Malaysia, Egypt, Mongolia, Greece, Israel, Afghanistan,
Ethiopia, Iran, Lebanon, Syria, Slovenia, Jordan, and India. Turkey has avoidance of double
taxation agreements with 71 countries.
In the World Bank’s 2011 "Ease of Doing Business" table Turkey ranks 65 out of 183
economies. To see the report click here: http://www.doingbusiness.org
Company Establishment Procedures
No pre-establishment permits are required. The company gets its ‘legal entity’ upon
registration at the Trade Registry.
Types of entity will be affected by the Trade Law that comes into effect in July 2012,
including that a resident Manager will be required for most companies and allows the
establishment of Joint Stock companies (“A.Ş.”) with a single shareholder or Limited Liability
companies (“L.Ş.”) with a single partner.
Turkey has a non-discrimination and equal treatment policy towards foreign investors, thus
foreigners have the same rights and liabilities as locals. There are no rules requiring Turkish
participation in the capital or management of a company with foreign capital; a company may
be established with 100 percent foreign capital. Almost all sectors are open to foreign capital.
Applicants should check with a Trade Registry Office to find out if their trade names have
already been registered. The trade name must be in Turkish and not include any sensitive
words or expressions.
The steps to establish a company are to prepare and notarize the Articles of Association,
deposit 0.04% of the capital at the Central Bank, register the company at Trade Registry
Office and Chamber of Commerce. Thereafter the Articles of Association are published in the
Trade Registry Gazette. Once established the Company must be registered at tax the office
and receive its tax plate which must be clearly displayed at the place of business. A tax
inspector will make a visit to verify it and the place of business within a few days of
incorporation. The Registry Office also notifies the Ministry of Labor and Social Security of
the incorporation and both the company and its employees must be registered with that
administration. The Registered address of the Company must be stated in the Articles of
Association, and any changes must be registered. The legal books of the company – the
Journal, Ledger, cash book and Inventory book, must be certified by a notary on the day the
company is registered.
If all company capital is not paid in advance, 25% of the initial capital must be deposited
within three months of company incorporation, and the balance of the subscribed capital
must be paid within three years of incorporation. The capital can be used immediately. The
transfer of capital from abroad must be clearly marked as ‘Capital Transfer’ Incorporation and
pre-operating expenses are deductible.
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7. Electronic communications services may be provided and/or electronic communications
networks or infrastructure may be constructed and operated in accordance with the
strategies and policies of the Ministry of Transport, upon receipt of the authorization known
as the “Authorization Certificate for Unrestricted Number of Use” from the Information and
Communication Technologies Authority (ICTA).
Employment Work Permits
Applications for work permits can be made inside or outside Turkey: Foreigners residing
outside Turkey shall apply to the relevant Turkish Consulate of either his/her country of
residence or his/her country of citizenship. Foreigners with a valid residence permit (valid for
a minimum of 6 months, except for residence permits for educational purposes) can apply
directly to the Ministry of Labor and Social Security.
At the workplace for which the work permit is requested, at least five persons who are
citizens of the Republic of Turkey must be employed. In case the foreigner requesting the
work permit is a co-partner of the company, the aforementioned conditions related to the
employment of five Turkish citizens will be required for the last six months in order for work
permit to be granted by the Ministry. For every additional work permit an additional five
Turkish are required to be employed.
Independent Audit
Regulated sectors such as Banks, Private Finance Institutions, Insurance, Financial Leasing,
Factoring, Holdings, Foreign Currency Exchange Offices, Public Warehousing, founders and
operators of Free Trade Zones and companies are subject to the Capital Markets Law and
must register with The Ministry of Commerce and Industry. These entities are also subject to
an Independent Audit. The New Turkish Commercial Code will bring new regulation whereby
the internal auditor of a Joint Stock Company (A.Ş.) is replaced by independent audit firms or
by sworn financial advisers (Yeminli Mali Müşavir or YMM) or independent accounting
financial advisers (Serbest Muhasebeci Mali Müşavir or SMMM). The auditor must be
replaced by another auditor for at least two years, if the auditor submitted audit reports for
that company for seven consecutive years. The independent auditor for the accounts for the
fiscal year 2013 should be appointed before 1 March 2013.
Company Websites
All companies are obliged to found a web site with a section for the use of shareholders and
society. The web site shall include all the reports and announcements made by the company,
annual reports, financial statements and audit reports. Penalties apply for failure to comply
with these obligations.
Foreign Exchange Controls
Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of
capital. There is no difficulty in obtaining foreign currency, and there are no restrictions on
foreign currency except under some special circumstances connected to oil and gas
exploration activities.
Types of Business Entities
The main company types in Turkey are Limited companies, Joint Stock companies and partnerships of
commandite and collective companies. Sole proprietors can also be established. All business can be
100% owned by foreigners. Foreign businesses can also open Liaison or Branch Offices in Turkey.
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8. Participation to a previously established company can be done in two ways, through either share
transfer or contribution to the companies’ capital increase.
Limited Liability Company- Limited Sirket (Ltd. Sti)
A Limited Liability Company can be set up by at least two and up to 50 real persons or legal
entities. The liability of the shareholders is limited to the share capital of the company.
Minimum capital requirement is 5,000 Turkish Lira (TL) in 25TL shares. No stock certificates
are issued. Decisions relating to capital increase, dividend distribution, appointing a local
manager and exit strategy are required to be taken by a majority of shareholders regardless
of their shareholding percentage. Therefore, if there are only two shareholders and both are
not available or in disagreement, the decision making process could be blocked. This is why
four is the minimum recommended number of shareholders in order to manage a Limited
Liability Company effectively. In 2012 it will be possible with only one shareholder.
Joint Stock Companies – Anonim Sirket (A.S)
The company’s stock capital is divided into shares and the liability of the shareholders is
limited to the capital subscribed and paid by the shareholder. The minimum number of
shareholders of a joint stock company is five whether real person so or legal entities. The
minimum share capital amount is 50,000TL. The company must hold a general assembly
meeting every year, hold a board of directors meeting attended by at least three members.
The Articles of Association can be drafted in a way that provides more voting rights of to the
minority shareholders to protect them from any unfair decisions by the majority shareholder.
Banks, private finance institutions, insurance companies, capital leasing companies,
factoring companies, holding companies, companies operating as foreign currency exchange
offices, companies dealing with public warehousing, publicly held companies within the
scope of the Capital Markets Law, companies established and operating within free zones
should be established as Joint Stock Companies and are subject to permit by The Ministry of
Industry and Trade. In 2012 it will be possible with only one shareholder.
Branch Offices of Foreign Companies – Şube
Companies based abroad whose capital is divided into shares can open branches in Turkey.
Opening a Branch requires prior approval from the Ministry of Industry and Commerce.
Liability for the branch’s liabilities lies with the Parent Company. The process to open a
branch is longer and more expensive than a simple limited company.
Liaison Offices – Irtibat Burosu
Special permission can be granted by the Directorate General of Foreign Investments for
Liaison Office status. The office cannot issue invoices or get involved in revenue generating
activities but solely acts as a sales and marketing office. Orders for goods are placed with
the related entity abroad. Liaison offices have all their expenses such as rental, utilities, car
leasing, etc. paid for by the mother entity abroad. The liaison office permission is renewable
on application once every three years. An annual statement is sent to the Foreign Ministry to
show all expenditures as paid for by the mother foreign entity. Liaison office employees
receive their salary in foreign currency sent from abroad and are not liable to income tax if all
applicable conditions are met. The employer is liable to meet the social security costs of the
liable employees in Turkey. However, many foreign nationals working in Turkey can apply for
exemption if they continue to pay social insurance in their home country. Turkey has such
agreements with 22 countries.
