ISTANBUL UNIVERSTY

Faculty of Business Administration

Turkish Tax System

Dr. ARİF AYLUÇTARHAN

 Outline-
Introduction and 7 Elements of Income

• Income from immovable

1. Commercial properties and rights
2. Agricultural
Incomes (rental income) (PITL Art.
Incomes
(Business
profits) (PITL
(Profits) (PITL 5 70)
Art. 52)
Art. 37)

• Income from movable

property (income from
capital investment) (PITL
6 Art. 75)

Income Concepts
Features of Income 3. Wages and
Salaries (PITL • Other income and
Liability Types of Income Tax Art. 61) earnings (without
considering the source of
(Full-Limited)
7 income) (PITL Art. 80)

4. Self
Employment
Incomes (PITL
Art. 65)
 CONSEPT OF INCOME

SOURCE THEORY (A more limited perspective)

The share taken by the participant factors from production
(continuity is reqired)
(donation, lottery not included in the income accordingly)

NET INCREASE THEORY (A wider perspective)

Net increase in the assets of a person in the certain period of time (gives
additional purchasing power).
 Elements of INCOME (Art 2 PITL)

1. Commercial Incomes (Business profits) (PITL Art. 37) TAX RETURN

2. Agricultural Incomes (Profits) (PITL Art. 52)

3. Wages and Salaries (PITL Art. 61)

4. Self Employment Incomes (PITL Art. 65)

5. Income from immovable properties and rights (rental income) (PITL Art. 70)

6. Income from movable property (income from capital investment) (PITL Art. 75)

7. Other income and earnings (without considering the source of income) (PITL Art. 80)

Remember :The income elements for corporate tax are the same as those covered in the PITL
 Features of INCOME

PIT Art 1 The net amount of profits and earnings obtained by natural persons in one
calendar year are the subjects of the personal income tax.

1. … Real Persons

2. … a calendar Year

3. … the concept takes all incomes

4. … Shall have been obtained (Accrual Principle, Collection –Cash- Principle)

5. … Real Basis

6. … Net Amount
 Liability Types of Income Tax

Individuals incurring taxable income

(Main criteria - Having Domicile in or outside Turkey )

FULL TAX LIABILITY

Residents of Turkey (intention of being domiciled-duration
of living –more than 6 months) and Turkish citizens who live in foreign
countries due to their duties → worldwide income

LIMITED TAX LIABILITY

Non-residents (not having domicile-less than 6 months) →
Only Income derived from Turkey (obtained in Turkey)

Residence test (183 days rule)

Be determined in line with applicable DTT
 LIMITED TAX LIABILITY

Commercial Incomes through workplace or permanent representative

Agricultural Incomes carried out in Turkey

Wages and Salaries rendered or benefited in Turkey

Self Employment Incomes carried out or benefited in Turkey

Income from immovable properties and rights placed or benefited in

Turkey

Income from movable property Invested in Turkey

Other income and earnings performed or benefited in Turkey

The term “benefited” means a payment is to be made in Turkey,

or if the payment is made abroad, it is to be recorded in the books in Turkey.
Commercial Incomes (Business profits) (PITL Art. 37)
Definition ( Art 37) incomes which arising from commercial or industrial activities.

…there has to be continuity in performing these activities.

Incidental activities regulated as the other income and earnings.

Several activities are listed namely for clarification in Article 37.

- Operating mines, stone and lime quarries, extraction of sand and pebbles, operations of brick
and tile kilns,
- jobber activities (Stock brokerage),
- Operating private schools, hospitals and similar places,
- Regular operations of sale, purchase and construction of real estate (immovable properties),
- Purchase and sale of securities on someone's behalf and on a continued basis,
- Fully or partly sale of land which has been obtained by purchase or barter and subdivided
(parceling out) within 5 years of its date of purchase and sold during this period or in subsequent
years,
- Earnings from dental prosthesis (denture activity).

