turkish tax system personal income tax aysun Özdamar uluÇay state revenue expert 2011

TURKISH TAX SYSTEMPERSONAL INCOME TAX

Aysun ÖZDAMAR ULUÇAYState Revenue Expert 2011

TAXES ON INCOMEPERSONAL INCOME TAX

THE TAXPAYER

• Real persons

TAXES ON INCOME PERSONAL INCOME TAX

DEFINITION OF INCOME

• The total net earnings and profits gained in a calendar year.

• Source principle is adopted related to the acquisition of earnings and income elements are fixed and named.


CHARACTERISTICS OF INCOME

• Personal• Annual• Net amount• General


TAX LIABILTY

• Full tax liability

• Limited tax liability

TAXES ON INCOME PERSONAL INCOME TAX – Types of Liability

Full tax liabilityThose who have the full tax liability are subject to tax on income generated within Turkey and in foreign countries.

Limited tax liabilityThose who have limited tax liability are subject to tax only on income generated within Turkey.


FULL TAX LIABILITY

Real persons indicated below are taxed on their total income obtained within and outside of Turkey.

1. Those domiciled in Turkey (the persons indicated below are considered as residents of Turkey):

• Those whose residence is in Turkey,• Those who abide in Turkey continuously for more

than six months in a calendar year.(183 days)


FULL TAX LIABILITY

2. Turkish citizens attached to public undertakings and institutions or establishments of which head offices are situated in Turkey and residing abroad due to their work related with the above said institutions, undertakings and establishments.


FULL TAX LIABILITY

3. Foreigners indicated below are not considered as residents of Turkey, even if they stay in Turkey for more than six months;

• Businessmen, scientists, specialists, officials, press and radio correspondents, who come to Turkey on a given or temporary mission or for business, and other persons in a similar situation as well as those who come to Turkey to study, medical treatment, rest and travel.

• Those who are detained or remain in Turkey for reasons beyond their control, such as detention, conviction or illness.


LIMITED TAX LIABILITY

Real persons, who are not residents of Turkey are taxed only on their income obtained in Turkey.


ELEMENTS OF INCOME

– Commercial income– Agricultural income– Wages– Professional income– Income from immovable property – Income from movable property– Other earnings and profits;

● Gains from value appreciation● Incidental profits

TAXES ON INCOME PERSONAL INCOME TAX – Elements of Income

COMMERCIAL INCOME

Income derived from all types of commercial and industrial activities.

Labor-capital organisation

Continuity

Volume of business


AGRICULTURAL INCOME

• Income derived from agricultural activities

• Any activity performed in land, sea, lakes and rivers in forms of cultivating, planting, breeding, fishing, hunting and etc.


PROFESSIONAL INCOME

Professional and scientific expertise rather than capital

Self employment

Continuity


WAGES

Payment for dependent personal service

Employment by an employer

Working at a certain work place.


INCOME FROM IMMOVABLE PROPERTY

• Rental income derived from the lease of real estates which include land, buildings, leasehold rights and transporting vehicles


INCOME FROM MOVABLE PROPERTY (Saving Income)

• Income such as interest, dividend, rent and the like derived from capital in cash or capital in kind.

- Dividends,

- Interest accrued on all types of bonds and Treasury bills,

- Interest paid on all credit,

- Interests on deposits,

- Repo incomes

- The payments made by the retirement funds and insurance companies etc.


OTHER INCOME AND PROFITS

Gains from value appreciation

- Value increases from partial or total transfers of commercial undertakings, value changes gained from transfers of goods, rights and movables

Incidental profits

- Income from occasional commercial and professional activities


TAXATION PROCEDURE

DECLERATION

WITHHOLDING


TAXATION PROCEDURE IN COMMERCIAL INCOME

DECLERATION

WITHHOLDING

income derived from construction and repair works extending over more than one calendar year


DETERMINATION OF COMMERCIAL INCOME

Real basis

- Balance sheet method

- Operating account method

Simple procedure basis


REAL BASIS

Expenses to be deducted

General expenses incurred for the purpose of earning and maintaining commercial gains

- Wages of bureau employees- Insurance payments- Communication expenses- Bureau expenses


REAL BASIS Food and lodging expenses for employees and

workers Expenses for treatment and drugs Insurance premiums and retirement payments Clothing expenses paid for workers and employees Travel and lodging expenses Losses, damages and indemnities paid upon

agreements, judgement of court or by order of love Expenses for vehicles used in the business Taxes and fees ( Stamp and municipal taxes, registration

fees etc.related to the enterprise)


SIMPLE PROCEDURE BASIS

- For some small businesses with certain threshold criteria, which are assumed as they are not able to calculate their income on real basis

- Commercial income is the positive difference between receipts and the expenses in a calender year.

