The Turkish tax system is simple.
It is available to all categories of the population. It is unified. Only the amounts of money taken from individuals vary.
All taxes can be divided into three categories; direct income taxes, indirect taxes, and social taxes (the wealth tax goes into the social security system).
This article will also discuss taxes on the purchase and ownership of real estate, as well as maintenance costs.
Contents:
What is the tax system of Turkey?
We will begin with the amount of taxes.
In 2021, the highest tax rate did not exceed 44%. On average, the level of taxation among citizens was 33%.
You will be levied with taxes if you are considered a "tax resident". Each taxable person will receive a "tax number" from the nearest tax office upon providing their passport.
You may also need this number to receive services, for example, to open an account with a local bank.
But let us discuss who would be considered a tax resident.
Who should pay taxes?
Taxes are levied on two general categories of taxpayers; individuals and corporations. Since this is an expatriate guide, we will focus on the first one.
Individuals can be residents and non-residents, but non-residents can also be considered taxable residents who do not have the appropriate visas and, moreover, citizenship.
The law defines a resident as "a person who has the intention to live on the territory of the country." However, there are no criteria, but this category includes people:
- who have bought real estate in Turkey;
- who spend a lot of time in the country;
- who do not have (or have closed) a business abroad;
- having interests (social or economic) in the country for a long time.
Of course, if you have received a resident visa, you will be considered a resident, but when it comes to tax residence, as you can see, the definition is vague.
Persons who have been living in Turkey for six months or more are more likely to be tax residents.
Residents pay taxes on all their income worldwide, non-residents who have lived in the country for six months or more become tax residents but pay only for income earned in Turkey.
However, there are exceptions when you live in Turkey for more than six months, which allow you to not be a tax resident.
If you are a businessman, a scientist, an invited expert, a representative of a foreign state or a journalist who visits Turkey to work temporarily, after which you need to leave the country, you will not be considered a tax resident.
The same applies to visits to Turkey for education, health care, and tourist purposes.
Thus, it is simplified as such:
By obtaining a resident visa or becoming a citizen, you pay taxes on all your income in the country and abroad. If you have lived in the country for more than six months and are not included in the list of exceptions, you will be a tax resident and pay taxes on all income earned in Turkey.
If you are outside of the country, this does not interrupt the counting of the six months. In other words, a temporary stay in the country, for example, "two weeks in Turkey, two weeks at home", will not put a pause to counting the months of your stay.
How to calculate taxes
In the unified tax system of Turkey, taxes are levied on each individual. Income from all sources accumulates, and the tax rate is withdrawn from the amount. The system is progressive, meaning the more income there is, the more tax there is. The maximum is 35%.
Taxes are collected twice a year, in May and in November. Business owners pay taxes quarterly.
Direct taxes (income tax)
Direct tax scale:
- If the income is between 0 to 1,542 dollars, you pay 15%.
- For income from $1,542 to $3,558, 20% will be tax.
- For income from $3,558 to $13,047 , 27% is tax.
- For income over $13,047, 35% is taxed.
For residents, taxable income is divided into seven groups:
- Commercial income;
- Agricultural income;
- Salary or contract payment;
- Self-employed income;
- Income from real estate (including royalties);
- Capital gains (interest and dividends);
- Other types of income from capital.
The place of income generation is important, whether it is Turkey or abroad.
For non-residents who have to pay partial taxes (tax residents), there are five income groups:
- Commercial income;
- Income from any commercial activity or activity related to the production of goods received in Turkey;
- Agricultural income;
- Income from any work in the agricultural sector in Turkey;
- Salary and contract payment.
In Turkey, there is no difference between salary and contract payment. Any action for which monetary remuneration, guarantees, incentives, bonuses, interest on sales, and overtime payments are received is considered the same source of income.
Funds from work are also added to such income. The company could spend these funds to pay utility bills and the accommodation of its employee.
Income from the sale of real estate, if less than five years have passed since the purchase, is also taxed.
However, Turkey does not impose taxes on assets, inheritance, donation, and the movement of capital.
You also do not have to pay social security taxes for up to three months of your stay in Turkey if your home country's system covers your social insurance. However, it is necessary to provide the appropriate papers and documents.
Income from leased real estate and from investments will also be taxed.