Starting a Business in Turkey
The six steps to set up a business are:
LIMITED COMPANY Legal Form: Ltd. Sirketi City: Istanbul
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9. Step 1
Execute and notarize articles of association, signature declaration of the managers, copies of
each manager’s identity card or passport and commercial books.
Step 2
Deposit of 0.04% capital to the account of the Competition Authority.
To register with the Commercial Registry, founders must obtain the original receipt from
Ziraat Bank. This receipt shows that 0.04% of the company’s capital has been paid to the
Competition Authority at the central bank or a public bank.
Step 3
File the incorporation notice, commitment letter, and Chamber registration statement at the
Trade Registry Office. Membership fees of the Chamber of Commerce are based on capital.
The Commercial Registry Office notifies the Tax Office and the District Employment Office
about the company incorporation. The Registry arranges for an announcement in the
Commercial Registration Gazette within about 10 days of company registration.
A tax identification plaque is obtained from the local tax office after the Commercial Registry
Office notifies it. The Registry Office also notifies the Ministry of Labor and Social Security,
Directorate of the Social Security Institution of the incorporation. A social security number is
obtained from the relevant Social Security Administration office, and company employees
must be registered with that administration.
Step 4
Have a notary certify the legal books of Journal, Ledger, Case book and Inventory book
Step 5
Follow up with the tax office on Commercial Registry’s notification
Step 6
Deposit the initial capital in a bank and obtain the certificate of paid-in capital.
For Further Information http://www.doingbusiness.org/data/exploreeconomies/turkey/
Companies are required to appoint an accountant (SMMM).
Closing a business
Liquidation requires the appointment of a clerk who will be responsible for closing the
business and, if there are no legal or tax issues, this may take up to 13 months. During this
time accounting services and paying stamp tax on declarations will still be required.
Taxation in Turkey
Taxes are levied on income both personal and corporate, on property and on motor vehicles.
Taxes are levied on expenditures and include Value Added Tax, Excise Duty, Customs Duty,
Banking and Insurance Transactions Tax, Special Communications Tax, Stamp Duty and
Fees Tax. Other Taxes include Announcement and Advertisement Tax, Entertainment Tax,
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10. Communications Tax, Electricity and Gas Consumption Tax and Environmental Consumption
Tax.
Approximately 70% of the total tax revenue in Turkey is collected through indirect taxes
showing that the Turkish state depends on indirect taxes in securing the necessary budget
financing.
There is a special taxation method for multi-year construction and repair works that allow for
the final determination of the profit and loss in the year in which the work ends, and declared
in the tax return for that year. A withholding tax is levied on progress payments. In case the
final offset is greater than the total taxes paid over the project period, difference is refunded
to the tax payer. However, the receivables of the taxpayers who don’t submit an application
within one year become null.
Consolidation for tax purposes is not allowed. Each entity is subject to tax on a stand-alone
basis.
Corporate Income Tax
The corporate Income 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 by the Income Tax Law. In other words, the Corporate Income Tax Law sets
provisions and rules applicable to the income derived 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.
Corporation Tax Annual Returns are generally filed between 1stand 25thApril. Advance
Corporate Income Tax returns are filed by the 10th and paid by the 17th of the second month
after each quarter. Corporate income tax rate 20%
Corporate Income Tax Structure
Example of calculation effective tax burden
Corporate Income 100
Corporate Tax 20% -20
After-tax income 80
Distributable profit 80
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11. Dividend WHT 15% -12
Net Dividend 68
Effective Tax Burden 32%
Legal Reserves
Turkish companies are required to set aside legal reserves out of their profits at relatively low
percentages.
First level legal reserves
Joint Stock (AS) and Limited Liability Companies must set aside 5% of their net profits each
year as a first level legal reserve up to a maximum of 20% of the paid-up capital.
Second level legal reserves
The second level reserves are equal to 10% of profits distributed after the deduction of the
first level legal reserves and the minimum obligatory dividend pay-out (5% of the paid-in
capital). There is no ceiling for the second legal reserves and they thus need to be set aside
every year.
Payroll Taxes / Costs
Social Security is totally 33.5% of a maximum gross salary amount declared by the Ministry
of Finance (MOF) once every 6 months of which, the employer’s contribution is 19.5% and
the employee’s contribution is 14%. Unemployment Fund contributions are 2% by the
employer and 1% by the employee of the gross salary amount declared by MOF once every
6 months. Also, a Payroll Stamp Tax of 0.6% of the gross salary is applied. Premiums paid
by an employee for personal private insurance should not exceed 5% of the monthly wage
and premiums, membership fees and contribution shares shall not exceed 10% without
attracting tax. Wages paid in foreign currency are converted at the FX market rate on the
date of payment. The employer pays the due taxes to tax office on behalf of the employee by
20th of the following month. Typically work contracts are signed in net amounts with the
employer responsible for the gross amount.
Cost of Employee to Employer Chart
Minimum Monthly Wage $ 400
Gross Minimum Wage $ 506
Employee Deduction
Social Security Premium (14%) $ 71
Unemployment Fund (1%) $5
Income tax (15%) $ 65
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12. Minimum living allowance $-38
Stamp tax (0.6%) $3
Total deduction $106
Cost for Employer
Gross minimum wage $506
Employer’s share of social security premium (19.5%) $98
Employer's payment into unemployment insurance fund (2%)
$10
Total Cost for Employer $614
Source: Ministry of Labor and Social Security of the Republic of Turkey
Valid for the first half of 2011
For single individuals without children and may vary according to marital status and
number of children. USD 1 = TRY 1.58 in 2011
Minimum Wage
Minimum (gross) wage, calculated per month of 30 days, to be applied for people older than
16 ages has been determined as TL 796,50 monthly, TL 26,55 daily for the first half of 2011
(01.01.2011 - 30.06.2011) and TL 837,00 monthly, TL 27,90 daily, for the second half of
2011 (01.07.2011 – 31.12.2011) by Minimum Wage Determination Commission.
Personal Income Tax
‘Resident tax payers’, who have their legal residence in Turkey and who reside in Turkey for
a continuous period of more than six months within one calendar year, are considered to be
settled in Turkey and are taxed over their earnings and revenues in Turkey and abroad.
Businessmen, scientists, experts, officials, press correspondents, and other individuals with
similar status, as well as those who have arrived for purposes of education, or of medical
treatment, shall not be considered settled in Turkey, even if they have remained for more
than six months in the country. Therefore, they are considered as ‘limited liability tax payers’
and are taxed solely on their income acquired in Turkey.
There are two tax scales – one for other income and one for salaried income:
2011 Progressive Income Tax Rate – Other Income
15% for income between 0 – 9400 TL
20% for income between 9401 – 23,000 TL
27% for income between 23,001 – 53,000 TL
35% for income of 53,001 TL and over
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13. 2011 Personal Progressive Income Tax Rate from SALARY
15% for income between 0 – 9400 TL
20% for income between 9401 – 23,000 TL
27% for income between 23,001 – 80,000 TL
35% for income of TL 80,001 TL and over
Annual Personal Income Tax return for other income is filed by 31st March of the year
following the related tax year ending on 31st December. Self-employed people make
advance payments 4 times in each year at a standard rate of 15% of the net profit.