Tradesman Exempted From Tax :Generally, activities performed by tradesmen and artisans who
do not have permanent establishments are not assumed as commercial and industrial activities,
and so they are exempt from income tax.
 Commercial Incomes

Commercial
Incomes

Tradesmen Simple Real Basis

Exempt from Prosedure Taxation
Income Tax Method Methods

operating
account method

Balance Sheet
Method
 Commercial Incomes

Commercial
Incomes

Real Basis
Balance Sheet
Taxation
Method
Balance Sheet Method Methods
the taxable income of a business enterprise is the positive difference
between its net assets (equity) at the beginning and at the end of a
calendar year.
-Values added shall be deducted
-values withdrawn shall be added
IN ADDITION THAT
While assets and liabilities are valuated- valuation measures indicated in TPL
(Art 258-298) shall be performed
Deductable and non deductable expenses shall be considered (Art. 40-41
PITL)
Exclusions and additonal deductions on Tax return shall be taken
into consideration
 Expenses to be Deducted (Art. 40 PITL)
-General expenses incurred (made) for obtaining and maintaining business profit,

- Food and boarding expenses provided for employees at the place of business or in its annexes,
Expenses for medical treatment and medicine, Insurance and pension premiums, Clothing
expenses paid for employees,

- Losses, damages, and compensations paid based upon written agreements, juridical decrees, or
by the order of law,

-Expenses for travel and lodging relevant to the business

-Expenses for vehicles,

- Taxes in kind such as building, and consumption, stamp and municipal taxes and fees and
charges, related to the business,

-Depreciations set aside according to the provisions of the Tax Procedure Law, (heat insulations
and energy saving expenses can be written of at once) (Depreciation: Straight-line or Accelerated
method. Usefull life is anounced by Tax Administration (from 2 to 50 years, generally 5 years)
 Expenses to be deducted 2

-Payments to the unions,

-The contribution payments paid by the employers to the retirement system on behalf of the
wage earners,

-The production cost of foodstuff, cleaning, clothing and heating supplies donated to the charity
and foundations operating to help the poor.
 Not Deductible Expenses (Art. 41 PITL)

(SEPERATION OF PERSONAL WEALTH FROM BUSINESS CAPITAL)

1-4

1-Funds withdrawn from the enterprise by the owner or by his spouse or children, or other assets
in kind acquired by them,

2-Monthly salaries, wages, bonuses, commissions and compensation paid to the owner of the
enterprise, to his spouse, or his minor children,

3-Interest on the capital invested by the owner of the enterprise,

4- Interest based on the current account of the owner of the enterprise, his spouse, his minor
children including interests on all form of receivables,
 Not Deductible Expenses 2

5-in case the entrepreneur purchases or sells commodities or services based on the charges or prices s/he
determines with the related parts contrary to the principle of conformity (arm's-length principle) with the
market rates, the differences between the charges or prices in conformity with the market rates and those
applied by the entrepreneur that materialize to the disadvantage of the enterprise are considered to have been
withdrawn from the enterprise,

6-All fines and tax penalties as well as compensations arising from unlawful actions.,

7- 0% of the advertising expenses for all kind of alcohol and alcoholic beverages, tobacco and tobacco
products,

8-Depreciation and expenses of motor-driven sea crafts and aircrafts not related to the main field of operations
of the enterprise,

9-In case of liabilities surpass equity in the entity up to 10 % of financing expenses,

10-Expenditures related to compensations paid against material and moral damages arising from acts through
press or radio and television broadcasts.
 Different Methods for Commercial Income
Calculations

1- Construction and repair Works Over Years (Extending to)…

(Incomes obtained at the and of the work.) (provisional acceptance is approved or the date of
actual work finalized or stopped)

(Common general expenses – shall be distributed according to mutual if performed with other
Works expenses of construction or repair work and proceeds of other Works /

-depreciations number of days )

(witholding tax 3 % on progress payments- shall set of against actual tax calculated at the and of
work )

2- Foreign Transportation Activities

 Exemptions and Exclusions

- Tradesman exempted from Income Tax

- Exportation Exclusion for Limited Tax Payers

- Exhibitions and Fair Exclusion (for Limited Tax Payers’ commercial Activities)

- Exclusion in the Incomes from Operations Performed in Technology Development Areas

- Exclusion for Young Entrepreneurs

- Exclusion in the Income of Training and Education Institutes (5 years)

- Post Office Agency Operations

Agricultural Incomes (Profits) (PITL Art. 52)
Income derived from agricultural activities :any activity performed in
land, sea, lakes and rivers in forms of cultivating, planting, breeding,
fishing, hunting and etc.

