Corporate Income Tax in Turkey: Rates, Filing & Requirements
Corporate income tax in Turkey is a key component of the country's tax system, applying to both local and foreign businesses. Understanding its structure, rates, and regulations is crucial for companies operating in Turkey. This guide provides an in-depth look at corporate income tax, including who it applies to, rates, exemptions, and how it affects foreign investors.
What is Corporate Income Tax (CIT) in Turkey?
Corporate income tax is a direct tax levied on the income of corporations and other business entities. In Turkey, this tax applies to:
- Turkish-resident companies (i.e., those with their legal or business headquarters located in Turkey),
- Non-resident companies that earn income from Turkey through branches, offices, or permanent establishments.
Corporate income tax is governed by the Turkish Corporate Tax Law No. 5520 and administered by the Turkish Revenue Administration.
Corporate Tax Rate in Turkey
As of 2024, the standard corporate income tax rate in Turkey is 25%. However, tax rates can fluctuate depending on government policies and economic conditions, so it's essential to stay updated on any changes.
Key Considerations:
- Temporary rate adjustments: Sometimes the government may temporarily increase or decrease the tax rate to stimulate economic growth or fiscal consolidation.
- Sectoral differences: While the general corporate tax rate is 25%, certain sectors or companies, such as those operating in free zones or benefiting from tax incentives, may enjoy lower effective tax rates.
Who is Liable for CIT in Turkey?
1- Resident Companies & Establishments:
Companies that are incorporated in Turkey or have their management headquarters located in the country are subject to corporate tax on their worldwide income.
2- Non-Resident Companies & Establishments:
Companies incorporated abroad but earning income through a permanent establishment or branch in Turkey are taxed only on the income generated within Turkey.
The following entities are subject to Corporate income tax in Turkey
- Corporations
- Funds
- Cooperatives
- Economic entities belonging to associations or foundations
- Joint Ventures
Categories of Taxable Corporate Income in Turkey
In Turkey, corporate income tax applies to a variety of income sources that businesses generate both domestically and internationally, depending on their residency status. The Turkish Corporate Tax Law classifies different types of taxable corporate income, which helps determine the tax base for entities. Below are the primary categories of taxable corporate income for both resident and non-resident entities in Turkey.
1. Income from Commercial and Industrial Activities
This category includes income generated from the sale of goods and services. It encompasses any income derived from the company's primary business operations, such as:
- Manufacturing activities
- Retail and wholesale trade
- Service provision (e.g., consulting, legal services, marketing, IT)
For companies engaged in industrial production or trade, this forms the largest part of their taxable income.
Examples:
- Profits from selling manufactured goods.
- Revenue from a service contract provided to a domestic or foreign client.
2. Income from Agricultural Activities
Corporate entities involved in agricultural production or agribusiness activities are taxed on their agricultural income. This includes profits from farming, livestock breeding, and other related agricultural businesses.
Examples:
- Sale of harvested crops.
- Profits from the breeding and sale of livestock.
3. Income from Professional Services
Corporate entities engaged in professional services, such as law firms, accounting firms, or engineering consultancies, are taxed on the income they generate from service contracts and other related professional activities.
Examples:
- Fees earned from legal or financial advisory services.
- Revenue from consulting and engineering services.
4. Rental Income from Immovable Property
Companies that own and rent out property are subject to corporate tax on their rental income. This applies to businesses that lease commercial, industrial, or residential properties.
Examples:
- Rental income from a commercial property leased to a third-party business.
- Lease income from an industrial facility.
5. Capital Gains
Capital gains are taxable if they result from the sale of assets. These gains can arise from selling real estate, shares, equipment, or other capital assets owned by the business. However, certain exemptions may apply to capital gains, such as those related to long-term investments or reorganizations.
Examples:
- Profit from the sale of a commercial building.
- Gains from selling shares in a subsidiary.
6. Interest Income
Interest earned from deposits, bonds, or loans is also subject to corporate income tax in Turkey. Companies that invest excess cash in interest-bearing accounts or bonds must include the earned interest in their taxable income.
Examples:
- Interest earned on corporate savings or term deposits.
- Interest income from corporate bonds or loans provided to other entities.
