Income TaxesThe income taxes included in the Turkish tax legislation are the personal income tax and the corporate tax. Although the personal income tax and corporation tax are defined by different laws, most of the rules and provisions applicable to individuals in terms of income elements and net income also apply to institutions.

Personal Income Tax The income of real persons is subject to personal income tax. Income is the net amount of earnings and revenues that a real person receives in a calendar year. According to the Income Tax Law, the elements that are considered income are as follows:

Commercial gainsAgricultural gainsSalaries and paymentsSelf-employment gainsImmovable capital revenue (rent income)Movable capital revenue ( incomes from capital investments)Other gains and revenuesTurkish tax legislation regulates the principle of full or limited liability in taxation on the basis of residence. Full taxpayers (residents in Turkey and those who stay in Turkey continuously for more than six months within a calendar year) are taxed on all of the gains and revenues they earn in and outside Turkey, the limited taxpayers (residence not in Turkey and those who do not stay in Turkey continuously for more than six months within a calendar year) are taxed only on gains and revenues earned in Turkey.

Personal income tax rates range from 15% to 35%.

The personal income tax rates for 2018 are as follows:

Income Scales (TL)(For Employment)Rate (%) Income Scales (TL)(For Non-Employment Revenue)Rate (%)In case the income elements defined in the Income Tax Law are obtained by the institutions, taxation is carried out through the legal personality of these institutions. Corporate taxpayers defined in the law are as follows:

Capital companies CooperativesPublic economic institutions Economic enterprises owned by associations and foundations Business PartnershipsInstitutions the legal centers or business centers of which are located in Turkey are considered full taxpayers and are taxed on the gains achieved in both foreign countries and in Turkey. Those with both legal centers or business centers which are not located in Turkey are considered limited taxpayers and are taxed only on income earned in Turkey. The legal center is the center specified in the articles of association or in the organizational laws of the taxable institutions, and the business center is the center where the activities are actually gathered and managed.

The corporate tax rate levied on commercial profits is 20% in Turkey. Corporate tax rate was increased to 22% for 2018, 2019 and 2020; however, the Council of Ministers has the authority to reduce this rate from 22% down to 20%.

In case of payment of dividends to shareholders, full taxpayers are subject to withholding tax of 15%; however, dividends paid by full taxpayer institutions to full taxpayer entities are not subject to withholding tax. The addition of profit to the capital is not considered as a profit distribution, therefore not subject to withholding tax. Similarly, a tax deduction of 15% is made over the amounts that the limited taxpayers transfer to the headquarters after deducting the corporate tax amount. The withholding tax is applied to the amount remaining after the corporate tax is deducted from the profit of the taxable branches.

Value Added Tax (VAT)VAT rates applied in general are %1, %8 and %18. Commercial, industrial, agricultural and independent professional goods and services; goods and services entering the country through import and deliveries of goods and other activities that are created through other activities are all subject to VAT.

Some of the VAT exemptions and exceptions are:

Exports of goods and servicesRoaming services provided in Turkey for customers outside Turkey, provided that they are in compliance with the international roaming agreements and that the condition of the reciprocity is implementedOutsourcing services for customers in free zonesOil exploration activities Services for ships and airplanes in ports and airports Delivery of machinery and equipment within the scope of investment incentive certificate Transit transportation Provided that the condition of the reciprocity is implemented, delivery and services to diplomatic representations and consulates and to international organizations and their employees which are nontaxableBanking and insurance transactions subject to Banking and Insurance Transactions Tax Special Consumption Tax (SCT)There are four main product groups subject to SCT at various tax rates:

Petroleum products, natural gas, machine oils, solvents and solvent derivativesAutomobiles and other vehicles, motorcycles, airplanes, helicopters, yachtsTobacco and tobacco products, alcoholic beverages Luxury consumer goods Contrary to the VAT which is applied at each delivery, the SCT applies only once.

Banking and Insurance Transactions TaxAlthough transactions carried out by banking and insurance companies continue to be exempted from VAT, these transactions are subject to Banking and Insurance Transactions Tax. This tax is applied for income earned by banks such as loan interest. The tax rate is generally 5% but it is 1% for the interest applied on certain transactions such as deposit transactions between banks. Sales amounts from foreign exchange transactions are not taxed from 2008 onwards.

Stamp TaxStamp tax applies for a variety of documents, including contracts, debt securities, capital subsidiaries, letters of credit, letters of guarantee, financial statements and payrolls. While stamp duty is levied on rates varying between 0,189% and 0,948% of the document price, it is also collected as fixed amount (predetermined price) for some documents.

Asset TaxesThere are three kinds of asset tax:

Immovable property tax Motor vehicle taxInheritance and transfer taxBuildings, apartments and plots owned in Turkey are subject to immovable property tax at rates ranging from 0.1% to 0.6%, and Contribution for Conservation of Immovable Cultural Heritage is paid at the rate of 10% of this accrued tax. Motor vehicle taxes are collected at fixed amounts re-determined every year according to the age and engine volume of the vehicles. Inheritance and transfer taxes are collected as 1% to 30%.