Payments such as severance payments in Turkey and retirement pension paid by social
security institutions located in foreign countries, as well as lump sum payments to surviving
spouses are excluded from assessment Indemnity and Assistance for income tax. There are
miscellaneous exclusions for benefits-in-kind such as free meals provided to employees in
places of business or luncheon vouchers given to employees per working day which are
excluded from income tax. The portion exceeding the upper limit is subject to income tax.
Mass transit in shuttle vehicles for employees from and to their homes is also excluded from
income tax but vehicles for upper level employees used exclusively as a private cars shall be
treated as wage payment. Provided that there is a ‘contract’ between the employer and the
employee, expenses incurred using the employee’s personal car for business purposes can
be deducted; as are the expenses in leasing a car in the name of the enterprise for the
employee’s use and they are not treated as taxable income.
Exemption amounts to be applied for the payments to be made by the insurance companies
to those insured and severance pay and child allowance payments exempt from income tax,
which are calculated based on the coefficients specified under article 21 of 2010 Central
Management Budget Law accepted by the Turkish Grand National Assembly in their General
Assembly dated 26 December 2010 and which will be applied during 01.01.2011-30.06.2011
period are: Maximum severance pay amount to be exempted from income tax TL 2.617,70.
A radical cut in severance payments is one of the main reforms expected as part of Turkey’s
new national employment strategy in 2012.
Pay slips can be delivered electronically providing proof of delivery is available.
Employees typically have seven days from the issue of documents such as dismissal notices
to dispute its contents.
Minimum Living Allowance
A minimum living allowance amounts calculated at minimum wage is deducted from the final
tax liability calculation. This amount is published by the related authorities every year.
Value Added Tax (VAT)
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14. 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 part of the person who supplies, 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 an entity on its sales (output VAT) and the amount of VAT the entity has already
paid on its purchases (input VAT).
VAT Rates vary from 1% for certain agricultural products, 8% for basic foodstuff, textile
products etc. and a general rate of 18%. VAT returns are submitted monthly by the 20th of
the following month and paid by the 26th.
Deliveries and services, importation of goods and services, communications services
including radio and television, games of chance, professional concerts and sports
competitions, auctions, movement of energy through pipelines, delivery and importation of
ornaments and coins that contain gold, property rental are all subject to VAT. Non
residence does not change the nature of these transactions.
Where the taxpayer has no legal residence, place of business, the Ministry of Finance holds
the taxpayer that is part of the related transaction in Turkey responsible for the transaction.
VAT has to be recorded in the legal books and documents.
VAT Deduction Mechanism
VAT payable on local purchases and on imports is regarded as "input VAT" while VAT
calculated and collected on sales is considered as "output VAT". Input VAT is offset against
output VAT in the VAT return filed at the related tax office by the 20th of the following month.
If output VAT is in excess of input VAT, the excess amount is paid to the related tax office.
However, if input VAT exceeds the output VAT, the balance is carried forward to the
following months to be offset against future output VAT. There is no cash refund to recover
excess input VAT, except for exportation and other special cases.
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 parties
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. This VAT does not create a tax burden for the Turkish or for the non-resident
company, except for its cash flow effect.
Export exemption for VAT
To recognize an export delivery, it must be made to a customer abroad, to a free zone, or
bonded warehouse, it must cross the Customs Line of the Republic of Turkey and arrive in a
foreign country. A service must have been performed for a customer abroad and the benefit
derived abroad.
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15. Non-residents can reclaim VAT for goods they purchase to take out of Turkey by presenting
the invoice or sales document at the point the goods pass through customs.
Goods and services purchased in connection with transport activities, participation in fairs,
markets or exhibitions are refunded on the principle of reciprocity.
VAT on goods delivered by manufacturers to exporters for subsequent export are not paid by
the exporter. This tax, is declared on the tax return, assessed, accrued and deferred. If the
goods are exported within three months (or extension period of up to additional three
months) the deferred tax is written off. If the export is not made, the deferred tax plus a delay
surcharge is assessed. The VAT to be refunded to the manufacturer is paid following the
completion of the export.
Import VAT
The VAT on importation of goods is assessed by the customs authorities on each individual
import and is payable together with customs duty. Where the transaction is exempt from
customs duty or in the case of international transportation, VAT is assessed upon a special
declaration made at the customs territory and is payable at the time the taxable event occurs.
The taxpayer is the individual or entity who has the title of the imported goods.
The tax base is the total value of the following elements: the value of the imported article
used for the assessment of customs duty or if the item is exempt then the value including
insurance and freight charges (CIF); all taxes, duties, expenditures, and charges paid during
importation; other expenditures such as price differentials and foreign exchange rate
differentials based on the value of the article.
Tax Base for VAT
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.
In order for discounts to be excluded from the tax base they should be disclosed on the
invoice or documentation, at that time, and conform with commercial practices. Credit
charges, price differentials, interest and premiums, even if disclosed separately to the
invoice, are included in the tax base.
In case if the cost has been quoted or indexed in foreign currency, the foreign gains accrued
in favor of the supplier are taxed as component of the tax base. In the case of the foreign
exchange gain in favor of the buyer, an invoice should be drawn up by the buyer to the
supplier covering the amount of foreign exchange gain that has been accrued. VAT is
applied as of the date which the goods or services were delivered.
In the case of the return of the goods or non performance of the service the taxpayer subject
to taxation can correct and deduct the tax during the period in which the change occurred.
VAT for Partnerships
Ordinary partnerships have a separate tax payer status and are required to keep legal books,
file tax returns and pay taxes separately from its partners. Transfers of shares when they do
not result in the termination of the partnership are exempt from VAT. Although the VAT
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16. return is drawn up in the name of the partnership and signed and filed by one of the
shareholders, all shareholders are jointly responsible for the payment of the tax. A list shall
be attached with the names, addresses and the tax offices of the partners.
VAT on Sales of Shares
Sales of shares in an Joint Stock company (Anonim Sirket A.S) are exempt from VAT. A sale
of shares in a Limited Liability Company (Ltd. Sti.) by a company partner is exempted from
VAT, if the participation is held for at least two years. A sale of shares by an individual is not
subject to VAT.
Withholding Tax
Under the Turkish tax system, certain taxes are collected through withholding by the payers
in order to secure the collection of taxes. These include income tax on salaries of employees,
lease payments to individual landlords, independent professional service fee payments to
resident individuals, and royalty, license and service fee payments to nonresidents.
Companies in Turkey are responsible to withhold such taxes on their payments and declare
them through their withholding tax returns.
Filed by the 20th day and paid on the 26th of the following month. Companies with less than
10 employees can apply to file quarterly.
Tax withholding on dividends distributed by corporations
Withholding tax of 15% is applied on the dividends distributed by resident taxpayers to
resident and non-resident real persons and non-resident corporations. Declarations are filed
by the 20th day and tax paid by the 26th of the month following the dividend distribution.
Royalties, management fees, technical assistance fees and similar professional service fees
paid to a non-resident are normally subject to withholding tax at source at 20 percent, unless
a tax treaty provides relief. Dividends paid by a resident corporation to another resident
corporation (or to a Turkish branch of a foreign corporation) are not subject to dividend
withholding tax.