7. Dividend Income
Dividends received from other Turkish companies are generally exempt from corporate tax. However, dividends received from foreign subsidiaries may be taxable, depending on the country's tax treaty with Turkey and the nature of the income.
Examples:
- Dividends received from an investment in a domestic joint-stock company.
- Profits distributed by a foreign subsidiary (with applicable tax rules depending on double taxation treaties).
8. Royalties and Intellectual Property Income
Income generated from licensing intellectual property (IP), such as patents, trademarks, and copyrights, is also subject to corporate income tax. This applies to both domestic and international royalty payments.
Examples:
- Royalties from licensing software to foreign companies.
- Income from renting the rights to use a patent or a trademark.
9. Foreign-Sourced Income
For resident companies, corporate tax applies to income earned outside of Turkey as well. This can include income from foreign subsidiaries, branches, or investments. However, non-resident companies are only taxed on Turkish-sourced income.
Examples:
- Profits from an overseas branch or subsidiary.
- Revenue from selling goods or services to foreign customers.
10. Income from Real Estate and Movable Property Sales
Income earned from the sale of immovable property (e.g., land, buildings) and movable property (e.g., equipment, vehicles) is taxable as capital gains, although there are certain exemptions for holding periods of more than two years for immovable property.
Examples:
- Profits from selling factory equipment or a commercial vehicle.
- Income from the sale of a corporate-owned office building.
11. Income from Financial Instruments
Income generated from financial derivatives, such as futures, options, and other financial contracts, is taxable. Gains from trading in foreign currencies, stocks, and bonds are also subject to tax, though certain types of gains may qualify for tax reductions or exemptions.
Examples:
- Profits from foreign currency transactions.
- Gains from trading stock options or futures contracts.
12. Other Income
Any other income not classified under the categories above, but that contributes to the overall profits of a company, is taxable. This could include miscellaneous revenues such as awards, fines received, or gains from non-core activities.
Corporate Tax Base
The corporate tax base is determined by the total revenue generated by the business, minus allowable deductions, exemptions, and credits.
Key Items Included in the Corporate Tax Base:
- Gross income from sales of goods and services
- Income from real estate or movable properties
- Royalties and technical service fees
- Capital gains from the sale of assets
- Foreign Exchange Profits
- Interest Incomes
Deductions and Exemptions:
Certain deductions and exemptions are allowed to reduce the taxable base, such as:
- Depreciation of fixed assets
- Loss carryforwards (up to 5 years)
- R&D expenditures under specific incentive programs
- Dividends received from Turkish subsidiaries (exempt from tax)
- Investment incentives for companies in specific industries or regions
- Foreign Exchange Losses
- Loans Cost
Corporate Income Tax Filing and Payment
Tax Period:
The corporate income tax period in Turkey aligns with the calendar year. However, companies can request a different fiscal year based on their unique business cycle, subject to approval from the Ministry of Finance.
Filing Deadline:
Corporate taxpayers must file their annual tax return by the 25th day of the fourth month following the end of the fiscal year. For companies using the calendar year, this would be April 25th.
Payment:
Corporate income tax can be paid in installments, with prepaid taxes required on a quarterly basis. Any overpayment of prepaid taxes is refunded or offset against future tax liabilities.
Quarterly Corporate (Provisional) Tax in Turkey
In Turkey, the corporate provisional tax is a prepayment system designed to ensure that businesses pay a portion of their annual corporate income tax liability throughout the year, rather than in one lump sum at the end of the fiscal year. This helps both the government in managing tax revenues and businesses in managing cash flow.
1. What is Quarterly Corporate Provisional Tax?
Corporate provisional tax (also called advance tax or temporary tax) is a quarterly tax paid by corporations and similar entities in Turkey, based on their estimated taxable profits for the period. It functions as a prepayment on the company's overall annual corporate income tax.
The key concept behind provisional tax is to spread tax payments evenly throughout the year to avoid large payments during the annual tax filing period. Businesses pay a provisional tax rate of 25% on their quarterly profits, which is later deducted from their total annual tax liability.
2. Who is Required to Pay Corporate Provisional Tax?
Corporate Taxpayers are also considered as Provisional Taxpayers. Provisional tax applies to:
- Corporations such as joint-stock companies (A.Ş.), limited liability companies (Ltd. Şti.)