Deduction over the proceeds as provided for in Article 94

If size of operation exceeds the dimensions specified in Article 54

or

owning a combine harvester or a motor vehicle of the same nature

or more than two tractors up to the age of 10 years shall be taxed by
determining their earnings according to the actual procedure

(according to agricultural operations accounting method or if they

wish, according to the balance sheet method).
 Agricultural Incomes

Agricultural
Incomes

-Witholding
-Real Basis
Tax(Essential)

operating account
method

Balance Sheet
Method
(if they wish)
 Wages and Salaries (PITL Art. 61)

This income comprises such income from all kinds of employment in both public and private
sector as salaries and wages, as well as associated supplementary income such as allowances,
bonuses, anniversary gifts, gratuities, commissions, premiums, compensations and other wage
and salary related remunerations including benefits in kind at market value.

In determining taxable amount of salaries and wages, the following expenditures are allowed to
be deducted from gross amount:

-Legal deduction made according to various laws or regulations,

-Payments made for pensions,
-Payments made for various insurances,
-Payments made for labor union membership,
-Disablement Reduction.
 Wages and Salaries

Wages and Salaries

Other Wages and Salaries

--Witholding Tax(Essential) -Annual Declaration (25 % of the yearly gross
amount of minimum
wages)
 Witholding Method

EXample: Gross wage amount of A is 10.000 TL .The tax base and tax liability of A is calculated
below.
Gross Wage………………………………… 10.000
Insurance premium (%14).…………… 1.400
Un employment premium (%1)…….….. 100
Tax Base for Income Tax……..……….. 8.500
Personal Income Tax……%15 first bracet 1.275
Minimum Living Allowance …..……… 152,21
Net Tax Amount ……………………………… 1.122,79
 Self Employment Incomes (PITL Art. 65)

…activity performed by a person who is self-employed, and based on professional and scientific
expertise rather than capital.. Ex lawyers, accountants, doctors, consultants and Architects
 Self Employment Incomes

Self Employment Incomes

--Witholding Tax
(Exclusion) -Annual
Declaration(+deduction)
- Exemption
-Limited Tax payers (Fair,
Exhibitions-tickets half price)
 Income from immovable properties and rights
(rental income) (PITL Art. 70)

property which includes land buildings, and permanent leasehold rights. Ships, boats, aircraft and other types
of transportation vehicles are also regarded as immovable property in the application of the PIT Law.

Income from immovable property (rental income from leasing) comprises:

- Land, buildings, mineral water, mines, quarries, sand and pebble pits, brick and tile kilns, salinas, together with
their integral parts and accessories,

-Large fishing nets and traps,

-Integral parts and accessories of buildings, all their installations, inventory and furniture, leased independently
from the building,

-Rights registered as real estate, Exploration, exploitation and franchise and license, patent rights (The incomes
earned by leasing the patents by the inventors or their legal heirs shall be the earnings of self-employement),
the right of utilization or rights such as usage privileges on all kinds of trade mark, brand, trade name, all
technical drawings, design, model, plan, cinema and television films, sound and video tapes; information
acquired in the fields of industry, commerce and science, secret formula or production method (Also the costs
of the material and equipment necessary for the utilization of such rights shall be considered as revenue from
immovable),
 Income from immovable properties and rights
(rental income) (PITL Art. 70)

- Copyrights (Earnings derived from the letting of such rights by the author or his legal heirs shall be considered
as self employement income),

- Ships and shares in ships (Without any consideration for their tonnage and whether they have an engine or
not) and all motor vehicles of loading and unloading,

Motorized transport and towing vehicles, all motor vehicles, machinery, installations and their attachments.

