This is probably not the most exciting and glamorous side of expatriation, but let's face it: with your new life in Türkiye comes the obligation to comply with the local tax system. The good news is that the Turkish tax system is relatively straightforward, inspired by international standards, and is viewed as one of the most competitive in the region. In other words, taxes in Türkiye are all but stifling.
Getting a tax number in Türkiye
First, you will need to get a tax identification number, which will be required for a variety of procedures (opening a bank account or applying for a residence permit, for example).
To obtain a tax number, you will simply have to present your valid passport and fill in a form at the nearest tax office — search for "Vergi Dairesi” on the map.
Once you acquire your Turkish tax number you can complete all your official applications with ease from opening utility accounts to signing up rental agreements.
Individual income tax in Türkiye
This part may not concern you if you do not intend to work in Türkiye. Under certain conditions, you may keep your fiscal residence in your home country even if you dwell in Türkiye.
Otherwise, you will have to pay income tax on any revenue earned in Türkiye. The taxation rate is progressive - it increases along with your total yearly earnings. As of 2023, the income tax brackets are as follows:
- For income up to TRY 70,000 - 15%,
- Over TRY 70,000 up to 150,000 - 20%
- Over TRY 150,000 up to 550,000 - 27%
Turkish companies automatically calculate their employees' income tax, deduct it from their wages, and directly transfer it to the tax office. Entrepreneurs and independent workers, however, have to file a quarterly tax return themselves.
Social Security Contributions in Türkiye
The Turkish social security system, managed by the Social Security Institution (SGK), is another critical aspect that expatriates working in Türkiye need to understand.
Both employers and employees are required to make contributions to the Turkish social security system. This is mandatory for all employees working in Türkiye, including expatriates, unless exempted under a bilateral social security agreement between Türkiye and your home country.
The total social security contribution is split between the employer and the employee. The standard contribution rate for an employee is around 14% of their gross salary, which includes pension, disability, and health insurance contributions. The employer's contribution rate is higher, generally around 20.5%.
By contributing to the Turkish social security system, expats working in Türkiye are entitled to several benefits. These include health insurance, occupational injury and illness coverage, maternity benefits, disability benefits, and pension rights upon retirement.
Türkiye has bilateral social security agreements with several countries. These agreements often allow expatriates to remain covered by their home country's social security system, avoiding double contributions. It's important that you check whether such an agreement exists between your home country and Türkiye and understand the terms of these agreements and how it affects your social security obligations in Türkiye.
Do you need to pay income tax in Türkiye?
When it comes to taxation in Türkiye, one of the key concepts that expatriates need to understand is tax residency.
In Türkiye, tax residency is primarily determined based on the amount of time you spend in the country. According to Turkish tax laws, you are considered a tax resident if you:
- Spend more than 183 days in Türkiye during a calendar year, irrespective of whether these days are consecutive.
- Have a permanent home in Türkiye.
- Have a center of vital interests (economic or personal) in Türkiye.
It's important to note that this definition also applies to expatriates who might not have formally registered as residents but meet the above criteria. Hence, merely spending a significant part of the year in Türkiye can subject you to tax residency status.
Implications of tax residency
Being classified as a tax resident in Türkiye has significant implications, particularly concerning your global income. As a tax resident, you are required to pay taxes on your worldwide income in Türkiye. This includes:
- Income earned within Türkiye, such as salaries, rental income, or business profits.
- Income earned abroad, which encompasses any earnings outside of Türkiye.
For expatriates, this means that income from their home country or any other country where they may have financial interests would be subject to taxation in Türkiye. It's crucial to understand that this does not automatically exempt you from paying taxes in other jurisdictions; however, Türkiye's Double Taxation Agreements (DTAs) with many countries can provide relief in such cases.
In contrast, if you are not considered a tax resident – typically if you spend less than 183 days in Türkiye – you will only be taxed on your Turkish-sourced income. Income generated outside of Türkiye will not be subject to Turkish tax laws.
Türkiye has entered into DTAs with numerous countries to prevent double taxation for individuals who might be considered tax residents in more than one country. These agreements usually provide rules to allocate the right of taxation between the two countries, ensuring that income is not taxed twice.
Other types of taxes in Türkiye
In addition to income tax, there are several other potential tax obligations that expats should be aware of.
Corporate tax
Corporate tax applies to the profits earned by companies and other legal entities. In Türkiye, the standard corporate tax rate is 20%. This tax is relevant for expatriates who own or operate a business in Türkiye. It's important to note that different rules may apply to foreign-owned companies or partnerships, and understanding these nuances is vital for business owners.
Value-Added Tax (VAT)
Value-Added Tax (VAT) in Türkiye is applicable to the supply of goods and services. The standard VAT rate is 20%, with reduced rates of 8% and 1% for certain goods and services. Expatriates will encounter VAT in their day-to-day purchases. For businesses, VAT must be considered in pricing, invoicing, and financial reporting.
