turkey 2012

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Doing Business in

Turkey

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1Baker Tilly International | Doing Business in Turkey

Preface

This guide has been prepared by GYM Güreli YMM AS, an independent member of

Baker Tilly International. It is designed to provide information on a number of subjects

important to those considering investing or doing business in Turkey.

Baker Tilly International is the world’s 8th largest accountancy and business advisory

network by combined fee income, and is represented by 150 firms in 120 countries

and over 25,000 people worldwide. Its members are high quality, independent

accountancy and business advisory firms, all of whom are committed to providing the

best possible service to their clients, both in their own marketplace and across the

world.

This guide is one of a series of country profiles compiled for use by Baker Tilly

International member firms’ clients and professional staff. Copies may be downloaded

from www.bakertillyinternational.com.

Doing Business in Turkey has been designed for the information of readers. Whilst every

effort has been made to ensure accuracy, information contained in this guide may not

be comprehensive and recipients should not act upon it without seeking professional

advice. Facts and figures as presented are correct at the time of writing.

Up-to-date advice and general assistance on Turkish matters can be obtained from GYM

Güreli YMM AS; contact details can be found at the end of this guide.

December 2011


2 Baker Tilly International | Doing Business in Turkey

Contents

Page

1 Fact Sheet 4

2 Business Entities and Accounting 6

2.1 Corporations 6

2.2 Accounting and Audit Requirements 9

2.3 Filling Requirements 9

3 Finance and Investment 10

3.1 Exchange Controls 10

3.2 Banking and Sources of Finance 10

3.3 Stock Exchange 10

3.4 Foreign Investment Incentives 10

4 Employment Regulation and Social Security 14

4.1 Residence and Work Permits 14

4.2 Social Security System 14



Page

5 Taxation 15

5.1 Principal Taxes 15

5.2 Corporation Tax 15

5.3 Taxation of Individuals 18

5.4 VAT 20



1 Fact Sheet

Geography

Location Eurasia

Area 814,578km²

Land boundaries Bulgaria, Greece, Georgia, Armenia, Azerbaijan, Iran, Iraq and Syria

Coastline Black Sea, Mediterranean Sea, Aegean Sea

Climate Temperate; hot, dry summers with mild, wet winters; harsher in theinterior

Terrain High central plateau (Anatolia); narrow coastal plain; severalmountain ranges

Time zone GMT +2

People

Population 78.78 million

Ethnic groups Turkish, Kurdish, other minorities

Religion Islam, other (mostly Christians and Jews)

Languages Turkish (official), Kurdish, Dimli (or Zaza), Azeri and Kabardian

Government

Country name Republic of Turkey

Government type Republican Parliamentary Democracy

Capital Ankara

Administrative divisions Subdivided into 81 provinces for administrative purposes. Theprovinces are organised into seven regions for census purposes;however, the provinces do not represent administrative structures

Political situation The President is elected by the Great National Assembly for aseven-year term. Elections were last held in 2007. The PrimeMinister is appointed by the President from among members of theparliament. The Council of Ministers is appointed by the Presidenton the nomination of the Prime Minister



Economy

GDP – per capita US$14,600 (2011 est)

GDP – real growth rate 6.6% (2011 est)

Labour force 2446 million

Unemployment 10.3% (2011 est)

Currency (code) Turkish lira (TL)



2 Business Entities and Accounting

2.1 Corporations

There are two types of capital corporations under Turkish law: the joint stock company

(Anonim Sirket – A.S.) and the limited liability company (Limited Sirket – Ltd. Sti.). In

both types of company, the liability of the shareholders is limited to their share capital,

which may be paid up in cash or in kind. The A.S. has the right to offer its shares for

sale to the public, whereas the Ltd. Sti. does not.

2.1.1 Joint stock company (A.S.)

According to the Turkish Commercial Code, the minimum capital amount required to

establish an A.S. is TL50,000. One quarter of this share capital must be paid up on

registration, with the remaining capital due within 36 months of incorporation. A

minimum of five shareholders is required. If there are over 100 shareholders, the A.S.

is deemed to be, and is therefore inspected as, a public company. An A.S. is required

to have a board of directors with at least three members (directors may also be

shareholders of the company).

100% foreign ownership is allowed. Although foreign investors have free access to local

sources of funds, interest costs are high and careful financial structuring may be

necessary.

