Employers have the responsibility to withhold income tax from employee salaries under the Pay-As-You-Earn (PAYE) system. Turkey utilizes a progressive income tax system, and income tax applies to wages, salaries, bonuses, benefits, and other forms of compensation. Withheld income tax payments must be made to the tax authorities by the 26th of the following month.

Social Security Contributions

Employers must register with the Social Security Institution (SGK) and contribute on behalf of their employees. Employer contribution rates are typically 20.5% of gross salary, with a 5% reduction available if certain conditions are met. Social security contributions cover retirement, disability, healthcare, and unemployment benefits. Typically, social security contributions are also paid by the 26th of the following month.

Unemployment Insurance

Employers must contribute to the unemployment insurance fund. The employer contribution is 2% of gross salary. This insurance supports unemployment benefits and is paid together with social security premiums.

Stamp Tax

Employers must withhold and pay stamp duty on certain documents, including payrolls. The stamp tax rate is 0.759% of the calculated base. Stamp tax applies to specific documents and transactions. Stamp tax must be deposited to the tax office by the 26th of the following month.

Turkish employees are subject to several key tax deductions.

Pay-As-You-Earn (PAYE) Withholding

This is a type of income tax. All employees earning above the minimum income threshold are subject to income tax. The calculation method is based on graduated tax rates. Turkey has a progressive income tax system.

Social Security Contributions

This is a mandatory contribution to the Social Security Institution (SGK). All employees must contribute to the social security system. The standard employee contribution rate for social security is 14% of gross salary. These contributions fund retirement, healthcare, disability, and survivor benefits.

Unemployment Insurance

This is a contribution to the unemployment insurance fund. Most employees must contribute to unemployment insurance. The employee contribution rate for unemployment insurance is 1% of gross salary.

Stamp Tax

This is a transaction tax on certain documents or transactions. It may apply in certain transaction scenarios based on the type of document. The stamp tax rate is 0.759% of the calculated base.

Turkey operates a Value-Added Tax system (Katma Değer Vergisi or KDV), which applies to the supply of goods and services. This system has significant implications for services.

Standard VAT Rates

There are three standard VAT rates in Turkey:

• 18%: This is the standard rate for most goods and services.
• 8%: This reduced rate applies to basic goods, some foods, accommodations, and more.
• 1%: This further reduced rate is for certain agricultural products, newspapers, and others.

Exemptions for Services

Certain services in Turkey are exempt from VAT. These include:

• Financial Services: Most financial services are considered exempt.
• Educational Services: Educational services that meet specific conditions are exempt.
• Healthcare Services: Medical and healthcare services that fall under specific categories are also exempt.

Filing Procedures

Businesses supplying taxable services that meet a specific turnover threshold are required to register for VAT with the tax authorities. VAT returns are generally filed monthly, although some businesses with smaller turnovers might file quarterly. VAT payments are typically due by the 26th of the month following the taxable period.

Turkey provides a range of tax incentives to stimulate investment and economic growth. These incentives are designed to attract businesses to specific sectors and regions, and to support large-scale investments and strategic projects.

Types of Tax Incentives

Eligible businesses may benefit from a variety of tax incentives, including:

• Corporate Income Tax (CIT) Reduction: A reduced CIT rate may be offered for a certain period, typically associated with investments in designated regions or sectors.
• VAT Exemptions: Exemptions from VAT may be granted on the import of machinery, equipment, and raw materials crucial for approved investment projects.
• Customs Duty Exemptions: Companies operating in certain sectors or regions may be exempt from customs duties on imports.
• Technopark Incentives: Businesses operating within specified Technology Development Zones may receive substantial incentives, including tax breaks and R&D support.

Qualification Criteria

The eligibility for tax incentives often hinges on several factors:

• Sector: Priority sectors include technology, manufacturing, energy, healthcare, R&D, and tourism.
• Region: Investments in less-developed regions of Turkey may qualify for additional incentives.
• Investment Size and Job Creation: Large-scale investments with significant employment potential are more likely to be eligible.
• Strategic Projects: Projects deemed important for Turkey's strategic objectives may be eligible for incentives.

Application Process

The application process for tax incentives typically involves the following steps:

1. Project Proposal: Companies are required to prepare a detailed project proposal that outlines the potential economic benefits of the investment and the eligibility criteria.
2. Submission: Proposals are submitted to the Ministry of Industry and Technology, relevant government agencies, or the management of special investment zones (e.g., Technoparks).
3. Evaluation and Approval: The projects are thoroughly evaluated, and eligible businesses are issued an incentive certificate detailing the specific incentives.