Profit Tax Rate in Turkey: Everything You Need to Know for 2024

Understanding the profit tax rate is crucial for any business operating in Turkey. Whether you're an entrepreneur, a local business owner, or a foreign investor, having a solid grasp of how profit tax works in Turkey can help you make informed decisions about your company's financial future. In this blog post, we will dive into the key aspects of profit tax in Turkey, focusing on both corporate income tax and personal income tax, and provide actionable tips to help you navigate the system effectively.

What Is Profit Tax in Turkey?

Profit tax in Turkey refers to taxes imposed on the income or profits generated by businesses and individuals. For companies, this is called corporate income tax, while individuals are subject to personal income tax on their earnings. Let's break down both forms of taxation to see how they apply to different entities and income levels.

1. Corporate Income Tax Rate in Turkey

Corporate income tax is the tax levied on the profits of companies operating within Turkey. The current corporate income tax rate in Turkey for 2023 is 25%.

This tax applies to a variety of legal entities, including:

• Limited liability companies (LLCs)

• Joint-stock companies

• Branches of foreign companies

• Other corporations

How Corporate Income Tax is Calculated:

The corporate tax is imposed on the net profit of the company, which is calculated by deducting allowable expenses, costs, and other deductions from the company's gross revenue.

Key Deductions to Consider:

• Salaries of employees

• Business-related expenses (rent, utilities, and supplies)

• Depreciation and amortization of assets

• Interest on business loans

• Research and development (R&D) expenses (especially in Technoparks)

Tax Incentives and Exemptions:

Turkey offers several tax incentives for businesses in special zones like Technoparks, Organized Industrial Zones (OIZs), and Free Zones. Companies operating in these areas can enjoy partial or full exemptions from corporate tax, depending on the industry and their investment scale.

2. Personal Income Tax Rate in Turkey

Individuals who generate income, including business owners and freelancers, are subject to personal income tax. The tax rates for personal income are progressive, meaning they increase as income rises. The rates for 2024 are below:

• 15% on income up to 110,000 TL

• 20% on income from 110,001 TL to 230,000 TL

• 27% on income from 230,001 TL to 580,000 TL

• 35% on income from 580,001 TL to 3,000,000 TL

• 40% on income exceeding 3,000,000 TL

Who Pays Personal Income Tax?

Personal income tax applies to individuals earning income from:

• Salaries

• Freelance work

• Rental income

• Interest and dividends

• Other sources of income such as capital gains

Dividends and Personal Income Tax:

If you're an individual shareholder in a Turkish company, you’ll also be subject to withholding tax on dividends, usually at 10%. However, half of the dividend income is exempt from tax under Turkish law, meaning only the remaining 50% is subject to personal income tax.

3. Double Taxation Agreements

Turkey has signed over 90 double taxation agreements (DTAs) with various countries, allowing companies and individuals to avoid being taxed twice on the same income. These agreements are especially important for foreign investors and expats, as they allow you to reduce your total tax burden by receiving tax credits or exemptions on foreign-earned income.

Benefits of DTAs:

• Reduced or eliminated withholding tax on dividends, interest, and royalties.

• Elimination of double taxation on the same income in both Turkey and another country.

• Clear guidelines on how and where taxes should be paid.

4. Filing and Paying Profit Taxes in Turkey

Corporate Income Tax Filing:

• Corporate income tax returns are filed annually, and the deadline is the 25th day of the fourth month following the end of the fiscal year (typically April 25 for calendar-year companies).

• Companies must also file advance corporate tax returns on a quarterly basis.

Personal Income Tax Filing:

• Personal income tax returns are filed annually, and the deadline is the 31st of March following the end of the tax year.

• Income earned from multiple sources (e.g., salary, rental income, etc.) must be declared together in the tax return.

5. How to Optimize Your Profit Tax Strategy in Turkey

Effective tax planning can significantly reduce your tax burden and increase your company's profitability. Here are some practical steps to optimize your tax strategy:

Take Advantage of Tax Incentives:

• Technopark Exemptions: If you're in the tech industry, consider operating in a Technopark. Companies established in these zones benefit from full exemptions on corporate tax and other incentives for up to 10 years.

• Investment Incentive Certificates: These certificates provide corporate tax reductions, VAT exemptions, and customs duty exemptions on certain investments.

Consider Transfer Pricing Rules:

If you are a multinational company, ensure compliance with transfer pricing regulations. Profits from related-party transactions must reflect market value, or else they could be reclassified as hidden profit distributions, subject to additional taxes.

Dividend Planning:

Plan the distribution of dividends carefully to benefit from the 50% exemption on personal income tax. By distributing dividends over several years, you can spread the tax burden and reduce your overall liability.

Engage in R&D Activities:

R&D activities in Turkey receive substantial tax relief. Companies investing in research and development can benefit from up to 200% deduction on qualifying R&D expenses.

Conclusion: Why Understanding Profit Tax Rate Matters for Your Business

Understanding the profit tax rate in Turkey is essential for both individuals and companies aiming to maximize their earnings while remaining compliant with tax laws. Whether you are a small business, an expanding startup, or a foreign investor, having a proactive tax strategy will help you reduce your tax burden, take advantage of Turkey’s tax incentives, and plan for long-term success.

At Özmen Consultancy, we specialize in helping businesses navigate Turkey's complex tax landscape. Our expert team offers tailored solutions to optimize your profit tax strategy, ensuring compliance with Turkish tax regulations while minimizing your tax liability.

Contact Us

Ready to take your tax strategy to the next level? Contact Özmen Consultancy today for personalized advice on profit tax optimization in Turkey.

info@ozmconsultancy.com

This blog post is designed to inform you about the profit tax rate in Turkey and help you make well-informed decisions for your business. Stay ahead of the game by regularly reviewing your tax strategy and making the most of Turkey's business-friendly tax incentives.

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