Some types of payments to entities in low tax jurisdictions have a 30 percent withholding tax
in line with anti avoidance rules.
Other Taxes
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. Withholding Tax on interest 15%, Transaction tax on checks, also
Banking and Insurance company transactions remain exempt from VAT, but are subject to a
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17. Banking and Insurance Transaction Tax (BITT) of 5%. Foreign exchange transactions are
subject to 0.1% BITT.
Vehicle Taxes
Fuel tax included in fuel price
The amount of Motor Vehicle Tax for land transportation vehicles is determined according to
their weight, age, cylinder capacity and is published annually in the official gazette.
Property Tax
Property taxes are paid each year on the tax values of the related real estate at rates varying
from 0,1% to 0.3% of the value assessed and declared by the government every year for
each region of the country and for each type of real state. 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.
Property transfer fee 1.5% based on sale price
Stamp duty on property sale 0.8%
Stamp Tax
Stamp tax is levied as a percentage of the value stated on the agreements. Please note that
salary payments are subject to stamp duty over the gross amounts paid, whereas a lump
sum stamp tax is calculated for financial statements.
Some documents prepared in Turkey (contracts, share purchase agreements, loan contracts,
and mortgage instruments, etc.) are subject to stamp duties, based on transaction value.
Loan contracts (and security documents, such as a mortgage) for a loan from a local or
foreign bank are exempt from the stamp duty. Merger agreements (taxable or tax-free
mergers or tax-free divisions) are not subject to stamp duties. Stamp tax payments are
recorded in a ledger and declared periodically. Stamp Tax is payable by the parties who sign
a document. Each and every signed copy of the agreement is separately subject to Stamp
Tax.
Special Consumption Tax (OTV)
There are different product groups that are subject to OTV at different tax rates:
(1) Petroleum products, natural gas, lubricating oil, solvents and derivatives of solvents
(2) Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
(3) Tobacco and tobacco products, alcoholic beverages
(4) Luxury products
Environment Protection Tax
Municipalities are authorized to collect what is called Environment Protection Tax in
contribution to the financing of certain services, such as garbage collection. This tax is levied
at scheduled fixed amounts that vary according to the location of the office where the related
services are being provided. For houses, the environmental tax is levied according to the
water consumption of the domiciles. The taxpayer is considered to be the occupant of the
premises, whether as owner or tenant.
Advertising Tax
Advertising tax at various rates especially for alcohol and tobacco advertising
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18. Tax Filing Periods
Corporate income tax
If filing by calendar year financial statements due by April 25 - late filing subject to a fine.
Advance corporate income tax
Filed by the 10th and paid by the 17th of the second month after each quarter.
Withholding tax
Filed by the 20th day and paid on the 26th of the following month. Companies with less than
10 employees
can apply to file quarterly.
VAT
Filed monthly by the 20th of the following month and paid by the 26th.
Personal income tax
Annual return filed by March 25 of the year following the end of the tax year on December
31. Payment at the end of March and June.
Other Tax Issues
Transfer Pricing
Turkey is a member of the OECD and acknowledges the organization’s transfer pricing
guidelines. On the other hand, as Turkey’s transfer pricing regulations are new and at the
development stage, they have yet to fully incorporate all the principles contained under the
OECD Guidelines.
As an attachment to the corporate tax returns taxpayers are required to submit an annual
transfer pricing form, including a list of related parties, relevant transactions during the
period and their total amount, and the transfer pricing methods used.
The term “related party” refers to:
• Shareholders of an entity;
• Individuals or entities related to shareholders or the entity itself;
• Individuals or entities that area directly or indirectly under the management, audit , or
capital control of the entity or its shareholders;
• Shareholders’ spouses;
• Relatives of the shareholders or their spouses including upper and lower lineage with
third degree relationships by blood or marriage.
In addition to the form, taxpayers should also prepare annual reports representing how arm's
length price and methodology are determined, together with sufficient supporting evidence.
Disguised profit distribution through Transfer Pricing
The four significant concepts are: if the person or entity is engaged in buying goods and
services; from related parties; at prices or amounts that do not conform to ‘arm’s length’ or
market value principles; and as determined by the Ministry of Finance. Taxpayers are
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19. allowed to choose from: Comparable Price Method; Cost Plus Method with the cost of the
goods or services increased by a ‘reasonable gross profit ratio’; and Resale Price Method.
Thin Capitalization
The thin capitalization issue is rearranged in the Turkish Corporate Income Tax Law Article
12. According to the article, if the ratio of the borrowings from shareholders or from persons
related to the shareholders exceeds three times the shareholder’s equity of the borrower
company at any time within the relevant year, the exceeding portion of the borrowing will be
considered as thin capital. The scope of the term “related parties” consists of shareholders
and the persons who are related with the shareholders that own 10% or more of the shares,
voting rights or rights to receive dividends of the company.
The shareholder’s equity of the borrower company is defined as the total amount of the
shareholder’s equity of the corporation at the beginning of the fiscal year, or the difference
between the assets and the liabilities of the company. If the company has negative
shareholder’s equity at the beginning of the year, then any borrowings from related parties
will be considered as thin capital.
If thin capitalization exists, the interest paid or accrued, foreign exchange losses and the
other similar expenses calculated over the loans that are considered as thin capital are
treated as non-deductible for CIT purposes. Moreover, the interest paid or accrued and
similar payments on thin capital will be reclassified at the end of the relevant fiscal year as
distributed dividends and will be subject to withholding tax.
Intangible Rights and Disguised Profit Distribution
The arm’s length value should be the price that the owner of an intangible asset would agree
to transfer the right to a third party in an uncontrolled transaction.
Works undertaken as an Ordinary Partnership / Joint Venture / Consortium
Ordinary Partnerships do not have corporate income tax liability and its partners are
separately registered as liable for income tax or corporate income tax. Joint Ventures are
liable for corporate income tax.
However, Consortiums are not clearly defined in the Turkish Tax Legislation, but typically
used for construction work with separable segments. Although one partner is the addressee
of the tax office, each member accounts for its own income and expenses and profit or loss
per its own segment of the work. The consortium terminates on the completion of the work.
Tax Assessment for Non-resident Foreign Transport Companies
Firms are taxed on revenue considered to have been generated in Turkey. For land transport
the passenger, cargo and baggage transport fees within the borders of Turkey, sea and air
transport fees from loading points in Turkey and commission on tickets sold in Turkey are
considered revenue.
The corporate income tax base is assessed from the sum of the value multiplied by the
related ratio - land: 12%, sea: 15% and air: 5%.
For example, value of 150,000 x Sea Ratio 15% = 22,500 TL
CIT Base 22,500 TL x Tax Rate of 20% = 4,500 TL. A tax withholding will be applied on the
portion of the revenue transferred to the head office: 22,500 – 4,500= 18,000 x 15% = 2,700
TL.
Offset Losses
Losses can be carried forward five years. No carry back is possible.
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20. Employment Law
Employment in Turkey is mainly governed by Turkish Labor Law and Trade Union Law.
Under Turkish Labour Law, there are four different types of job contract:
a) Job contracts for “temporary” and “permanent” work
b) Job contracts for a “definite period” or an “indefinite period”
c) Job contracts for “part-time” work
d) Job contracts for “work-upon-call”
Job contracts do not have to be concluded in a specific format. However, if a job contract is
signed for a definite period, it must be concluded in writing. Job contracts are exempt from
stamp tax and other duties.