Property tax
Property tax is levied annually on property owners in Türkiye. The rate varies depending on the location and type of property, ranging typically from 0.1% to 0.6%. Expatriates who own residential or commercial property in Türkiye need to account for this tax. It's paid to the local municipality and is based on the property's tax value, which is usually lower than the market value.
Capital Gains Tax
Capital Gains Tax is applicable on the profit made from selling property or investments. For real estate, if the property is sold within five years of purchase, the gains are taxable. The rate can vary, and there are certain exemptions based on the duration of ownership and the type of property. For stocks and other securities, capital gains are typically taxed as income, and specific rules apply depending on whether the investments are in Turkish or foreign entities.
How to file your taxes in Türkiye
First and foremost, determine whether you are considered a tax resident in Türkiye. As previously mentioned, if you spend more than 183 days in the country within a calendar year or have vital economic or personal ties, you are likely a tax resident and must file a return on your global income. If not, you'll only need to file for income earned in Türkiye.
To file taxes in Türkiye, you will generally need the following documents:
- Your Turkish identification number or tax identification number.
- Proof of income, which could be salary slips, a contract, or a statement from your employer.
- Documentation of other income sources, if applicable, such as rental income or interest from savings.
- For those with business interests, financial statements or records of business transactions will be needed.
In Türkiye, the income declaration is typically made on an annual basis. You need to declare all sources of income, including wages, rental income, interest, dividends, and any capital gains.
Tax returns in Türkiye can be filed in two ways:
- Online through the Interactive Tax Office: The Turkish Revenue Administration offers an online portal where you can file your taxes. This is the most convenient option for many, especially if you are fluent in Turkish or have assistance from someone who is.
- In-person: You can also file your tax return at your local tax office. This might be preferable if you have a complicated tax situation or prefer face-to-face assistance.
The deadline for tax filing in Türkiye is typically the 25th of the fourth month following the end of the fiscal year. For most individual taxpayers, the fiscal year aligns with the calendar year, making the deadline usually April 25th. Ensure to mark this date and prepare your documents well in advance to avoid last-minute rushes and potential penalties.
After filing your tax return, if you have tax due, you must ensure that it's paid by the deadline. Payment can be made online, at banks authorized to collect tax payments, or directly at the tax office. Keep receipts of your payment for your records.
Maintain copies of your tax return, supporting documents, and payment receipts. These records are crucial should any questions arise about your tax filing or if you need to reference them for future filings.
How to avoid common taxation pitfalls in Türkiye
Navigating the complexities of a foreign tax system can be challenging, and expatriates in Türkiye are no exception. Being aware of common mistakes and understanding how to avoid them is crucial for ensuring compliance and avoiding unnecessary penalties or legal issues.
First, make sure you fully understand the criteria of tax residency in Türkiye and know whether you are considered a tax resident in the country or not. If your status is ambiguous, consult with a tax professional to clarify your position.
Second, check where double taxation treaties exist between your home country and Türkiye. Understand how it applies to your situation and take the necessary steps to benefit from it, such as applying for a Certificate of Residence from your home country.
Understand your obligations regarding the Turkish social security system. If you believe you are exempt due to a bilateral agreement, ensure you have the necessary documentation to prove this exemption.
Maintain thorough and accurate records of all income, taxes paid, and relevant financial transactions. This practice is not only crucial for tax filing purposes but also essential if your tax payments are ever questioned.
Tax laws can change (especially in Türkiye), and staying updated on these changes is crucial. Regular reviews will ensure you are compliant with the current laws and take advantage of any available benefits or deductions.
Finally, given the complexities of tax laws, especially in a foreign country, seeking advice from a tax professional knowledgeable in Turkish tax law and expatriate tax issues is highly advisable. They can provide personalized guidance and help navigate the intricacies of the system.
To sum up
Navigating the Turkish tax system is essential if you plan to be a long-term resident in the country. While it might not be the most thrilling part of the expat experience, understanding and complying with Turkish tax laws is crucial for a smooth and trouble-free stay.
Acquiring a Turkish tax identification number is the key first step necessary for various financial and legal procedures. For expats working in Türkiye, familiarizing themselves with income tax, social security contributions, and other relevant taxes is important. The tax system's progressive nature and the existence of double taxation agreements can significantly impact an expatriate's tax liabilities, especially regarding global income.
In essence, while taxes may not be the highlight of living in Türkiye, they are a fundamental part of the expatriate journey. Adequate understanding and adherence to tax obligations ensure legal compliance and contribute to a stress-free experience. For complexities and specific scenarios, consulting with a tax professional is always advisable.
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