Turkey: CORPORATE TAX LAW 102 – Tax ID, Cycles, Submission Of Declarations & Invoicing In Turkey

A. Overview

As summarized in our previous article (Corporate Tax 101), Turkey has a rather complex tax system with regulated by numerous laws and secondary regulations, especially when it comes to corporate tax. As noted above, there are different tax cycles and different durations for submissions of tax declarations, depending on the tax type. In this respect, understanding how the TAX ID system as well as the tax cycles, submissions of tax declarations and corporate invoicing in Turkey works will be crucial for foreign investors to understand how to handle the day-to-day operations of their companies.

B. Tax Identification in Turkey

Article 2 of the Law No.4358 sets forth that "Public Administrations and offices along with other real and legal persons shall be required to determine the tax ID numbers of real and legal persons who are parties to transactions to be determined by the Ministry of Finance and shall be required to include such tax ID numbers at the relevant documents, accounts and records."

A separate communique enacted to extend the usage of tax ID number further sets forth that "Real and legal persons to which this Communique applies to shall be required to do the following, in addition to determining the identification, address and other information of all real and legal person customers who are conducting or are dealing with the transactions set forth at the Communique; 1. Determine their tax ID numbers, 2. Use such numbers at the relevant documents, accounts and records".

With regards to Law No. 4358, tax ID numbers shall be used in below listed transactions:

–Notary Public transactions,

–Debt collection transactions,

–Title Registry transactions,

–Registration transactions under Traffic Law No 2918,

–Issuance of Bank Cheques,

–Transactions to be carried out by Banks and other financial institutions,

–Acquiring Passports,

–And any other transactions to be determined by the Turkish Ministry of Finance

C. Corporate Tax Cycles in Turkey

There are a number of different tax types that are applicable to corporate transactions in Turkey, and as such, each different tax type will have different declaration, submission and payment cycle.

VAT: For VATs, a tax submission will be drafted and submitted to the tax office every month, which will show the amount of VAT charged by the company and the amount of VAT paid by the company during the relevant month, which will then be offset against each other to calculate the final VAT amount that needs to be paid. To make sure you do not pay any excess VAT, you will need to provide all receipts and invoices you or the company receives within the relevant to the accountants.

Withholding: A separate withholding tax declaration (Muhtasar) will also be drafted and submitted to the tax office every month, which will show the withholding tax levied from rent payments of the company, personnel payments (royalty payments etc) and other withholding taxes applied in any invoices the company received (if any). It will be paid monthly (so every month's withholding taxes will need to be paid by the end of next month).

Quarterly Tax: As briefly mentioned above in the relevant examples, there is also a quarterly CIT tax declarations that needs to be submitted at the end of each quarter. The declaration and payment schedule of this quarterly tax is noted below:

D. Invoicing in Turkey & Issues Regarding Payments w/out Invoices

For companies, issuing and receiving invoices are crucial aspects for managing the day-to-day transactions. Due to rigorous tax office inspections, it is generally advised for companies to make payments in return for official invoices (there can be notable exceptions here), as any amount transferred out from a company account without an accompanying invoice may prove the be a problem in case of a tax inspection. Obviously, a company can make the payments before receiving the official invoice (i.e. advance payments etc.), the important thing here is to make sure that the company receives the relevant invoice corresponding to these payments within the same calendar year (for end of year closures).

As for issuing invoices, please note that most companies are subject to e-invoice procedures and therefore need to issue electronic invoices through certified e-invoice service providers. As such, there are certain limits to what accounting can do with regards to modifying invoices etc. (as the system itself has limits). If for any reason, the company needs to cancel any invoice that is issued, there will be a 7-day grace period to cancel any invoice that is issued and approved. If an invoice is not cancelled within this period, then the main method to cancel the invoice is by having the other company or person (to whom the invoice is issued) issue a separate "return" invoice for the exact same amount.

E. Depositing & Withdrawing Money from Company Accounts by the Shareholder

A shareholders primary debt to the company is to pay the committed capital amount. Beside this initial capital, a shareholder can deposit new funds to the company if the company requires new funds to pay for a service, application or purchase of products etc. Any amount deposited by the shareholder will be recorded as a debt to the company, meaning the company will owe the shareholder the amounts deposited.

Withdrawing money directly from company accounts is more problematic. As noted above, technically, any amounts to be transferred out from the company accounts need to have accompanying invoices for tax and accounting purposes. However, no such invoice will be available for funds withdrawn directly by the shareholder. Instead, the shareholder will owe the company money corresponding to the amount withdrawn (so in this case, the Company will become the creditor), and the company is required by the law to charge interest to the funds lent to the shareholder (so as a shareholder, you will technically be required to pay the company for the amounts you owe + interest).

F. Final Remarks

Although this article dives into more detail regarding corporate tax applications in Turkey, it should still be treated as a beginners guide only. There are numerous issues that needs consideration when handling tax declarations, submissions and when issuing invoices, and any error in these may result in hefty administrative fines for the company. Unpaid tax debts (including fines) will also present significant problems for corporate entities, which may lead to an eventual bankruptcy. To avoid such a drastic outcome and to pay exorbitant amounts in administrative fines, all tax and invoicing of the company should be handled diligently by experts.

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.