The A.S. may not commence business until the registration process has been

completed. It must also be registered with the Tax Office. Formation costs are

insignificant within the context of an inward foreign investment. Formation generally

takes two to four weeks.

2.1.2 Limited liability company (Ltd. Sti.)

A Ltd. Sti. must have a minimum capital of TL5,000 (no share certificates issued). It

can be formed with a minimum of two shareholders and a maximum of 50.

Management may be delegated to at least one designated “company director”. The

minimum nominal value of each share is TL0.25. Shareholders are personally

responsible for the Ltd. Sti.’s liabilities to the government in proportion to their

shareholding.

The board of company directors may be formed by individuals who are not

shareholders of the company. The directors are obliged to inform the relevant district



court for the registered office of the company if, at any time, the company’s liabilities

exceed its assets. The directors are appointed and may be dismissed by the

shareholders at the general shareholders’ meeting.

The board of directors’ resolutions must be in written form and must be recorded in the

minute book. In practice, circulation of the approved minutes is sufficient to meet this

requirement if all directors agree not to meet physically. The shareholders have the

right to appoint one or more of the shareholders as director(s) of the company and may

restrict the right of individual directors to bind the company with third parties (eg a

production director may be excluded from taking decisions related to marketing).

All such restrictions, together with the appointment of a director, must be registered

with the Commercial Register if they are to be effective in respect of third parties. The

annual report and financial statements of every Ltd. Sti. must be audited by an

independent company auditor.

2.1.3 Branch

Branches are not required to have a formal minimum registered capital. A branch is a

legal entity but has no formal management structure apart from a branch manager. In

order to establish a branch of a foreign corporation, a permit from the Ministry of

Industry and Commerce (for banks, an additional permit from the Banking Regulation

and Supervision Agency) is required before registration with the trade registry office.

The managers of branches of foreign companies are obliged to publish the financial

statements of the branch as well as the parent company and the group within six

months of their approval in the parent jurisdiction.

2.1.4 Liaison office

Foreign entities may establish a non-trading, unincorporated liaison office.

The formalities are simple in that only the Treasury need be directly approached by the

applicant for a permit. The application should be in writing and should give sufficient

information regarding the applicant’s identity, the nature of the business operations and

the reasons for establishing a Turkish office. A detailed description of the intended

activities of the office is also necessary, as is a statement that the office will not trade

in its own name and a description of the benefits expected to accrue to the Turkish

economy. At present, permits are issued for up to three years and may be extended on

expiration for another three years.



Liaison offices are not permitted to trade in their own names and on their own account.

Power of attorney must be granted by the parent entity authorising the liaison officer to

contract in the name of the parent for services in Turkey (eg office accommodation,

telephone, local staff and local incidental purchases).

Since a liaison office cannot perform any commercial activity it is not expected to have

a taxable income and therefore it is not liable to any corporate tax. However, it must

keep formal books of account and must keep records of all expenditure and income,

including transfers from the parent. The books of account are open to inspection

(usually annually) by the authorities of the Ministry of Finance. Both foreign and local

staff may be employed by liaison offices. Staff requirements should be specified in the

permit application.

The office is required to deduct social security contributions but not income tax from

the employees’ salaries. The deduction for social security must be determined

according to official rates and must be accounted for to the social security offices

monthly. Wage and salary records must be maintained as these may be inspected by

the authorities. Office operating costs and other expenses must be financed by

transfers in foreign currency from abroad.

2.1.5 Joint venture

Previously, foreign investment legislation in Turkey did not cover the concept of joint

ventures or consortia, including foreign partnerships formed for the completion of a

specific contract (generally a construction contract). However, under recent legislation,

consortia, joint ventures and other partnerships not falling within the scope of any form

of legal entity defined under the Turkish Commercial Code can be established by foreign

investors but are treated as ordinary partnerships.

2.1.6 Ordinary partnership

An ordinary partnership arises when two or more self-employed people or legal entities

share in the decision making, risks, costs and obligations of a business. Partnerships are

governed by a written agreement between the partners. This agreement can be ratified

by the notary public to formalise the arrangement and provides the partners with greater

protection. Each partner is jointly and severally liable for the debts of the business.