In computing net income from immovable property, costs related to maintenance, management, renovation
and running, and depreciation may be deducted from the gross income on the actual basis; except for the
income from the lease of the rights mentioned above.

it is also allowed to make a lump-sum deduction instead of actual costs, In such cases, lump-sum expenditure is
15% of the rental income.
Income from immovable properties and rights
(rental income)

Income from
immovable properties
and rights

--Witholding Tax (In

case of renting as -Annual Declaration
workplace) (if exceed (Real-lump sum
the limit annual expenditure)
declaration)
 Two Examples

Annual Declaration

Real
Lump-Sum
Total Gross Revenue 20,000 TL
Total Gross Revenue 20,000 TL
Tax Exclusion 4,400 TL
Lump-Sum Exp. (15 %) 3,000 TL
Total Expenses 10,000 TL
Revenue After Expenses 17,000 TL
Corresponding Expenses 2,200 TL
Tax Exclusion 4,400 TL
Exp.Allowed to be deducted 7,800 TL
Revenue Subject to Taxation 12,600 TL
Revenue After Expenses 12,200 TL
Tax Payable (First Bracet %15) 1,890 TL
Revenue Subject to Taxation 7,800 TL
Tax Payable(First Bracet )(15 %) 1,160 TL
 Income from movable property (income from
capital investment) (PITL Art. 75)

…income such as interest, dividend, rent and as such derived from capital in cash or capital in
kind. (Income from business activities, agricultural activities and independent personal services is
not considered as income from capital investment.)
 Income from movable property (income from
capital investment) (PITL Art. 75)

Regardless of their sources, the following earnings are deemed to be income from capital
investment:
-Dividends from stocks of every kind including jouissance shares, founder's shares and interests
and other remunerations paid to the stockholders in the preparatory stage of the corporation and
earning from the securities issued by investment funds and investment trusts,

-Earnings from participation shares including the shares of limited companies, cooperatives and
joint ventures,

-Dividends paid to the chairmen and the members of the board of directors,
-For institutions with limited tax liability and that submit annual or special tax return according to
the Corporate Income Tax Law, the portion that remains after deduction of the corporation tax
from the corporation earnings calculated before the deduction of the reductions and exemptions,
 Income from movable property (income from
capital investment) (PITL Art. 75)
-Interests of every kind from bonds, treasury bonds, and earning from the securities issued by the
Housing Development Administration and the Public Participation Administration,

-Interest from debt-claims of every kind particularly interest from banks and other financial
institutions,
--Deposit rates,
-Profits from selling coupons of stocks and bonds before their maturity,
- Income from selling of dividends not accrued yet to the owners of the shares,
- Amount of discount received in return for all bills discounted,

- Dividends paid to those who lend money without interest and dividends paid in return of profit-
Ioss participation notes and profit- Ioss participation accounts,
- Income from repurchasing agreement on bonds and securities,
- The income payments made by the retirement funds in the nature of legal entity aid funds,
retirement and insurance companies,
- Income from Individual Pension System,
- All types of earnings derived from capital market instruments issued due to Capital Market Law.
Income from movable property (income from
capital investment)

Income from movable

property

-Annual
-Witholding Tax Declaration(Art. 86/1-
c ve 103.86/1-d )
 DIVIDENT TAXATION

EXample

Gross Divident 200,000 TL

(15 with. tax) 30.000 TL
Net Divident 170,000 TL
Tax Exclusion (1/2) 85,000 TL
Second Bracet 34,000 TL
Revenue Subject to Taxation 85,000 TL
Tax Payable (Bracets %15-20-25-30,)
=19,980 TL
 Other income and earnings (without considering the source of income)
(PITL Art. 80)
Capital gains and non-recurring income

Capital gains (Appreciation Gains)

specified in the PIT Law are as follows:
-Income from disposition of securities and other capital market instruments, except the shares
that are acquired without consideration and those that belong to fully taxable corporations, and
which have been kept for more than two years,