Any kind of discrimination among employees with respect to language, race, gender, political
opinion, philosophical approach, religion or similar criteria is prohibited by law. Discrimination
based on the gender of an employee is prohibited when determining the amount of
remuneration for employees working in the same or equivalent jobs. Should the principle of
equality be violated, the employee who is subject to discrimination can request monetary
compensation.
Turkey has signed many International Labor Organization (ILO) conventions protecting
workers' rights. Turkey's labor force has a reputation for being hardworking, productive, and
dependable.
Working Hours, Overtime and Overtime Wage
Under the Labor Law, the maximum normal working hours are 45 hours per week. In
principle, 45 hours should be split equally among the working days. However, under the new
rules introduced by the new Labor Law, working hours may be distributed unevenly over the
working days provided that the total daily working hours do not exceed 11 hours a day and
that the parties agree on the uneven distribution of the working hours over the working days.
Hours exceeding the limit of 45 hours per week are to be paid as “overtime hours”. Payment
for the overtime hour must be 1.5 times the regular hourly wage/salary. Instead of the
overtime payment, employees may be granted 1.5 hours of free time for every overtime hour
worked. Overtime hours worked during weekends and public holidays are to be paid at twice
the regular hourly rate. These rates are the minimum set by law and may be increased on
the basis of a collective or bilateral agreement between employees and the employer. The
total number of overtime hours worked per year may not exceed 270 hours.
Days off
Employees are allowed to take a rest for a minimum of twenty-four hours (weekly rest day)
without interruption within a seven-day time period.
Night Shifts
“Night” means the part of the day beginning not later than 20:00 hours and ending not earlier
than 6:00 hours, and lasting no longer than 11 hours in any case. Night work for employees
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21. must not exceed seven and a half hours.
In establishments where operations are carried on day and night by alternating shifts of
employees, the alternation of shifts must be arranged that employees are engaged on night
work for not more than one week and are then engaged on day work the following week.
Alternation of work on night and day shifts may also be carried out on a two-week basis.
Annual Leave
There are five paid public holidays per year (January 1st, April 23rd, May 19th, August 30th,
October 29th), plus two paid periods of religious holiday, which comes to eight days in total.
Employees are entitled to paid annual vacation for the periods indicated below, provided that
they have worked for at least one year including the probation period:
Years of work Minimum paid leave period
1 - 5 years (inclusive) 14 days
5 - 15 years 20 days
15 years or longer 26 days
These benefits are the minimum levels set by law and may be increased on the basis of a
collective or bilateral agreement.
Under the law on the amendments to Turkish Labor Law, wages and salaries must be paid in
Turkish Lira (TL) into the bank account of employees. If wage and salary amounts are not
paid into employees' bank accounts, an administrative penalty totaling TL 100 per employee
(per month) is charged to the employer. It is possible to denominate wages/salaries in terms
of a foreign currency. In this case, wages/salaries shall be paid in TL calculated on the basis
of the relevant foreign currency rate prevailing as of the payment date.
For employees below the age of eighteen and above the age of fifty, the length of annual
leave with pay must not be less than twenty days. The length of annual leave with pay may
be increased by employment contracts and collective agreements.
Foreign Employees
Foreigners employed legally in Turkey can either apply for Work Permits from the Ministry of
Labor and Social Security or from the Consulates and Embassies of the Turkish Republic
abroad. Many visitors can buy a sticker visa on arrival and stay between 30 to 90 days, some
passport holders have to apply in advance for a visa. Please check with the Ministry of
Foreign Affairs. Turkey has signed Social Security Agreements with 22 countries: Albania,
Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Canada and the Province of
Quebec, Czech Republic, Denmark, France, Georgia, Germany, Libya, Luxembourg,
Macedonia, Norway, Romania, Sweden, Switzerland, Turkish Republic of Northern Cyprus,
The Netherlands, The United Kingdom.
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22. Termination of Employment
According to the relevant provisions of the Labor Law, employers and employees are
required to give specified notification periods prior to the termination of employment, as
shown in the following table.
Required minimum notification periods for employers and employees
Duration of service Duration of notification period
0 - 6 months 2 weeks
6 - 18 months 4 weeks
18 - 36 months 6 weeks
more than 36 months 8 weeks
There are two types of termination for a job contract:
1) Termination with notification
2) Termination without notification based on justifiable reasons
Termination with notification
Both the employee and the employer may terminate a job contract concluded for an indefinite
period based on the notification periods indicated in the above table. The employer may
terminate a job contract by paying the salary of the employee corresponding to the
notification period. However, the employee covered by the labor security preserves the right
to subject the validity of the termination of employment to judicial review.
Termination without notification based on justifiable reasons
Both the employer and employee have the right to terminate a job contract without
notification under the following conditions:
• Reasons of health
• Cases arising from misconduct and similar reasons
• “Force majeure” events that prevent the employee from working for a period exceeding
one week.
Termination indemnity (severance pay)
A lump-sum termination indemnity is to be paid to employees whose employment is
terminated due to retirement or for reasons other than resignation or misconduct. Such
indemnity pay is calculated on the basis of thirty days' pay per year of employment at the
gross rate of pay applicable at the date of retirement or leaving. However, the thirty days’
payment per year of employment may not exceed a semi-annually determined limit.
Indemnity may be agreed to be paid at an amount higher than the limit indicated above in
case there is a provision in the contract of employment.
Termination indemnity paid within the limit specified is exempt from income withholding tax.
However, the amounts of indemnity paid in excess of the limit shall be subject to income tax.
The reasons on the basis of which employees are entitled to receive termination indemnity
are as follows:
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23. a) Leaving workplace due to the compulsory military service (for males)
b) Retirement (in order to receive old age, retirement pension or disability allowance from the
relevant insurance institutions)
c) Voluntary termination by female employees within one year following the date of marriage
d) Death of the employee
Turkish Social Security System (SGK)
Social security premiums (as a percentage of employee's gross earnings) are payable by
both employers and employees. The below table shows the rates that apply in the case of
office employees in the private sector. Rates for employees working in specific sectors (such
as mining, oil/gas exploration) may vary depending on the risk category of the work
performed.
Social Security Premiums (office employees)
Type of risk Employer's Employee's Total
share (%) share (%) (%)
Short - term risks 1-6.5* - 1-6.5*
Long - term risks 11 9 20
General health insurance 7.5 5 12.5
Contribution to unemployment 2 1 3
insurance
Total 21.5* 15 36.5*
*The rates change according to the risk categories of jobs. Depending on the
risk category, the employer's share varies between 1% and 6.5%.
Foreigners making social security contributions in their home countries do not have to pay
the Turkish social security premiums if there is a reciprocal agreement between the home
country and Turkey.
Unemployment Insurance Premium Payments
Employees, employers and the state are required to make a compulsory contribution to the
Unemployment Insurance Plan at the rates of 1%, 2% and 1%, respectively, of the gross
salary of the employee. Like the social security premium payments, unemployment insurance
premiums are also to be paid on a monthly basis. Employers are able to deduct such
contributions from their taxable income. On the other hand, an employee’s contributions are
deductible from the income tax base of the employee.
A foreign individual who remains covered under the compulsory social security system of his/
her home country that has a social security agreement in effect with Turkey is not liable for
insurance payments to the Turkish social security. The proof of foreign coverage is to be filed
with the local social security office. If the employee is not subject to a foreign social security,
full contributions would generally be imposed. Unemployment insurance premiums are
declared and paid to the Social Security Institution together with social security premium
contributions.