Unlike a limited liability company, joint stock company, or a branch office, an ordinary

partnership is not a separate legal entity. There are no minimum capital requirements



for an ordinary partnership. An ordinary partnership will be dissolved if one of the

partners resigns, dies, or becomes bankrupt, or if a corporate partner is dissolved.

Also, an ordinary partnership may be dissolved by the mutual agreement of the partners

or at the end of a period determined in the partnership agreement.

Partnerships are required to submit an annual self-assessment tax return.

2.2 Accounting and Audit Requirements

The books of commercial enterprises must be kept in Turkish and transactions must be

accounted for in Turkish liras. Permission may be granted by the Council of Ministers

for keeping records in a currency other than Turkish liras in respect of corporations

with paid-up capital amounts higher than or equal to US$100m, of which 40% or more

is held by foreigners. Hard copy data must be kept for at least five years for tax

purposes and at least ten years for commercial law purposes.

Subsidiaries or branches of multinational companies that do not fall under the present

audit regulations are usually audited by independent professional firms on a voluntary

basis, although the reports are not generally published. In addition, Turkish companies

may choose to be audited for the purposes of obtaining bank loans, public relations, or

internal control.

2.3 Filling Requirements

Companies quoted on the stock exchange are required to have their financial

statements audited by independent auditors and file them with the Capital Market Board

(SPK). The New Turkish Commercial Code, adopted by the Turkish Parliament in 2011,

aims to improve public confidence and transparency in financial reporting. Upon

implementation of this law in July 2012, all companies must have their financial

statements audited.

SPK regulations specify the format of the balance sheet, income statement, statement

of changes in financial position and the presentation of notes to the financial

statements. Listed companies are required to publish their balance sheet, income

statement and auditors’ report in the Trade Registry Gazette and in at least two daily

newspapers.



3 Finance and Investment

3.1 Exchange Controls

There are no exchange controls in Turkey on inward or outward investment. Foreign

currencies may be bought and sold freely and there are no restrictions on the

maintenance of foreign currency bank accounts in Turkey.

3.2 Banking and Sources of Finance

The country’s banking sector is supervised by the Banking Regulation and Supervision

Agency. Turkey’s central bank, Central Bank of Turkish Republic, is charged with

regulating currency in circulation by implementing monetary policy to maintain price

stability.

Turkey’s banking and financial system includes national banks, international banks and

various financial institutions.

3.3 Stock Exchange

The Istanbul Stock Exchange (ISE) provides a market for shares and other securities

issued by public companies and government bonds.

The ISE is a public corporation, established by governmental decree, operating as an

autonomous and professional institution. The ISE is entitled to issue legal regulations

related to the subjects and fields within the scope of its authority.

3.4 Foreign Investment Incentives

3.4.1 Investment incentives and Investment Encouragement Certificate

Incentives generally comprise a mix of taxation and non-taxation measures. An

Investment Encouragement Certificate (IEC) is required for an investor to benefit from

investment incentives in Turkey. Foreign investors must apply to the Under Secretariat

of the Treasury for an IEC.

The IEC defines the main characteristics of the investment, the incentives granted and

the requirements that must be met by the investor.

Investors may qualify for the following general incentives based on the location (region),

scale and the nature of the investment:



Reduced corporate tax

Applicable to the net revenues derived from eligible investments and depending on the

region(s) and scale of the investment, the standard corporate tax rate of 20% may be

reduced by between 25% and 80% to an effective rate of between 4% and 15%.

VAT exemption

VAT exemption is provided on the import and local delivery of machinery and equipment

within the scope of the IEC.

Customs duty exemption

With the exclusion of investments in certain industries that are not supported by the

government, customs duty exemption is provided for all investments above a minimum

investment amount and satisfying other requirements set out in the current investment

incentive regulations.

Social security employer’s premium support

For large investment projects and other investments in eligible regions, the employer’s

social security obligations up to the amount calculated based on the current official

minimum wage for each employee is borne by the Treasury.

Interest cost support

Upon request, cash interest cost support may be applicable to research and

development (R&D) and environmental protection investments in all regions, as well as

other types of eligible investments in “economically distressed” regions.

Land allocation

Investment land may be granted to large investment projects and eligible regional

investments.

3.4.2 R&D incentives

R&D allowance

Businesses employing at least 50 R&D personnel can deduct 100% of their eligible R&D

and innovation expenditures, as well as the amortisation on capitalised R&D

expenditure, from taxable profits.



