Taxable income includes all cash and non-cash compensation, as well as any benefits holding a monetary value, that is provided to those who work, subject to an employer, and in association with a specific place of business. In addition to salary, any bonuses and commissions, overseas adjustments, cost-of-living allowances, housing allowances, education payments, and home leave payments are also considered as employment income.
Resident individuals are taxed on salary earned for work performed anywhere in the world, regardless of where payment is made and regardless of whether it is remitted. Non-residents are taxable on remuneration for work performed in Turkey or any remuneration paid out from Turkey, regardless of whether or not it relates to Turkish services, but may be exempted under double tax treaty (DTT) provisions.
Turkish tax laws do not contain specific provisions regarding the taxation of employee share incentive plans in Turkey; consequently, any benefits granted to employees under these plans are subject to the general principles of the local legislation.
The administrative aspects, security registration requirements for the employer, and timing of taxation vary based on the structure and characteristics of each plan. Therefore, professional advice should be sought before implementation.
There may be some restrictions on self-employment activities of foreign nationals in Turkey. Profits or gains from trades, professions, or vocations that are carried out within Turkey are subject to tax whether or not the individual is resident. If resident in Turkey, a liability may arise on such profits or gains even if the trade or profession is conducted abroad. Professional advice should be taken at the earliest possible stage.
Currently, there are two different taxation regimes under Turkish tax legislation regarding the taxation of capital instruments.
Under Temporary Article 67, certain income (e.g. capital gains derived from certain instruments, such as listed equities purchased after 1 January 2006 and Turkish domestic government bonds and Treasury bills issued after 1 January 2006) derived through the intermediation of brokerage houses, banks, and custodian banks operating in Turkey (’intermediary institutions’) is subject to WHT depending on the legal status of the investor.
Under the WHT regime, certain portfolio investment income (e.g. capital gains derived from the listed equities acquired after 1 January 2006 or from Turkish local government bonds issued after 1 January 2006) derived by resident and non-resident individuals is subject to 10% WHT. Furthermore, 0% WHT is applicable for all type of investors with respect to capital gains derived from listed equities on the Istanbul Stock Exchange (ISE) purchased after 1 January 2006 (excluding securities investment trust shares) and income derived from transactions on equity index futures carried out under Turkdex and warrants with underlying equities traded on ISE and participation shares of investment funds that intensively invest in listed shares (’equity intensive funds’).
WHT is administered by intermediary institutions and is the final taxation for non-residents. It is not necessary to file a tax return or appoint a representative.
However, if any income derived from the capital instruments does not fall within the scope of the WHT regime (e.g. the capital gains are derived from Turkish domestic government bonds and Treasury bills issued prior to 1 January 2006), they are taxed according to permanent tax rules. If the gains are taxed under permanent tax rules rather than under Temporary Article 67, the tax collection is carried out via self-assessment (e.g. the non-resident individual should file a tax return within 15 days if a capital gain is derived).
Except for the specific cases stated below, half the gross amount of dividends obtained from resident entities is exempt from income tax. If the remaining amount, together with other income (i.e. salaries, income from movable property, and real estate income subject to WHT), exceeds the threshold of TRY 53,000, this amount should be declared with the annual tax return. WHT charged on the total gross dividend can be credited against the income tax calculated.
Dividend income stemming from the year 1998 and previous years is not subject to declaration. Dividends distributed over exempted corporate income between 1999 and 2002, and dividends obtained under the scope of Temporary Article 61 of the Income Tax Law (ITL), are subject to declaration. Half of the sum of the dividend amount plus one-ninth is to be declared; however, one-fifth of the declared income is then deducted from the income tax calculated.
Dividend income obtained from abroad that exceeds TRY 2,800 is declared. In determination of whether or not this declaration threshold is exceeded, income from movable assets (such as interest and dividends) and immovable property (such as rent income) shall be taken into account, while any income that has already been taxed at source in Turkey and any exempt income will not be taken into consideration. The aforementioned half dividend exemption is not applied. WHT paid abroad is offset against the income tax calculated. The provisions of bilateral tax treaties are reserved.
The following descriptions apply to interest payments to resident and non-resident individuals:
- Interest from Turkish local government bonds and corporate bonds issued after 1 January 2006 and sold in Turkey is subject to 10% WHT for individuals.
- Interest from Turkish corporate bonds that are issued after 1 January 2006 and sold outside of Turkey is not taxed under the WHT regime, and rather taxed as per permanent tax rules. The WHT rates on interest income from such corporate bonds issued by all type of resident corporations (including Turkish banks and corporations) vary depending on the maturities of the bonds and they are regressive. The WHT rates are as follows (please note that DTT provisions are reserved):
- 10% if the maturity is less than 1 year.
- 7% if the maturity is between 1 and 3 years (including 1 year).
- 3% if the maturity is between 3 and 5 years (including 3 years).
- 0% if the maturity is 5 or more years.
- In the case of repo income, 15% WHT should be applied for all non-resident investors (the provisions of DTTs are reserved).
- Under the Council of the Ministers Decree No. 2012/4116 published in the Official Gazette dated 1 January 2013, the WHT rates on the interest income from bank deposits (excluding interbank deposits and money market operations of intermediaries) differ depending on the currency (Turkish lira or the foreign exchange) and maturity, which are as follows:
- Interest income derived from a foreign exchange deposit account:
- In current call accounts and deposit accounts with a maturity of less than six months (including six months): 18%.
- In deposit accounts with a maturity of less than one year (including one year): 15%.
- In accounts with a maturity of more than one year: 13%.
- Interest income derived from a Turkish lira deposit account:
- In current call accounts and deposit accounts with a maturity of less than six months (including six months): 15%.
- In deposit accounts with a maturity of less than one year (including one year): 12%.
- In accounts with a maturity of more than one year: 10%.
- Interest income derived from a foreign exchange deposit account:
Interest income obtained from abroad that does not fall under the scope of the Turkish WHT regime and exceeds TRY 2,600 is declared. In determination of whether or not this declaration threshold is exceeded, income from movable assets (such as interest and dividends) and immovable property (such as rental income) shall be taken into account, while any income that has already been taxed at source in Turkey and any exempt income will not be taken into consideration. WHT paid abroad is offset against the income tax calculated. Provisions of bilateral tax treaties are reserved.
For non-residents, rental income from real estate or other assets located in Turkey are taxable income. However, certain exemptions and adjustments may apply for both residents and non-residents.