Invoicing in Turkey
All invoices must contain the following minimum information: the date, series and sequence
number, the name and commercial title of the business, the business address; the
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24. company’s registered tax office and account number; the customer’s name, commercial title,
the type, amount, price and total value of the goods or services; the date of delivery. A
consignment invoice, which is a combination of invoice and waybill, is allowed but must be
drawn up in at least three copies; with two copies accompanying the goods in the vehicle
carrying the consignment. In the event of required information being missing the invoice is
regarded as not having been issued at all.
Invoices are to be given consecutive sequence numbers; issued with at least one original
and one copy, more than copy is to be marked with its number; the signature (which can be
printed) of the owner or authorized representative of the business and company stamp
should be at the top of the invoice.
Invoices have to be issued within seven days of the date of the delivery or performance of
the service, otherwise they will be considered void. The customer is obliged to present its
documents for identity and tax office account number if requested by the issuer of the
invoice.
Invoices have to be printed by a printing house that has a special contract with the Ministry of
Finance.
There are penalties for failure to issue receipts and invoices.
Expenses
Accounting for Deductible Expenses
Expenses should be directly relevant to the acquisition and continuation of business profits,
that they are commensurate with the volume of the business. Some non deductible expenses
include cell phones that are not recorded to the name of the enterprise.
For expense recognition of hospitality and entertainment, there should be business
relationship with the firm, the expenses in line with size of the business and expected
outcome and should not breach public morality and laws. For business travel and
accommodation the ‘actual expense method’ or the ‘allowance method’ can be used. Per
Diem levels are set against those given to State civil servants with the same monthly salary,
or the highest limit granted by the State. Allowances exceeding this amount are subject to
taxation as a wage payment. Recently, expense documents by sales representatives abroad
commensurate with the business have been recognized as deductible expenses, even in
cases where they are drawn up to the employee’s own name and not that of the firm. Medical
services in private polyclinics paid by the enterprise are treated as wage expense and
subject to withholding tax and are treated as a benefit provided to employees.
Expenditures incurred in tenders for construction work such as surveys, travel and
miscellaneous expenses incurred in connection with the tender guarantee and stamp duties,
even if the tender is not awarded, are deductible. However, payments made for purposes of
persuading other parties to withdraw a tender cannot be accepted as deductible expense.
Payments that are not legal are disallowable. Expenses related to attorneys and lawsuits
may be treated as deductible unless the lawsuits have been filed due to the personal fault of
the enterprise.
Grants and donations to recognized foundations are deductible as long as their total does not
exceed 5% of that year’s corporate earnings. Grants to educational and health facilities may
be fully deductible as are donations made in cash or kind for national catastrophes.
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25. Non-documented expenditures such as train, boat, bus and parking lot fees can be deducted
with a detailed list of the date, amount and the name and location of the related parties.
Sales slips/receipts including VAT and below a threshold limit, for goods such as stationery,
office supplies, cleaning materials for use in the workplace can be accepted as deductible
expenses.
For tax purposes goods that are lost or stolen cannot be recorded as an expense. Normal
shrinkage and in the cases of a ‘force majeure’ the cost of the goods may be written as an
expense.
Sponsorship expenses cannot be deducted unless the sponsor has generated profits and
then 100% can be deducted for amateur sports and 50% for professional sports
sponsorships.
Sales staff can be reimbursed for daily transports costs and also one employee such as a
messenger. Non sales staff cannot claim for a commuting allowance.
Company Cars
If the company purchases cars for the employees' use all expenses and depreciation
expenses are deductible.
Lease car hire costs for employees use are deductible. A contract is made between the
lease car supplier and the company is invoiced monthly with deductible VAT at 18%. There is
a 0.825% stamp tax payable by the company based on the total amount of the initial
contract. You are required to have third party insurance and an optional comprehensive
insurance. The employee signs a 'consignment note' to confirm receipt of the car, stating
that the car will be used on company business. Expense claims for fuel, road toll fees and
parking are deductible and submitted on a monthly expense claim form with receipts or
invoices addressed to the company - not in the employee's name. These are not payroll-
related expenses and should be reimbursed directly to the employee by the company's
accountant.
If employees are using their own car for company business then there should be a written
'agreement' between the employee and the employer about 'leasing' the employee's car so
that expenses such as petrol, road tolls and parking are deductible on a monthly expense
claim form. If the annual amount paid to the employee is less than 23,000 TL then this is not
declared for personal income tax. However, the employer has to deduct 20% withholding tax
on the amount paid to the employee for using their car and also offset the 18% VAT.
If employees use their own cars occasionally for business purposes then they can be
reimbursed at approximately 0.60 to 0.80 TL per 1 km. This is based on a comparable
journey by state controlled taxi of 1.6 TL per km.
Accounting in Istanbul and Turkey
The New Commercial Code will be implemented in July 2012 and is broadly in line with
Turkey’s accession targets for entry to the European Union. Under the Code all companies
other than small and medium-sized entities (SMEs) present their legal and consolidated
financial statements in accordance with Turkish Accounting Standards and which correspond
to International Financial Reporting Standards (IFRS) and that all companies have an annual
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26. audit by a licensed independent audit or carried out in accordance with International
Standards of Auditing (ISA).
In March 2006, the Turkish Accounting Standards (TAS) has been published by Turkish
Accounting Standards Board which was declared to be effective as of January 1, 2006. The
legal requirements to apply TAS has been referred to in the draft revised Turkish Commercial
Code; however, such draft has not yet been approved by the Grand National Assembly of
Turkey. Accordingly, companies follow the existing Turkish Commercial Code, Turkish
Procedural Tax Law and the communiqué issued by Ministry of Finance in 1992 applicable to
all Turkish entities (excluding financial institutions) in preparing the statutory financial
statements.
The Turkish Accounting and Auditing Standards Board (TMUDESK), founded in 1994, is a
member of the International Accounting Standards Committee (IASC). The standards issued
by the Turkish Accounting and Auditing Standards Board are parallel to and in conformity
with the IFAC standards and may bear some minor revisions. The Turkish Uniform Chart of
Accounts was introduced 1 January 1994.
Under Capital Markets Board (CMB) regulations, all listed companies, financial
intermediaries, mutual funds, investment partnerships, and companies not listed but
considered as publicly traded due to high number of shareholders (more than 250) are
subject to CMB regulations. However, since updates in IFRS thereon could not be
implemented in CMB standards, CMB announced that financial statements prepared in
accordance with IFRS are also acceptable.
Starting from December 31, 2006, financial institutions other than insurance companies,
prepare their financial statements in accordance with the Turkish Accounting Standards
which are in line with IFRS. However, there are certain departures from IFRS as explained in
communiqués of Banking Regulations and Supervision Agency (BRSA) like non-
consolidation of non-financial institutions.
A separate set of accounting principles together with uniform chart of accounts applicable to
insurance companies are issued by Undersecretariat of Treasury.
All types of commercial companies which are subject to corporation tax are considered Class
I Merchants and must maintain their books on a balance sheet basis.
The statutory financial statements should include at least the following: Balance sheet,Profit
and Loss Statement and Notes to the Financial Statements.