- Foreign branches operating in Turkey
- Other legal entities subject to corporate tax
- Funds
- Cooperatives
- Economic entities belonging to associations or foundations
- Joint Ventures
These entities must make quarterly provisional tax payments based on their profits within the quarter.
3. Provisional Tax Rate
For the taxable years 2024, the corporate provisional tax rate is 25%, in line with the annual corporate tax rate. The rate is applied to the company's taxable profits for each quarter.
4. How to Calculate Provisional Tax?
The amount of corporate provisional tax is calculated based on the quarterly taxable income of the company. Businesses must estimate their profits, deduct allowable expenses, and apply the 25% provisional tax rate. This estimate can be adjusted based on prior financial performance and current year operations.
Example Calculation:
- Quarterly taxable profit: ₺500,000
- Provisional tax rate: 25%
- Provisional tax payable: ₺500,000 x 0.25 = ₺125,000
This amount would be paid as provisional tax for the quarter and later deducted from the final annual corporate tax liability.
5. Provisional Tax Payment Schedule
Corporate provisional tax is paid four times a year on the following dates:
- First quarter: Due by May 17 (for profits earned between January 1 and March 31)
- Second quarter: Due by August 17 (for profits earned between April 1 and June 30)
- Third quarter: Due by November 17 (for profits earned between July 1 and September 30)
- Fourth quarter: Due by February 17 of the following year (for profits earned between October 1 and December 31)
Each payment covers the estimated taxable profits for that quarter.
6. Provisional Tax Filing Process
Provisional tax returns must be filed electronically through the Revenue Administration's E-Declaration System (GİB – Gelir İdaresi Başkanlığı). This system allows companies to submit their quarterly returns and calculate the provisional tax based on their financial data.
The necessary documents include:
- Financial statements for the relevant quarter
- Income and expense reports
- Calculations of taxable profits
7. Annual Reconciliation
After the fiscal year ends, companies must file their annual corporate income tax return by April 30 (or the fourth month following the end of their fiscal year). At this point, all provisional tax payments made during the year are deducted from the total annual corporate tax liability.
If the total provisional tax paid exceeds the company's annual tax liability, the overpayment can be refunded or carried forward to future tax periods. Conversely, if the provisional tax payments were lower than the actual annual tax liability, the company must pay the difference.
Tax Incentives for Corporations in Turkey
The Turkish government offers various tax incentives to attract foreign investment and boost specific industries. Some key incentives include:
- Free Zones: Companies operating in designated free zones are exempt from corporate income tax on their profits generated within the zone.
- Technology Development Zones (Technoparks): Software and R&D companies in TDZs enjoy income tax exemptions for profits derived from R&D activities until 2028.
- Investment Incentive Programs: Turkey provides incentives for investments in priority sectors, including manufacturing, energy, and tourism, in certain regions. These incentives can include tax deductions, customs duty exemptions, and VAT exemptions.
Corporate Income Tax for Foreign Investors
Foreign companies and investors looking to establish operations in Turkey need to be aware of both the corporate income tax system and how double taxation treaties may affect their tax obligations. Turkey has signed Double Taxation Treaties (DTTs) with more than 80 countries to prevent double taxation on the same income.
Key Considerations for Foreign Investors:
- Permanent Establishment: Foreign entities without a permanent establishment in Turkey are generally only taxed on Turkish-source income.
- Transfer Pricing Rules: Turkey applies transfer pricing regulations to ensure that related-party transactions are conducted at arm's length.
- Thin Capitalization: Interest on loans from related parties may be subject to limitations under Turkey's thin capitalization rules.
Compliance and Penalties
Failure to pay corporate income tax & provisional tax on time or underreporting taxable profits can result in penalties and late payment interest. It's critical for companiesand establishments to accurately estimate their profits and meet all quarterly deadlines to avoid financial penalties.
The penalties for non-compliance may include:
- Late payment fines: Applied as a percentage of the unpaid tax.
- Interest charges: Accumulated daily on overdue amounts until full payment is made.
- Administrative fines: For failing to submit accurate returns or missing deadlines.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
