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TAX LEGISLATION AND INCENTIVES IN TURKEY PRESENTED BY : HALUK KAPTANOĞLU BDO DENET

TAX LEGISLATION AND INCENTIVES IN TURKEY PRESENTED BY : HALUK KAPTANOĞLU BDO DENET. DENET Yönetim Danışmanlığı Y.M.M. A.Ş. TURKISH TAX SYSTEM. DENET Yönetim Danışmanlığı Y.M.M. A.Ş. TURKISH TAX SYSTEM. Basic Classification. Taxes on Income Taxes on Expenditure Taxes on Wealth.

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TAX LEGISLATION AND INCENTIVES IN TURKEY PRESENTED BY : HALUK KAPTANOĞLU BDO DENET

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  1. TAX LEGISLATION AND INCENTIVES IN TURKEY • PRESENTED BY : HALUK KAPTANOĞLU • BDO DENET DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  2. TURKISH TAX SYSTEM DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  3. TURKISH TAX SYSTEM Basic Classification • Taxes on Income • Taxes on Expenditure • Taxes on Wealth DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  4. TURKISH TAX SYSTEM Taxes on Income • Corporate Income Tax (CIT) • Individual Income Tax (IIT) DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  5. TURKISH TAX SYSTEM Taxes on Income (cont.) • Lower rates at present as compared to • years prior to 2006 • CIT from 33% to 20% • IIT from 45% to 35% (highest rates) DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  6. TURKISH TAX SYSTEM Taxes on Expenditure • Value Added Tax (VAT) • Special Consumption Tax • Banking and Insurance Transaction Tax • Stamp Duty • Special Communication Tax • Customs Duty DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  7. TURKISH TAX SYSTEM Taxes on Wealth • Inheritance and Gift Taxes • Real Estate Tax • Motor Vehicles Tax DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  8. TURKISH TAX SYSTEM Corporate Income Tax • Earnings and profits of companies • Limited company • Joint stock company, and • Branch of foreign companies • Are taxed at 20%CIT rate as of each quarter • and finally the year end. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  9. TURKISH TAX SYSTEM Corporate Income Tax (cont.) • Filing of CIT return: • Between the 1st and the 25th day of the fourth month following the fiscal year end which is the calendar year. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  10. TURKISH TAX SYSTEM Corporate Income Tax (cont.) • Withholding tax on: • Dividend of companies profits of branches paid abroad • Rate: 15% • Lower rates are available under Double Tax Treaties DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  11. TURKISH TAX SYSTEM Individual Income Tax • Income on commercial activities • Income on agriculture • Income from professional services • Wages and salaries • Income from capital investment (interest and dividend) • Income from immovable assets and rights • Other income and earnings • Capital gains • Incidental income DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  12. TURKISH TAX SYSTEM Individual Income Tax (cont.) • Capital Gains • Exemptions on • The sale of shares • The sale of real estate DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  13. TURKISH TAX SYSTEM Individual Income Tax (cont.) • On progressive basis (15% - 35%) • Employer withholds income tax on salaries DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  14. TURKISH TAX SYSTEM Individual Income Tax (cont.) • Filing of annual tax return: March 15 • Employees are not required to file income tax return if salary is the only income. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  15. TURKISH TAX SYSTEM Social Security • Not a tax. But a payroll cost to the employer. • Employer and the employee contributes for social security which comprises of items like sickness, work related accidents pension, etc. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  16. TURKISH TAX SYSTEM Social Security • Base is the salary with a cap which is TRY 3650 currently • Employer’s contribution : 19,5 % Employee’s contribution : 14 % DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  17. TURKISH TAX SYSTEM Value Added Tax (VAT) • On the supply and importation of goods and services at the rate of 18% • Reduced rates are available 1% and 8% DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  18. TURKISH TAX SYSTEM Value Added Tax (VAT) (cont.) • Input VAT is carried forward until offset against output VAT. • Recovery of input VAT is also possible. • VAT return is filed on monthly basis. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  19. TURKISH TAX SYSTEM Special Consumption Tax (SCT) • Applicable on luxury items, vehicles of all sorts, oil products, tobacco products, alcoholic beverages and some soft drinks DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  20. TURKISH TAX SYSTEM Special Consumption Tax (SCT) (cont.) • Charged only once • upon importation • ex-factory sales DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  21. TURKISH TAX SYSTEM Banking and Insurance Transaction Tax • Applied on the above transactions where VAT is not applicable. • Rates vary between 1% - 5%. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  22. TURKISH TAX SYSTEM Stamp Tax • Applicable on a wide range of documents including contracts, receipts, …etc. • On varying lumpsum amounts, or • Varying rates DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  23. TURKISH TAX SYSTEM Customs Duty • Upon importation of goods at varying rates. • Not applicable on imports from EU. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  24. TURKISH TAX SYSTEM Inheritance and Gift Tax • Transition of goods possessed by Turkish nationals or the goods located in Turkey to others. • Taxpayer is the acquirer. • Rates vary in accordance with • Inheritance or gift • Values • Relation DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  25. TURKISH TAX SYSTEM Real Estate Tax • Charged on land and buildings at rates varying between 0.1% - 0.3% • The rate is applied twice if the property is in greater metropolitan area DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  26. TURKISH TAX SYSTEM Motor Vehicles Tax • Applied on all motor vehicles including yachts, • helicopters, airplanes, etc. • Taxes on lumpsum amounts varying in accordance • with engine, age capacity, etc. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  27. TURKISH TAX SYSTEM Double Tax Treaties (DTT) • As of today Turkey has DTTs with 64 countries. • The aim of the DTT is the avoidance of double taxation. • They also allow and require exchange of information between the countries. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  28. INCENTIVES DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  29. INCENTIVES PAST • 1980’S AND 1990’S • Heaven of incentives • Tourism • Exports • Free Zones before 2004 DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  30. INCENTIVES PURPOSE • To create a stronger and competitive economy with special emphasis on certain industries • Examples: • Tourism • Textiles / Ready made garments DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  31. INCENTIVES PRESENT • Initial purposes were achieved to an extent • End results of the economic crisis in 2001 helped: Businesses:Increase in efficiency Governments:Better governance in economy DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  32. INCENTIVES PRESENT • Inner and outer forces shaped incentives again : • Governments: Why should we give more? • Turkey’s bid for EU • as examples • Created a new era DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  33. INCENTIVES PRESENT • Incentives focused on • Technological advancements / R&D / Education • Employment in less developed provinces • Whereas tourism, investment incentives in general and export incentives still continue but in a more rational, realistic and reasonable manner. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  34. INCENTIVES Current Incentives • R&D • Technology Development Zones • Industrial Zones • Free Zones • Private Education Establishments • Investment Incentives • Tourism Incentives • Export Incentives, and • Shipping Incentives DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  35. INCENTIVES Current Incentives (cont.) • In the form of • - Supports/ grants / aids • - Tax benefits / cuts DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  36. INCENTIVES R&D • A tax incentive • 40% of the expenditures made for • Software developments • Technological improvements • Cost saving technologies • are deducted from tax base. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  37. INCENTIVES Technology Development Zones • Tax incentive available in a number of designated areas until 2013 • R&D sourced income is fully exempt from income tax and CIT • Salaries of employees are tax exempt DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  38. INCENTIVES The New Draft Bill • R&D Development Centers and • R&D Development Companies • Tax Incentives - On Income • OnSalaries • Grants DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  39. INCENTIVES Industrial Zones • Currently in 49 relatively less developed provinces • Available incentives: Tax and grants • Tax cuts on employment (up to 80%) • Social security grants (up to 80% on employers share • Allocation of land free of charge • Energy support DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  40. Free Zones • Free of all taxes and duties for those established prior to February 2004 – Available for trading and industrial activities • No CIT • No income tax on salaries • No VAT, etc. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  41. Free Zones (cont.) • For those established after February 2004 • Tax exempt (income tax & CIT) earnings on • manufacturing income only. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  42. Private Education Establishments • Five year tax exemption (income tax and CIT) on earnings • Pre-school education • Primary and secondary schools DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  43. Investment Incentives in General • Import duty exemption • VAT exemption on capital goods (local and imports) • Interest grants in less developed regions • Subsidized energy for qualifying touristic establishments DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  44. Export Incentives • Tax incentives and grants • Customs duty exemption on importation of raw materials • Exemptions on stamp duty, Banking and Insurance Transaction Tax DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  45. Export Incentives (cont.) • Grants • Environment related costs • Market research • Setting up of offices sales points abroad • Branding • Participation in fairs • Employment • R&D • Training DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  46. Shipping Incentives • Tax incentives • Exemption on shipping income and capital gains (income tax and CIT) • Income tax exemption on the salaries of crew DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  47. Shipping Incentives (cont.) • Condition • Registration with International Ship Registry in Turkey which is subject to fees. DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

  48. THANK YOU DENET Yönetim Danışmanlığı Y.M.M. A.Ş.

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