Accountants are governed by Law Number 3568 and authorized by The Union of Certified
Public Accountants and Sworn-in Certified Public Accountants of Turkey (TURMOB).
Certified Public Accountants are known as Serbest Muhasebeci Mali Musavir (SMMM) and
Sworn-in Certified Public Accountants known as Yeminili Mali Musavir (YMM), the latter
having at least 10 years work experience as a Certified Public Accountant. They are
authorised to approve financial and tax statements with an authority similar to public officials
of the Revenues Directorate of the Ministry of Finance.
The Turkish Accounting Standards Board, Turkish Auditing Standards Board, Revenues
Administration, the General Directorate of Insurance of the Under Secretariat of Treasury,
Capital Markets Board and the Banking Regulation and Supervision Agency are the bodies
overseeing accounting rules. However, accounting regulations by the Ministry of Finance
take precedence over all other regulations with limited exceptions for banks, insurance
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27. companies and listed companies. Therefore, these entities are required to prepare multiple
sets of financial statements from their single set of underlying accounting records.
Legal Books
Although maintaining the General Ledger is mandatory there is no requirement to have it
certified. However the following legal books need to be certified by a notary public: Journal
and Inventory Registers; Operation Registers; Farmer’s Operation Registers; Manufacturing
and Production Tax Registers; Transportation Tax Registers; Foreign Transport Proceeds
Registers; Independent Professional Earnings Register.
There is a special Irregularity Fine for failure to have the daily cash register, daily retail sales
and proceeds register, and self-employment earnings register at the place of business.
Depreciation
Depreciation is classified under four headings
(1) Straight Line Method (2) Double Declining Method for taxpayers who keep their accounts
on the balance sheet basis (3) Depreciation in Mines determined separately for each quarry
(4) Extraordinary Economic and Technical Depreciation as determined by the Ministry of
Finance.
Depreciation is allowed for property held for investment. The portion of the cost allocable to
land is not depreciable, but for the building itself and the furniture, appliances, carpeting, etc.
a depreciation deduction may be taken.
Real property (this is the legal definition of the house or other building) held for
rental/investment may only be depreciated for Regular Tax purposes under the "straight-line"
method, over a useful life of 27.5 years. Thus, a property with $275, 000 allocated to the
building would be depreciated at the rate of $10, 000 per year.
Leased hold improvements (this is the legal definition of things such as furniture, appliances,
carpeting and the like) may be depreciated for Regular Tax purposes under an "accelerated"
method over a useful life of five years. An accelerated method allows a larger depreciation
deduction in the early years, in recognition of an obsolescence or decline-in-value factor that
you see in new property (cars are a good example).
Intellectual Property rights
Turkey's legal system provides means for enforcing property and contractual rights, and
there are written commercial and bankruptcy laws.
Turkish law generally accepts binding international arbitration of investment disputes
between foreign investors and the state. Secured interests in property, both movable and
real, are recognized and enforced. Real estate is registered at the land registry office.
Turkey's copyright law provides deterrent penalties for copyright infringement. The law
contains several strong anti-piracy provisions, including a ban on street sales of all
copyrighted products and authorization to take action without a complaint by the rights
holder. The law has minimum penalties of three months to two years imprisonment and /or a
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28. fine between 5,000 and 50,000 TL and amaximum penalty of three to six years imprisonment
and/or fines between 50,000 and 250,000 TL.
Turkey is a signatory to a number of international conventions, including the Stockholm Act
of the Paris Convention, the Patent Cooperation Treaty, the Strasbourg Agreement, and the
WIPO Copyright Agreement and Performances and Phonograms Treaty.
Turkey's Patent Law provides for penalties for infringement of up to 4 years in prison, or
46,000 TL in fines, or both, closure of the business for at least one year, and a prohibition on
the owner's participation in any commercial activity during that same period.
Trademark holders have reported counterfeiting of their marks in Turkey, especially in
apparel, film, cosmetics, detergent and pharmaceuticals. Turkey provides protection for
commercial seed under its Plant Variety Protection (PVP) Law.
Investing in Turkey
The foreign investment legislation is based on the principle of equal treatment for the
domestic and foreign investors. Istanbul Chambers Of Commerce reported that in 2010, a
total of 3,044 foreign investors registered companies at the chamber, with capital totaling
823.3 million Turkish Liras.
A new investment incentive system and R&D and Innovation Support Program were put into
practice aiming at increasing the competitive power as well as longer term capital inflows to
the country. The Assessment Council on Export-Oriented Production Strategy was set up in
order to develop strategies to increase the in-house production of intermediate goods. In
addition, prudent fiscal policies and macro-prudential monetary policies are followed aiming
at containing the domestic demand.
The Investment Incentive System in Turkey
Investment Incentive schemes are: General investment incentive regime; Incentives for
large-scale investments; Region and sector-based incentive system; Incentives on
employment; R&D support; SMEs; Industrial Thesis (SANTEZ) program; Loans for technical
development projects; Training supports and State aids for exports.
The general investment incentive regime is mainly a tax benefit program, in some cases with
credit possibilities. The implementation of the Turkish incentive regime varies depending on
the location, scale and subject of investments. The major incentives instruments are
exemption from customs duties for imported machinery and equipment for projects with an
incentive certificate and VAT exemption for locally purchased or imported machinery and
equipment for projects with an incentive certificate.
There are also incentives for large scale investments such as: Corporate Tax rates between
2-10% for investments started before 31st December 2010 and between 4-15% for
investments from 2011; Social Security premium contributionfor employers up to 7 years;
and free land allocation.
Large scale investments in the following sectors and investment amounts qualify for an
Incentive Certificate: raw chemical materials production and in the oil industry for over 1
billion TL investment; 300 million TL in other chemical production;transit pipeline services
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29. totaling a minimum of 50 million TL investment; automotive investments over 250 million TL;
Railways over 50 million TL; Ports over 250 million TL; Electronics investments in
LCD/Plasma screen manufacturing totaling a minimum of 1 billion TL and other electronics
sector investments, including information and communication technologies, totaling a
minimum of 50 million TL; Medical and optic devices over 50 million TL; Pharmaceuticals
over 100 million TL; Aviation industry minimum of 50 million TL; Machinery minimum of 50
million TL; Mining investments in or processing facilities and integrated metals production
mills totaling a minimum of 50 million TL.
Region and sector-based incentives offer the same incentives as above. They are based on
zones. In Zone 1: Investments that generally require the use of advanced technology, such
as the automotive and supply industry, electronics, pharmaceuticals, machinery, medical and
optical devices will be covered by incentives. In Zone 2: Technology-intensive sectors will be
supported. In this framework, machinery, smart multi-functional textile, non-metal mineral
product, paper, and food & beverage investments will be incentivized. In Zones 3 and 4:
Investments in agriculture, agriculture-based manufacturing industry, ready-to-wear, plastics,
rubber, metal goods, tourism, health and education will be covered by incentives. Some
additional sectors will be incentivized regardless of location: Specialized Organized Industrial
Zones (OIZ) established by the Ministry of Industry and Commerce; Investments related to
the transportation of cargo and/or passengers by sea; Railway investments by the private
sector for inter-city cargo and/or passenger transportation, as well as railway investments for
local cargo transportation are subject to incentives in all regions; Housing heating/cooling
investments, realized through geothermal energy and/or power plant waste energy, may
benefit from regional incentives.
There are Employment Incentives for newly employed women and unemployed people
between the ages of 18 and 29 and incentives for additional employment.