- These taxpayers don’t have the responsibilitiy to keep books.


TAXATION PROCEDURE IN AGRICULTURAL INCOME

WITHHOLDING

DECLERATION


TAXATION PROCEDURE IN AGRICULTURAL INCOME

All payments made for the agricultural products and services are subject to withholding tax.

Withholding is the final taxation if the size of agricultural enterprises don’t exceed the limits determined in ITL.


LIMITS FOR DECLERATION

The size of the land where agricultural activities conducted exceeds certain limits or possessing more than certain number of bovine animal or sheep and goat.

Possessing a combine harvester or other similar motor vehicles or possessing more than two tractors up to age of ten.


TAXATION PROCEDURE IN WAGE AND SALARIES

WITHHOLDING income from one employer

DECLERATION income from more than one employer and second income is higher than the threshold assessed for each year.


WAGES

According to Income Tax Law, wages is classifed into two groups.

Real wages Other wages.


TAXATION PROCEDURE IN REAL WAGES

Real wages is subject to withholding tax.

Employees do not have to file tax return if they receive income from one employer.

In case of receiving income from more than one employer, it is not necessary to file tax return if the second income is lower than the threshold assessed for each year.


TAXATION PROCEDURE IN OTHER WAGES

Net wages of the following employees shall be 25% of the annual gross amount paid to the workers above 16 years of age employed in the industrial sector.

Persons employed by merchants whose earnings is determined on simple basis

Drivers employed in private servicesConstruction workers employed by private owners of

constructionPersons employed by the owners of revenue from real estate


TAXATION PROCEDURE IN PROFESSIONAL INCOME

DECLERATION(Except income of copyright holders)

WITHHOLDING


TAXATION PROCEDURE IN IMMOVABLE PROPERTY

DECLERATIONRental income subject to withholding tax exceeding the annual thresold

Rental income not subject to withholding tax

WITHHOLDING ( Except rental income of residences)


TAXATION PROCEDURE IN IMMOVABLE PROPERTY

A part of the income gained from renting buildings as residence in a calendar year is excepted from income tax (3.000TL for 2012)


TAXATION PROCEDURE IN MOVABLE PROPERTY

DECLERATION Dividents, Interest paid on all credits, Saving income

obtained in abroad

WITHHOLDING Article 94 (Dividents, payments made by the retirement

funds and insurance companies etc.)

Temprorary Article 67 (Interest from all kinds of bonds and Treasury bills, interests on deposits, repo incomes etc.)


TAXATION OF DIVIDENDS

• The half of the gross amount of the obtained dividend is excepted.

• For the year 2012, if the residual amount of the exception is exceeding 25.000 TL , the return shall be submitted.

• If the return is submitted, the amount witheld is written-off.

• In cases where there is no obligation for declaration, the witholding will be the final tax.


TAXATION OF SAVING INCOME NOT SUBJECT TO WITHHOLDING TAX OR EXEMPTION

Interest paid on all credits

Saving income obtained in abroad

Decleration in case of exceeding the annual threshold assessed for these kind of income.(1.290 TL for 2012)


WITHHOLDING TAXATION II) Temporary Article 67

Interest from all kinds of bonds and Treasury bills,(10 %)

Interests on deposits, (15 %)

Repo incomes, (15 %)

Withholding is applied by banks and financial intermediaries

Withholding is the final tax


WITHHOLDING TAXATION

II) Article 94

Dividents

The tax withheld by the full liable corporations can be set-off from the income tax in case of filing a tax return.


