Turkish Tax Law

The Tax Practice Group of Akkas & Associates Turkish Law Firm provides a full range of services to Turkish and foreign clients in all major areas of Turkish and international taxation. The functional areas covered by attorneys in this section include corporate, partnership, real estate, franchise, sales & use, tax treaty, estate & probate, employee benefit & executive compensation, audit, and tax litigation matters. The clients of the Tax section represent a broad spectrum of taxpayers including public companies, private companies, nonprofit organizations, employee benefit trusts, and individual taxpayers.

Transactional Tax Practice
In the transactional area, attorneys in the Tax section have substantial experience in advising clients with respect to the following:

• Forming corporations, partnerships, limited liability companies, joint ventures, syndications, and business trusts;
• Domestic and international corporate reorganizations, mergers and acquisitions;
• A broad range of real estate-related transactions including forming, operating and dissolving real estate ventures and real estate investment trusts;
• Structuring and executing like-kind exchanges, and tax planning for leaseholds;
• Obtaining the low-income housing tax credit and the rehabilitation tax credit;
• A broad range of international matters including the tax, business, and legal considerations of doing business in Turkey, America, the European Union, and the Asian countries;
• Planning for international technology transfers;
• Intercompany transfer pricing matters;
• Drafting international contracts, including international agency and distributor agreements;
• Assisting foreign taxpayers on acquisitions of Turkish-owned companies;
• International estate planning;
• A broad range of energy-related transactions including formation, operation and dissolution of oil & gas ventures;
• The formation and operation of nonprofit entities and joint ventures between nonprofit and for-profit entities;
• Tax planning for financially-troubled businesses and real estate ventures; and
• Requesting rulings from the IRS National Office regarding any of the above matters

Corporate Income Tax

The corporate income tax rate is decreased to 20% to be applicable for the year 2006 and onwards with the new Corporate Income Tax Law. In addition, it has been explained in the new law approved by the Parliament that the companies possessing special accounting period will apply a pro-ration of old (30%) and new (20%) tax rates depending on the months corresponding to calendar year 2005 and 2006. An arithmetic average of old and new rates will be calculated where 30% will be considered for the months in the year 2005, and 20% will be considered for the months in year 2006. Dividend withholding tax rate of 15% is applicable to dividends distributed to individual and foreign corporate shareholders.

Note that the Council of Ministers is authorised to amend this rate. Please also note that dividend distributions to resident entities and branches of non-resident entities are not subject to withholding tax.

For non-resident entities operating in Turkey (i.e. branches, permanent establishments) withholding tax will only be applicable on the portion of the branch profit that is transferred to the headquarters.

Real Estate Tax

Corporation tax Corporation tax is charged at the standard rate of 30% (previously 33%) and is payable by Turkish companies and non-resident companies operating through a Turkish branch.  Branch profits are also subject to withholding tax at 10% when remitted abroad, or to entities which are not subject to Turkish tax. Rental payments made by companies which are subject to Turkish corporation tax to non-resident entities with respect to direct use, letting or other use of Turkish real estate are subject to withholding tax at 22%. Capital gains Capital gains on the disposal of real estate are subject to corporation tax at 30% regardless of the residency of the vendor. Property tax Annual real estate tax is charged at rates varying between 0.1% and 0.3% (depending on the nature of the property) on the officially assessed value of Turkish real estate held on 1 January each year. This tax is payable in two equal installments on 31 May and 30 November each year. The property tax rate is doubled if the relevant property is located within the boundaries of a large city. A surcharge of 10% of the property tax payable is charged by municipalities in order to pay for the protection of historical and cultural structures. Furthermore, Municipality Tax is levied for Environmental Cleaning if buildings are used for housing or as a place of business (among other purposes). This tax is charged at certain fixed amounts which change annually and depend on the location and nature of the property. Property transfer tax Stamp duty of 0.75% is charged on the disposal of Turkish real estate provided that a sale and purchase agreement has been executed. Both parties to a transaction are jointly liable for the relevant stamp duty.  However, in cases where one party is Turkish-resident and the other party is not, the Turkish resident usually declares and pays the stamp duty. In addition, a ‘title deed charge’ of 1.5% of the value of the real estate will be payable by both the vendor and the purchaser on registration of the transaction at the Land Registry (the total charge to vendor and purchaser is therefore 3% of the real estate value). VAT VAT registration is compulsory for companies resident in Turkey and non-resident operating through a Turkish permanent establishment. VAT registration occurs automatically on the incorporation of a Turkish company.  In the case of construction projects in Turkey, a branch or a company must be set up in order to deal with VAT issues. The sale of Turkish real estate (including land) is subject to VAT at 18%.  The sale of buildings (not land) of less than 150m2 is subject to VAT at 1%. Property rental payments are generally subject to VAT at 18%.  Such VAT should be recoverable, even if the rental payments are made to non-residents, via the “reverse charge” mechanism.