Research and Development Incentives apply for projects in Turkey if a minimum of 50
personnel are employed in an R&D center. The incentives within the new law are valid until
the year 2024 and include; 100% deduction of R&D expenditures from the tax base if the
number of researchers is over 500; Income withholding tax exemption for the employees
(this item will be effective until December 31st, 2013; 50% of social security premium
exemption for employees for a period of 5 years; Stamp duty exemption for applicable
documents; Techno-initiative capital for new scientists up to 100,000 TL; Deduction from the
tax base of certain funds granted by public bodies and international organizations.
With the establishment of Technology Development Zones (TDZ) companies are provided
with offices ready to rent, and infrastructure facilities are provided; Profits derived from
software development and R&D activities are exempt from income and corporate taxes until
31.12.2013; Deliveries of application software produced exclusively in TDZs are exempt from
VAT until 31.12.2013; Wages of researchers along with software and R&D personnel
employed in the zone are exempt from personal income tax until 31.12.2013; and 50% of the
employer’s share of the social security premium will be paid by the government for 5 years
until 31st December 2024.
TUBITAK (Scientific and Technological Research Council of Turkey) and TTGV (Turkish
Technology Development Foundation) both compensate or grant R&D related expenses and
capital loans for R&D projects.
Small and Medium Enterprises (SMEs) operating in the manufacturing, agro-industry,
tourism, education and healthcare, mining, and software development industries, employing
less than 250 employees and earning less than 25 million TL in revenue or turnover per year
can apply for incentives: Exemption from custom duties; VAT exemption for imported and
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30. domestically purchased machinery and equipment; Credit allocation; and New credit
guarantee support. The Turkish Treasury announced the establishment of a new guarantee
program with a 1 billion TL fund transferred to the Credit Guarantee Fund (KGF) to create
credit capacity worth 10 billion TL. The Treasury will also guarantee a 65% share of these
credits. The Small and Medium Sized Industry Development Organization (KOSGEB)
contributes to strengthening SMEs by various support instruments in financing, R&D,
common facilities, market research, investment site, marketing, export and training.
An Industrial Thesis (SANTEZ) program offers direct financial support for new technology
adaptation, process development, quality improvement and environmental modification
projects to be realized with university partnerships.
The Technology Development Foundation of Turkey (TTGV) presents long term interest-free
loans for technology development, renewable energy production, energy efficiency
improvement and environmental impact-reducing projects. Exemplary support for
environmental project with the maximum contribution rate is 50% per project; a maximum
budget of USD 1 million per project; and the pay-back period is 4 years after the project
execution.
Listing Rules in Turkey
The Istanbul Stock Exchange (ISE), 1986, is becoming a significant emerging market stock
exchange. There are two markets for trading stocks on the ISE namely; the Stock Market,
the Emerging Companies Market. In 2011 there are 320 national companies listed on the
exchange. The Market value at the Istanbul Stock Exchange is over 300 billion TL.
In the past ten years, share sales to foreign investors in IPOs stood at between 41 percent
and 69 percent, according to the report. In 2010, the figure stood at 51 percent. The
association expects large IPOs in 2011, forecasting that the IPO volume will exceed 10
billion TL, up from 3.1 billion TL in 2010.
The Capital Markets Board is responsible for overseeing the activities of capital markets,
including activities of ISE-quoted companies, and securities and investment houses.The
Turkish private sector is dominated by a number of large holding companies, whose upper
management is family-controlled. Most large businesses continue to float publicly only a
minority portion of company shares in order to limit outside interference in company
management. There has been no attempt at a hostile takeover by either international or
domestic parties in recent memory. Capital market instruments are still developing in
Turkey. Turkey's first mortgage law was adopted in 2007. Hedging instruments are also
very limited. Izmir's futures market opened in 2003 and has recorded monthly transaction
volumes of around $12 billion.
An independent Banking and Regulation Supervision Agency (BRSA) monitors and
supervises Turkey's banks. The BRSA is headed by a board whose seven members are
appointed by the cabinet for six-year terms.
In addition, bank deposits are protected by an independent deposit insurance agency, the
State Deposit Insurance Fund (SDIF).
Websites for further reading
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31. www.invest.gov.tr Investment Support and Promotion Agency
www.treasury.gov.tr The Turkish Treasury
www.dtm.gov.tr Foreign Trade and General Directorate of Imports
www.oib.gov.tr Privatization Administration
www.deik.org.tr Foreign Economic Relations Board
www.tusiad.org.tr Turkish Industrialists' and Businessmen's Association
www.epdk.gov.tr Energy Market Regulatory Authority
www.bddk.org.tr Banking Regulation and Supervision Agency
www.cmb.gov.tr Capital Markets Board of Turkey
www.tubitak.gov.tr Scientific and Technological Research Council of Turkey
www.ttgv.org.tr Turkish Technology Development Foundation
www.kosgeb.gov.tr Small and Medium-sized Entities Development Organization
www.yased.org.tr International Investors Association
www.mfa.gov.tr Ministry of Foreign Affairs (for visa requirements)
www.kapitalsmm.com Business Setup and Accounting Outsource Services
www.turkstat.gov.tr Turkish Statistical Institute
www.gib.gov.tr Revenue Administration
www.yased.org.tr International Investment Association
www.indexmundi.com Statistics
About Kapital Business Partners | Kapital Network | Kapital Online
Kapital Business Partners is a well-established accounting practice of high standing with
outsourcing, payroll and bookkeeping services in addition to the traditional service lines of
audit & assurance, accounting and tax - a diverse range of business solutions and consulting
services, including corporate finance and transaction support, cross-border Tax and
expatriate services, corporate governance and risk assurance services, business
restructuring, outsourcing and management consultancy. Founded in 1997, Kapital
Business Partners 's head office is located in Istanbul and serves clients across Turkey and
the region. Kapital Business Partners’ strengths lie in their being a well-known and trusted
adviser; their understanding of the client, the nature of its business and the scope and timing
of the assignment; and also that the partners of the firm came from the Turkish Revenue
Service, Capital Markets Board, and multi-national audit firms and conglomerates.
Weathering the storm of the financial crisis of 2001 the firm emerged stronger and better able
to serve its clients.
Clients of Kapital Business Partners include Turkish and international clients in the
Technology,Construction, Energy, Banking and Insurance, Retail, Manufacturing, Legal,
Finance, Conference and Textiles sectors with operations throughout the Euro Med Area,
China, the Middle East and Russia.
Kapital Network has Regional reach through independent partners and Kapital Online
delivers secure online financial applications and payroll delivery throughout Turkey.
Kapital serves clients with Oracle E Business Suite.
TO find out more about Doing Business in Turkey please contact us here:
31/34

32. Kapital Business Partners
Buyukdere Cad. Altan Erbulak Sok.
No: 3 Atasoy Is Hani Kat: 1
Mecidiyekoy
Istanbul
Turkey
Tel: +90 212 213 9393
Fax: +90 212 213 9394
Contact: Mr. Zeki Ocal
Email: zocal@kapitalnetwork.com
Kapital Network Websites
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33. http://www.linkedin.com/company/kapital-business-partners
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Find Us
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34. For further updates please see
http://www.kapitalsmm.com/en/catalog.html
Thanks for reading!
Last Update: August 2011 (Alan Greenhalgh e:alan@kapital-online.net)
ends.
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