Payments made by the retirement funds and insurance companies (private pension payments)

- Payments made to the persons who depart from system withhout paying their premiums for ten years (15%)

- Payments made to the persons who paid their premiums for ten years but depart from individual retirement system withhout acquiring the right of retirement (10%)

- Payments made from the other funds and insurances to the individuals having paid their premiums or allowances for ten years, but leaving due to compulsory reasons such as death, disability or liquidation (10%)

- Payments made to the persons acquiring the right of retirement bound to application of individual retirement system, and to the individuals who depart from system due to compulsary reasons such as death, disablement or liquidation (5%)

Withholding is the final tax.


TAXATION PROCEDURE IN OTHER EARNINGS

AND PROFITS

DECLERATION

Gains from value appreciation

( In case of exceeding 8.800 TL for 2012)

Incidental profits

( In case of exceeding 20.000 TL for 2012)


TAXATION PROCEDURE IN OTHER EARNINGS AND PROFITS

Gains from value appreciationIn the determination of appreciation gains, inflation adjusted gains are taxed through indexing the acquisition costs of goods and rights which have been disposed.

If the difference between the indexed purchase price and the sales price is exceeding 8.800 TL for 2012, it is necessary to file a tax return.

Incidental profits If incidental profit exceeds 20.000 TL for 2012, the tax

payer submits a decleration.

TAXES ON INCOME PERSONAL INCOME TAX –Declaration of the Tax

TYPES OF TAX RETURNS

Declaration of personal income tax shall be made by means of:

1) Annual tax return

2) Withholding tax return

3) Special tax return

TAXES ON INCOME PERSONAL INCOME TAX – Declaration of the Tax

ANNUAL TAX RETURN

used for consolidation of earnings derived from various sources in the calendar year.

The fact that income is associated with a particular period of the year, does not affect the annual character of the tax return.


WITHHOLDING TAX RETURN

used for declaring total taxes to the tax office withheld by employers and other providers


WITHHOLDING TAX RETURN

Those required to apply withholding tax:

Public administrations and institutions, Public commercial concerns and other corporations,Commercial companies, business partnerships,Associations, foundations,Economic enterprises of associations and foundations,Cooperatives,Managers of investment funds,Merchants and self-employed persons obliged to declare their actual incomes,The farmers determining their agricultural earnings in according to principle of balance sheet or agricultural operations


SPECIAL TAX RETURN

used by taxpayers subject to limited tax liability, to declare profits and earnings for which they are not obliged to file annual tax return

TAXES ON INCOME PERSONAL INCOME TAX –Declaration of the Tax

DECLERATION TIME

Annual tax return: 1-25 th day of MARCH

Withholding tax return: By the 20 th day of the foollowing month

Special tax return: In fifteen days from acquirement.


TAX EXEMPTIONS AND EXCLUSIONS IN INCOME TAX

Exemption for Small Artisans and Tradesman Diplomatic Exemption Exclusion on Salaries Exemption for Education Enterprises Exclusion on professional income (copyright holders income) Exclusion on income from immovable property Exclusion on income from movable property Disablement deductionMinimum subsistence(living) allowance


EXEMPTION FOR SMALL ARTISANS AND TRADESMAN

Those engaged in retail trade without opening a workplace or by travelling without using motor vehicles

Small artisans doing works by travelling and directly for the consumers without opening a place of work

Those who sell homemade products such as towels, coverings, bed sheets, food etc. which are produced at their homes without using motorised devices, opening a workplace or hiring external workers.


DIPLOMATIC EXEMPTION

Ambassadors, consuls as well as officers who are members of embassies and consulates and who are citizens of that country and people who are assigned to an official duty in Turkey are exempt from the individual income tax.

These exemption does not extend to withholding taxes collected on movable capital earnings.


EXCLUSION ON SALARIES

Salaries of officials and employees of foreign embassies and consulates who are not subject to diplomatic exemption are also exempt from income tax.


EXCEPTION FOR EDUCATION ENTERPRISES

Income from private schools for pre-school education, primary education, special education and secondary education are excluded from individual income tax for five taxation terms.


EXCLUSION ON PROFESSIONAL INCOME

Gains obtained by copyright owners and their legal heirs are exempt from individual income tax.

• But those who are mentioned above are subject to witholding tax at a rate of 17 % and they don’t have to submit tax return.