Businesses employing more than 500 R&D personnel can also deduct half of the

increase in their R&D and innovation expenditure over the previous year’s costs.

Income tax incentives

Up to 90% of the salaries of eligible R&D and R&D support personnel are exempt from

personal income tax.

Social security premium incentives

Half of an employer’s social security obligations in respect of R&D and R&D support

personnel is financed from a budget allocated by the Ministry of Finance.

3.4.3 Technology development zones

Business income derived from software development and R&D activities in technology

development zones (techno parks) and salaries and wages of researchers, software

programmers and R&D personnel working in techno parks are exempted from

corporate and personal income taxes respectively until 31 December 2013.

3.4.4 Free trade zones (FTZs)

Tax treatment and incentives for FTZs include:

Corporate income tax relief for FTZ manufacturing entities

Income derived from manufacturing activities in FTZs is exempted from corporate

income tax, although this incentive will be phased out on Turkey’s accession into

the EU.

Personal income tax relief on wages and salaries

Subject to certain conditions, salaries and wages paid in FTZs by manufacturing entities

are exempted from personal income tax and salary withholding taxes, although this

incentive will be phased out on Turkey’s accession into the EU.

Value added tax (VAT) treatment at FTZs

The delivery of goods and services within FTZs is not subject to VAT.

Deliveries of goods and services from Turkey into FTZs are treated as exports and are

exempt (zero tax) from VAT.



Stamp taxes

All transactions in FTZs which would otherwise be subject to stamp taxes and duties are

exempted, although this incentive will be phased out on Turkey’s accession into the EU.

Corporate and personal withholding taxes (WHT)

FTZ entities no longer receive favourable tax treatment in terms of WHTs, with the

exception of salary WHT, as noted above. Therefore, the same WHT obligations that are

applied to regular non-FTZ entities are also applicable to FTZ entities.



4 Employment Regulation and Social

Security

4.1 Residence and Work Permits

Most foreigners may enter Turkey with a visa, which can be obtained at the border of

entry allowing them to stay in the country up to three months.

A foreign individual sent by a foreign company to carry out business on its behalf in

Turkey must obtain a work permit from the Ministry of Labour and a work visa from the

Turkish Consulate. After obtaining a residence permit from the Ministry of Internal

Affairs, the individual and the company should jointly apply for a work permit from the

Ministry of Labour.

Foreign nationals residing outside Turkey may make their work permit applications

through representatives of the Turkish Republic in their respective countries. Foreign

nationals holding residence permits may file their applications jointly with their employer

directly with the Ministry of Labour.

Work permits are granted by the Ministry of Labour after consultation with the relevant

bodies, if necessary. The work permit does not give the right of employment to spouses.

Foreigners who are insured in their own country may opt out of the Turkish social

security scheme upon filing a written request with the social security authorities.

4.2 Social Security System

The major features of the social security system are the provision of healthcare and a

small pension. There is also unemployment insurance.

All employees, with the exception of certain agricultural workers, of Turkish businesses

are subject to the social security scheme. Contributions are paid monthly by the

employer and are partially recovered from the employees by salary deductions.

Employees’ social security premium obligations amount to 15% of gross monthly

benefits and employers’ premium obligations vary between 21.5% and 27%, depending

on the sector of employment.

Turkey has reciprocal social security agreements with a number of countries. However,

inherent limitations caused by the difference in benefits mean they are rarely used for

expatriate employees.



5 Taxation

5.1 Principal Taxes

The most important taxes for foreign corporate investors in Turkey are:

● Personal income tax● Corporate income tax● Withholding taxes on certain payments including dividends and wages● VAT● Bank and insurance transactions tax.

For individuals, the principal taxes on income are:

● Personal income tax● Social security.

The tax year is generally the calendar year for corporate and personal income tax

purposes, although with the approval of the Ministry of Finance companies may adopt

any 12 month fiscal year appropriate to their businesses.

5.2 Corporation Tax

5.2.1 Corporations and shareholders

The corporate income tax rate is 20%. For non-resident entities operating in Turkey (ie

branches, permanent establishments) a withholding tax of 15% is applicable on the

portion of the branch profit that is transferred to the head office. The current corporate

withholding tax rate is 15% on dividends paid to resident or non-resident individuals or

to non-resident corporations without a permanent establishment operating in Turkey.

