Turkey is an attractive country for foreign investors due to its low corporate tax, which is one of the most competitive taxes in countries in the OECD (Organization for Economic Cooperation and Development) region. Foreign investors have to pay 20% for the corporate tax, according to the Corporate Tax Law No. 5520 that came into force on 2006 and changed the legislation from 1949.
The tax legislation has become more simple and in accordance with the international standards. A company based in Turkey must pay the corporate tax calculated on its income all around the world, while a firm with economic activity in this country but registered elsewhere will pay the corporate tax only on the income obtained in Turkey.
The corporate tax represents one of the main taxes included in the direct taxation system in Turkey. A company is required to pay the corporate tax on its profits, but partnerships are exempt from corporate tax.
Double taxation treaties
For foreign entrepreneurs, it is very important to know if there is any treaty for avoiding double taxation that have been signed between Turkey and the foreign country the investor is based in. The entrepreneurs from countries which have signed a double taxation treaty with Turkey are required to pay the withholding tax for payments abroad at a low rate.
The following countries have signed double taxation treaties with Turkey: Albania, Algeria, Austria, Azerbaijan, Belarus, Bangladesh, Belgium, Bulgaria, Czech Republic, Croatia, China, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kyrgyzstan, Kuwait, Latvia, Lithuania, Luxemburg, Macedonia, Malaysia, Moldova, Mongolia, Netherlands, Norway, Pakistan, Poland, Romania, Russia, Saudi Arabia (for air transportation activities), Singapore, Slovakia, Slovenia, South Korea, Spain, Sudan, Sweden, Syria, Turkish Republic of Northern Cyprus, Tajikistan, Thailand, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, UK, USA, Uzbekistan.
The corporate tax rate is the same for residents and non-residents in Turkey. The foreign investors should know that companies in Turkey are limited or unlimited as taxpayers. For the unlimited ones (with the registered office in Turkey), the corporate tax is calculated on their total income obtained all over the world, while the limited taxpayers are charged only for their income obtained in Turkey. If a company has subsidiaries in Turkey, they are unlimited taxpayers, but if it has branches – these are regarded as limited taxpayers.
If you need to know more about the corporate tax in Turkey, you may contact our lawyers in Turkey who will also help you with the company formation procedures.