-Earnings arisen from disposal of the rights enumerated in paragraph 5 of the first subsection of
Article 70 of the PIT Law (excluding patent rights),
-Income exceeding certain amount of Turkish Lira from the selling of intellectual rights which are
treated as immovable property for tax purposes,
-Income from the selling of participation rights and shares,
- Profits from the wholly or partly alienation of an enterprise which ceased its operations,
- Profits derived from the alienation of land, buildings, the rights to operate mineral deposits,
sources and other natural sources, fish farming facilities, the rights registered as immovable
property, and ships, boats, aircraft and other transportation vehicles, within five years after
their acquisition.
- Net amount of capital gains is determined by deducting acquisition costs and the costs
incurred to the alienation of the capital assets from the proceeds received in return of the
alienation.
 Other income and earnings (without considering the source of income)
(PITL Art. 80)
Capital gains and non-recurring income

Incidental Incomes (Non-recurring income)

comprises:
-Income derived from execution of commercial transactions or from acting as intermediary for
such transactions on occasion,
- not to start or to stop a business activity, agricultural activity or independent professional
service, or in return for not bidding for contracts,
- to transfer leasehold rights or to evacuate leased immovable property,
- professional services performed on occasion,
- by the taxpayers from their previous operations,
- limited liable taxpayers from transportation activities performed on occasion.
 Additional Deductions on Tax Return

In the determination of the income tax base, taxpayers shall be entitled to make the following
deductions from the income they will declare in their annual declarations:

- Insurance premiums (not exceed 15% of the declared income and total amount of the
minimum wage, )
- Education and health expenditures( not exceed 10% of the declared income-in Turkey and
paid Corp Taxpayers)
- Annual deduction calculated for the declared income of the disabled who are engaged in self
employement or who are taxed according to the simple procedure, according to the principles
stated in article 31
- Of the total donations (with receipt, and to the public administrations , associations that work
for public interest and to the institutions and establishments that are engaged in scientific
research and development activities, up to 5% of the declared income, some donations
100%),
- donated to the charity and foundations operating to help the poor,
- 100% of the expenses, donations and help made and given against receipt, in respect of
activities which are realized by the same institutions or supported by the Ministry of Culture
and Tourism for the promotion, development and preservation of cultural, artistic and
historical values,
- For the amateur sport branches, the whole amount, and for professional sport branches 50%
of the sponsorship expenses,
- "R&D deduction" as much as 100% of the expenses that the taxpayers shall make for the
research and development work within their enterprises, in search for new technologies and
knowledge,
- All cash and real donations that are made against receipt, upon natural disasters for taken a
decision to launch an aid campaign,
- Except for their economic enterprises, of all cash donations and help that are made against a
receipt to the Turkish Red Crescent and the Turkish Green Crescent,
- The portion not exceeding 10% of the tax revenue that is declared of the amount set aside as
venture capital investment funds.
 Tax Return

Decleration time for annual tax return is between the dates of 1-25 March.

Also, Separate Tax return is used by taxpayers subject to limited tax liability, to declare profits and
earnings for which they are not obliged to file annual tax return and the special tax return must
be filed in fifteen days from acquirement.

Witholding Tax Return

 Cases where Consolidation Shall not be Made

1. In Full Tax Liability;

a) Agricultural incomes not taxed on real basis, payments from pension funds, all incomes
remaining within the exclusion limits,

b) Wages and salaries received from a single employer and taxed as withholding tax (if more than
one employer, except first one the others do not exceed 34.000 (2018)),

c) Incomes from movable and immovable properties which are taxed as withholding tax with other
taxable income if not exceeding 34.000 (2018) (plus wages and salaries more than one employers )

d) Incomes from movable and immovable properties which are not subject to withholding tax if not
exceeding 1.800 (2018)

2. In limited Tax Liability;

All taxed by means of withholding tax ; Wages and salaries, self-employed profession incomes,
Incomes from movable and immovable properties and the other incomes and revenues.
 Tax Rates (Art 103)

(2018)

Income (TRY) Tax Rate (%)

0 - 14.800 15
14.801 - 34.000 20
34.001 - 80.000 (120.000) 27
80.001 (120.001) - ∞ 35
Tax Rates : Progressive tax rates

Tax rate is determined as progressive in the Personal

Income Tax Law. The tax scale to be applied to any
income of 2018 is as above.
 ADVANCE TAX (provisional tax)

Taxpayers pay advance tax ( provisional tax) (for every quarters) at the rate of first bracet income
tax tariff; these payments are deducted from personal income tax of current period.
Thank you…