After tax earnings repatriated to the parent country by non-resident permanent

establishments are also subject to 15% corporate withholding tax. Dividends paid to

resident corporations or to non-resident corporations with a permanent establishment in

Turkey are exempted from dividend withholding taxes.

Thus the fully consolidated rate of corporate income tax amounts to 32%. In the event of

dividend distribution by an international holding company to non-resident shareholders,

dividend withholding tax rate may be applied at 7.5%, subject to certain conditions.

There is no separate tax applicable to capital gains made by corporate tax payers.

Capital gains are treated as part of regular corporate and are taxed accordingly.



5.2.2 Advance payment of income tax

Corporations are required to pay advance corporate income tax based on their

quarterly profits at the rate of 20%. Advance corporate tax returns are filed on the 14th

day and tax is due to be paid on the 17th day of the second month following the close

of the quarterly period. Advance corporate income taxes paid during the tax year are

offset against the ultimate corporate income tax determined in the related year’s

corporate income tax return. The return must be filed and the tax by the 25th day of

the fourth month following the close of the annual tax period.

5.2.3 Taxable entities

Resident and non-resident entities are subject to the same corporate income tax

regime. Joint stock or limited companies established by foreigners are treated as

resident companies in Turkey. Branches formed by foreigners are treated as

non-resident entities.

5.2.4 Territoriality

Companies with legal or business headquarters in Turkey are considered resident

companies and are subject to corporate income tax on their worldwide income.

Non-resident entities are those that have neither legal nor business headquarters in

Turkey and are subject to tax only on income generated in Turkey.

5.2.5 Losses

Losses may be carried forward for up to five years but they cannot be carried back.

5.2.6 Tax treaties

Currently, Turkey has bilateral tax treaties with 74 countries.

In some of these, there is a tax sparing mechanism designed to eliminate taxation of

foreign investors benefiting from Turkish tax incentives. The country of residence can

give a credit for the tax that would have been paid in Turkey if the latter had not

granted investment incentives. Tax sparing is not needed if the country of residence of

the foreign investor uses the exemption method for the income concerned to eliminate

double taxation.

The definition of permanent establishment and attribution of profit thereto within the tax

treaties generally follows the OECD model.



5.2.7 Transfer pricing and thin capitalisation

Transfer pricing rules

Taxpayers should determine the most appropriate price for transactions with related

parties, both domestic and foreign, from: uncontrolled price; cost-plus; and resale price

methods to ensure their commercial transactions are treated as being carried out on an

arm’s-length basis. Other transfer pricing methods may be used if these three

approaches can be demonstrated to be unsuitable. Taxpayers are responsible for

maintaining and providing sufficient documentation to support the method used and

calculation of the price.

Transactions between related parties outside the transfer pricing guidelines are

considered to be disguised profit distributions and are subject to dividend withholding

tax. These amounts are not deductible in arriving at taxable corporate income.

Corporate tax payers may apply to the Ministry of Finance for an advance pricing

agreement. Provided the conditions under which the transfer pricing method is

determined remain stable, the approved method will apply for three years.

Thin capitalisation rules

Turkish thin capitalisation rules apply to virtually all types of related party financing.

Related party financing exceeding three times shareholders’ equity is considered to be

indicative of thin capitalisation. If the lending related party entity is a local or foreign

bank or a financial institution, the relevant debt to equity ratio is six to one.

Related party financing is deemed to include commercial current account receivables as

well as any other borrowings.

Shareholders’ equity for the purposes of the thin capitalisation rules is the balance on

the opening day of the accounting period and includes the paid up capital as well as

undistributed reserves and other retained earnings less prior year losses.

Foreign exchange losses and interest payments made by a Turkish entity to a related party

lender will be deductible on financing up to the applicable debt to equity ratio. Interest

payments on loans obtained from any foreign company, other than banks or financial

institutions, are subject to VAT at 18%, payable by the Turkish company under the reverse

charge mechanism. Any interest treated as non-deductible for corporate income tax

purposes under the thin capitalisation rules is subject to dividend withholding taxes as well

as 18% VAT which is not to be credited against the borrowing entity’s output VAT.



