A) Taxes On Profit And Income

Turkish direct taxation system consists of two main taxes; individual income tax and corporate income tax. An individual is subject to the personal income tax on its income and earnings, in contrast to a company which is subject to corporate income tax on its income and earnings.

1. Personal Income Tax 

Real persons’ income is subject to individual income tax. Income is defined as the net amount of all earnings and revenues derived by an individual within a single calendar year.As per the Income Tax Law, income may consist of the elements listed below:

• Business profits
• Agricultural profits
• Salaries and wages
• Incomes from independent personal services
• Incomes from immovable property and rights (rental income)
• Incomes from movable property (income from capital investment)
• Other incomes and earnings

According to the Turkish tax legislation, there are two main types of tax statuses regulated on the basis of residence: resident taxpayers and non-resident taxpayers. Resident taxpayers (those who reside in Turkey, and those who spend more than a continuous period of six months in Turkey within a calendar year) are taxed on their earnings and incomes derived in and outside Turkey, whereas non-residents (those who do not reside in Turkey and those who do not spend more than a continuous period of six months in Turkey within a calendar year) are taxed only on their earnings and incomes derived in Turkey. Personal income tax rate varies from 15% to 35%.

Personal income tax rates applicable for 2017 are as follows:

Income Scales (TRY)(Employment Income)	Rate (%)	Income Scales (TRY)(Non-Employment Income)	Rate (%)
Up to 13,000	15	Up to 13,000	15
13,001-30,000	20	13,001-30,000	20
30,001-110,000	27	30,001-70,000	27
110,001 and over	35	70,001 and over	35

2. Corporate Income Tax (CIT)

The corporate tax is levied on the income and earnings derived by corporations and legal entities. The income elements by the Corporate Income Tax Law are the same as those covered in the Individual Income Tax Law. In other words, the Corporate Income Tax Law sets provisions and rules applicable to the income resulted from the activities of corporations and legal entities, whereas the Individual Income Tax Law deals with the income derived by individuals. Corporate taxpayers defined in the Corporate Income Tax Law are as follows:

• Business profits
• Agricultural profits
• Salaries and wages
• Income from independent personal services
• Income from immovable property and rights (rental income)
• Income from movable property (income from capital investment)
• Other income and earnings

Corporations with legal or business centers located in Turkey are qualified as residents and are subject to tax on their income derived in Turkey and other countries. If both the legal and business centers are not located in Turkey, then these corporations are qualified as non-residents and subject to tax only on their income derived in Turkey. The legal center is the place stipulated in the Articles of Association or the incorporation law of corporations that are subject to tax, while the business center is defined as the place where business activities are concentrated and managed. However, the business head office, which is defined as the centre where all business transactions are actually managed, is not easy to determine in some cases.

In Turkey, the corporate income tax rate levied on business profits is 22%.

B) Taxes On Expenditure

1. Value Added Tax (VAT)

Commercial, industrial, agricultural, and independent professional goods and services, goods and services imported into the country, and deliveries of goods and services as a result of other activities are all subject to VAT.

Liability for VAT arises;

a) When a person or entity performs commercial, industrial, agricultural or independent professional activities within Turkey,

b) When goods or services are imported to Turkey. VAT is levied at each stage of the production and the distribution process.

However; liability for the tax levies on the person who supplies or imports goods or services, the real VAT burden is on the final consumer. This result is achieved by a tax-credit method where the computation of the VAT liability is based on the difference between the VAT liability of a person on his sales (output VAT) and the amount of VAT that he has already paid on his purchases (input VAT).

The generally applied VAT rate is set at 1%, 8%, and 18%. The Turkish VAT system multiple rates and the Council of Ministers is authorized to change the VAT rates within certain limits.

2. Special Consumption Tax (SCT)

Unlike VAT, which is applied on each delivery, SCT is charged only once.There are mainly four product groups that are subject to SCT at different tax amounts or rates.

• Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvents
• Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
• Tobacco and tobacco products, alcoholic beverages
• Luxury products

3. Banking and Insurance Transaction Tax

Banking and insurance company transactions remain exempt from VAT but are subject to a Banking and Insurance Transaction Tax. This tax applies to income earned by banks, such as loan interest. Although the general rate is 5%, some transactions, such as interest on deposit transactions between banks, are taxed at 1%. No tax is levied on sales from foreign exchange transactions since 2008.

4. Stamp Duty

Stamp duty applies to a wide range of documents, including contracts, notes payable, capital contributions, letters of credit, letters of guarantee, financial statements, and payrolls. Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.189% to 0.948% and is collected as a fixed price (a pre-determined price) for some documents.