As mentioned above, the minimum tax rate is 15%. This is the basic tax that everyone pays. The rest depends on the level of your income, special programs, benefits, deductions, and other things.
Indirect taxes
Indirect taxes include VAT, bank duty, consumer tax, and state duties.
VAT accounts for most of the indirect taxes of which the base rate is 18%. Each product or service that you consume has a minimum of an 18% surcharge that will be paid to the state.
This list of goods and services is subject to VAT:
- Agricultural products;
- Industrial goods;
- Commercial services;
- Import of consumer goods into the country.
Excise value may be added to VAT. Excise taxes are levied on tobacco-containing products, alcohol, cars, petroleum products and gas, as well as luxury goods.
VAT does not apply to the services of banks and insurance companies, as there is a separate tax item for this, and also does not apply to goods and services exported from Turkey.
VAT has been reduced to 8% for pharmacology and the basic consumer basket.
Consumer tax is a tax levied on the amount of goods and services. The simplest example is the calculation of a tax surcharge on the cost of a car based on the volume of its engine and fuel consumption. This tax is separate from VAT, as it is calculated from the volume of consumption and is not a fixed amount.
Government duties are levied on the purchase of shares, government bonds, and other market assets. Duty value is calculated depending on the types of assets.
Social taxes
Such taxes are wealth taxes.
If a person can purchase real estate, vehicles, or receives a large inheritance, he can and should pay more than those who cannot afford it.
This is a logical continuation of the progressive scale of taxation in Turkey.
Therefore, if you are a foreigner who is ready to buy real estate in this country, you will have to pay this tax as well. The more expensive the property is, the higher the tax is.
This money is spent on the development of social and medical support for citizens and residents of Turkey.
As we have touched on the topic of real estate, we will analyze in more detail what and in what form you will have to pay.
Property tax
There are several taxes on real estate: a tax on the purchase, ownership and sale of real estate.
When buying and selling a property in the country, 3.3% of the transaction price is calculated, which is paid in excess of the amount. The buyer and seller pay in equal shares of 1.65% each.
Ownership of real estate is paid annually from 0.1% to 0.6% of the estimated value of a house, villa, apartment or flat. If the building is included in the list of cultural heritage of Turkey, 10% of the estimated value is added.
If we compare the average cost of real estate in Turkey, the owners will rarely pay more than $75 per year for apartments. Large houses, villas, and mansions are taxed at $100 per year.
In comparison with most other real estate markets, the cost of real estate maintenance is low (from $600 to $800 per year). If you own a large house, the costs can increase to $1,417 a year or more.
For comparison, the average annual wage rate in the country is $57,000.
Property taxes do not change depending on whether you are a citizen, resident or non-resident of Turkey. This is good for investors who are not interested in the country as a place of residence but see prospects for earning money on real estate.
Taxes on the registration of real estate are determined after the official procedure for assessing real estate and its cadastral value.
The process is transparent and will allow you to avoid possible fraudulent schemes when buying and selling real estate in the country. The seller is obliged to provide all the papers confirming that such an assessment was made before the transaction and the information is not outdated in the market situation.
There is also a general property tax for foreigners at 4% of the cadastral value.
There is also an annual property tax, depending on the location of the property, its purpose, and the value of the land. This tax ranges from 0.2 to 0.6% of the property value.
For residential real estate, the rate is 0.2%, but you do not need to pay for the land where the house is located.
How to pay taxes
As we indicated, all taxes are paid twice a year, in May and November.
However, there are opportunities to agree on the payment of taxes for real estate once a year. To do this, you need to contact the city administration with a copy of the Title Deed for the real estate.
The annual tax is calculated immediately and is $80-$120.
You can pay taxes via the Internet. Each city has an official website, you can visit it and enter your Individual Tax Number in an assigned section. Your debts, taxes, and other payments will be displayed.
On paying the amounts, you will receive an electronic receipt. Of course, as always in these cases, you can print it out or save it electronically.
There is a penalty for overdue tax payments.
Conclusion
The above is general information on the topic, and we encourage you to seek the help of trustworthy specialists for further information.
We can only point out that Turkey, being a worthy competitor among other world real estate markets, imposes a low tax burden on both residents and citizens.
A progressive scale of taxation will not be a significant blow to wealthy investors and buyers.