5.3 Taxation of Individuals

5.3.1 Territoriality and residence

All individuals resident in Turkey are liable to Turkish income tax on their worldwide

income. For tax purposes, a person whose domicile is in Turkey or who stays in Turkey

more than six months in a calendar year is deemed to be resident. Certain foreign

individuals (eg business persons, scientists, news correspondents and professionals)

present in Turkey more than six months for the fulfilment of “specific and temporary

assignments” are not regarded as resident and are taxed solely on the income derived

from their activities in Turkey.

5.3.2 Capital gains

Gains arising on the disposal of capital assets are calculated and added to income for

tax purposes.

Gains on the sale of shares traded on the Turkish Stock Exchange are exempt from

taxation. Similarly, gains on the sale of shares in non-listed Turkish resident companies

are exempt from taxation provided they have been held for longer than two years.

The taxable base for capital gains derived from shares and other securities by

non-residents is the lira purchase cost adjusted in accordance with monthly indices,

announced by the Turkish Statistical Institute, excluding the month of the sale.

There is an annual exemption in respect of aggregate gains up to TL8,800 for 2012.

Capital losses may be off set against capital gains arising in the same tax year but

they may not be off set against other taxable income and they may not be carried

forward.

5.3.3 Other income

Interest, rental and dividend income generated in Turkey is subject to income tax. Half

of dividends received from Turkish-resident corporations are exempt from income tax

for resident recipients. Credit is given for corporate withholding tax paid by the resident

corporation. Additionally, if the dividend income which has been taxed at source in

Turkey does not exceed the declaration limit specified in the law (TL25,000 in 2012 ),

no further taxation arises.

Interest income is not subject to taxation, provided it has already been taxed through

withholdings. Additionally, rental income from residential property let by individuals is not



required to be declared if the total rental income does not exceed the exemption limit

of TL3,000 in 2012.

5.3.4 Double taxation relief

Foreign withholding taxes on passive income from abroad are usually credited against

the applicable Turkish income tax, unless the relevant tax treaties specify otherwise.

However, such credits may not exceed the rate of tax assessed for similar income in

Turkey.

5.3.5 Tax rates

Income tax applies at progressive rates starting at 15%. The highest tax rate of 35% is

applicable to taxable income above TL58,000 for 2012.

Taxable Income

Band (TL) Rate

Tax on

Band (TL)

Cumulative

Tax (TL)

0 – 10,000 15% 1,500 1,500

10,001 – 25,000 20% 3,000 4,500

25,001 – 58,000 27% 8,910 13,410

Over 58,000 35%

A higher upper bracket is applied to wages and salaries as follows:

Taxable Income

Band (TL) Rate

Tax on

Band (TL)

Cumulative

Tax (TL)

0 – 10,000 15% 1,500 1,500

10,001 – 25,000 20% 3,000 4,500

25,001 – 88,000 27% 17,010 21,510

Over 88,000 35%

5.3.6 Advance payment of personal income tax

Income tax payers filing returns for commercial or professional income are obliged to

pay advance tax (temporary tax) at a rate of 15% on their quarterly profits by the 14th

day of the second month following the quarter end. The annual tax return for personal

income tax must be filed between 1 and 25 March following the close of the period and

tax due must be paid in two instalments in March and July.



5.3.7 Social security

Social security charges are based on salary earned and borne by both employer and

employee. Currently, total monthly premium rates are between 36.5% and 42% (31.5%

to 37% for employers fulfilling certain conditions) of gross salary (see 4.2). No further

premium is payable on salaries exceeding TL5,762.40 per month (effective from 1

January 2012).

5.3.8 Gift and inheritance taxes

Gift and inheritance tax is levied on gifts or inheritances of specific assets located in

Turkey. The tax is levied on the individual receiving the gift or inheritance. Various

progressive rates starting from 1% up to 30% apply depending on the amount

transferred and on the nature of the relationship between the testator or donor and the

recipient.

5.3.9 Withholding taxes

Withholding taxes may be reduced by virtue of a double taxation treaty, particularly in

respect of dividends arising on substantial holdings.

5.3.10 Personal services

Non-residents performing personal services are governed by the usual 183-day rule.

5.4 VAT

All supplies of goods and services within the scope of commercial, industrial,

agricultural, or independent professional activities carried out within Turkey are subject

to VAT. The import of goods and services (refer to the position of foreigners below) and

a range of other activities not generally seen as producing added value within a

business context are also subject to VAT.