EXCLUSION ON INCOME FROM IMMOVABLE PROPERTY

3.000 TL of the proceeds earned within one calendar year from leasing the building as residence shall be exempt from income tax.

•This exception shall not extend to persons who must submit yearly declaration for their commercial, agricultural or professional earnings


EXCLUSION ON INCOME FROM MOVABLE PROPERTY

The half of the gross amount of the obtained dividend is excepted from income tax.

The divident should be paid by full liable corporations


EXCLUSION ON INCOME FROM MOVABLE PROPERTY

Exclusion on private pension savings-25% of the payments made to the persons acquiring the right of retirement bound to application of individual retirement system, and to the individuals who depart from system due to compulsary reasons such as death, disablement or liquidation

-10% of the payments granted to the persons who paid their premiums for ten years from the insurance companies and to the individuals who leave office due to compulsary reasons such as death, disablement or liquidation;

-The total amount of payments granted from the annual income assurances by single premium


DISABLEMENT DEDUCTION

The monthly deductions applicable to the salaries of the employees according to the degree of disablement shall be as follows;•For first degree disabled, 770 TL.•For second degree disabled, 380 TL.•For third degree disabled, 180 TL.

(for 2012)


ADDING UP INCOMEFULL TAX LIABILITY

I) Income to be declared regardless of the amount

Commercial income Agricultural income Professional income Merchants, farmers and self-employed persons shall submit yearly tax return even they have not obtained any earning from their commercial, agricultural and professional activities.


ADDING UP INCOME

II) Income to be declared incase of exceeding the annual threshold assessed for each year. Wages

(Income from more than one employer exceeds the threshold assessed for each year.)Income from movable property taxed by withholdingIncome from immovable property taxed by withholdingIncome from movable and immovable property without any exemption or withholding taxation.


ADDING UP INCOME


I) Income not to be declaredWages,Professional income,Income from movable property, Income from immovable property

subject to withholding tax in Turkey


ADDING UP INCOME


II) Income to be declared (Special tax return.)

Income from movable and immovable property not subject to withholding tax in Turkey Other income and profits


DECLARATION IN CASE OF OBTAINING INCOME FROM DIFFERENT SOURCES

• To determine the threasold of 25.000 TL Wages are considered separetely from the other elemets of income The other income excluding (except) wages are considered together

If income from more than one employer is declared the other income will be included in annual tax return even if the other income do not exceeds 25.000 TL in total.

If income from more than one employer is not declared the other income will be included in annual tax return in case of exceeding 25.000 TL in total.


WRITTING-OFF LOSSES AGAINST PROFITS

•Losses incurred from some elements of income and the losses suffered as a result of the activities abroad in full liability are set-off against the gains from other elements.

•Remaining part of the losses which could not be deducted can be carried forward for the five successive years.


WRITTING-OFF LOSSES AGAINST PROFITS

Losses resulting from “Other Earnings and Profits”,

Diminutions of capital in the income from movable and immovable capitals,

Losses incurred abroad related to the gains exempted from income tax in Turkey

Can not be set off against the gains from other elements.


DETERMINATION OF INCOME TAX BASE

OTHER DEDUCTIONS

Insurance premiums and contribution payments effected to individual retirement system,

Education and health expenditures, Annual deduction calculated for the declared income of

the disabled, Aids and donations to public administrations Expenses made for the construction of schools, health

facilities and dormitories , rest homes, care and rehabilitation centres,


OTHER DEDUCTIONS

Cost of foodstuff, hygiene, heating materials and cloths donated to associations and foundations engaged in food providing activities with an aim to helping the poor,

Aids and donations made for supporting cultural and art activities,

Sponsorship expenditures, Research and development expenditures, Aids and donations made related to natural disasters


TAX SCHEDULE

Tax rate schedule is determined as progressive in the Income Tax Law. The tax schedule to be applied to any income of 2012 is as follows:

Taxable Income (TL) Tax Rate (%)

Up to 10.000 15

10.001 - 25.000 20

25.001 - 58.000 27

Over 58.000 35


THANK YOU

turkish tax system personal income tax aysun Özdamar uluÇay state revenue expert 2011

Documents

income elements

total income

immovable property income

general slide

days slide

calendar year slide

residents of turkey

types of commercial