VAT is chargeable on post, telephone, telegraph, telex and other similar services; radio

and television services; artistic performances; auction sales and sales made in customs

warehouses; transportation of petroleum, gas and their products through pipelines;

rentals and royalties; certain services and goods delivered by public authorities.

Unless exempted, the supply of all goods and services is subject to VAT. The standard

VAT rate is 18%. Two reduced rates are applicable to certain goods and services.



Goods and services subject to VAT at 1% include: agricultural products intended for

re-sale; used cars; business sales of residential property with a net usable area of

150m² or less; funeral services; newspapers and periodicals.

Goods and services subject to VAT at 8% include: textile and leather products; schools

and day-centres for children, certain healthcare products; dental, optometric and

medical materials and equipment; veterinary and human healthcare services; basic

foods; restaurant food services; hotel room and board services; nursery services;

agricultural tools and equipment; tickets for cinema, theatre, opera and ballet; books

and publications. Businesses account to the tax authorities for VAT on the net difference

between inputs and outputs (value added). If output VAT charged exceeds input VAT

suffered, the excess amount is payable to the related tax office.

If input VAT suffered exceeds output VAT charged, the balance is carried forward to be

set off against future VAT liabilities.

5.4.1 Imported goods

For VAT purposes, any import of goods into Turkey is a taxable transaction. The VAT on

imports of goods is imposed at the same rate applicable to the domestic supply of

such goods. The VAT is collected by the customs authorities when the goods are

released for free circulation.

VAT on imports and customs duty is paid at the same time to the customs authorities.

VAT on imports is deducted from the total output VAT payable by the importer in the

same way as input VAT paid on domestic purchases. The import as well as domestic

acquisition of machinery and equipment for investment projects under an investment

incentive certificate is exempt from VAT.

Goods and services supplied by small businesses exempt from income tax are also

exempt from VAT. Similarly, deliveries and services performed by farmers not subject to

income tax on net-profit basis are also exempt from VAT.

5.4.2 Special features

Financial services provided by banks and insurance companies falling within the scope

of banking and insurance transaction tax are exempt from VAT. They are, however,

liable to a 5% banking and insurance transactions tax (BITT). A reduced rate of 0.1%

applies to foreign currency arbitrage transactions.



This tax is not recoverable by the customer and therefore increases the cost for the

service provided. Input VAT suffered by banks and insurance companies is not

recoverable. The bank or the insurance company accounts for BITT to the tax

authorities.

Transactions that basically comprise a supply of goods and services for cultural,

educational, recreational, scientific, social and military objectives and certain other

categories are also subject to exemption from VAT and input VAT suffered is not

recoverable.

The supply of some goods and services (including all exports) is exempt from VAT with

credit for input VAT suffered. The most common items qualifying for this treatment are

supplies related to transportation, mining and petroleum exploration.

The categorisation of supplies between those which are taxable (and the applicable rate)

and those which are exempt (and the treatment of input VAT) can be complicated and it

is recommended that professional advice is sought before commencing business

activity in Turkey.

5.4.4 Foreign businesses

Foreign-owned businesses (both subsidiaries and branches) operating in Turkey are

treated as regular taxpayers if they maintain a permanent establishment in Turkey.

Building sites and other construction projects may be classified as foreign-owned

businesses. Goods imported from abroad are taxed at the point of entry under special

rules. The tax is collected by the customs authorities from the importer. The latter, if a

business undertaking, may reclaim it in its VAT return.

The foreign supplier of the goods is not involved in these proceedings. Services

performed in Turkey by a foreign business other than through a Turkish permanent

establishment are subject to VAT, but it is the responsibility of the Turkish customer to

account for the VAT to the Turkish tax authorities.

There is no provision for a foreign business (other than a permanent establishment) to

reclaim any Turkish VAT paid. This applies particularly to travel and other incidental

expenses incurred by foreigners visiting Turkey for business purposes, and also to

other sales promotion costs incurred there.



Member Firm Contact Details

Contacts:

Hansln Dalbayrak, CPA, managing partner

E. [email protected]

Sinan Güreli, CPA, assurance partner


GYM Güreli YMM AS

Beybi Giz Plaza

Dereboyu Caddesi Meydan Sokak No: 1 Kat: 19

Maslak/Istanbul 34398

Turkey

T. +90 (212) 290 3760

F. +90 (212) 290 3796

www.gureli.com.tr



Notes

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