Turkey applies the CET to industrial goods and levies average MFN tariffs of 5% on non-agricultural goods. Although the Customs Union with the EU and various free-trade agreements give many of Turkey’s top trading partners duty-free access, agricultural products still face high tariff protection. To combat significant food inflation and commodity price increases, high tariffs on some agricultural bulk commodities, such as wheat, corn, barley, and sunflower seed oil, have been eliminated since late 2020. Additionally, Turkey’s investment incentive programs offer duty and tax breaks on imports that exporters frequently use. Manufacturers can import specific raw materials and intermediary inputs at reduced or duty-free rates thanks to a “suspension list”.
Unitary tax system
Turkey has a unitary tax system, which aggregates income from various sources and determines the amount of tax due based on the total aggregate income.
Withholding taxes
Withholding taxes are regarded as prepayments of tax under the unitary system and are deducted from the tax owed in the annual return.
Commercial income tax
Commercial income is defined as income from all types of commercial and industrial operations carried out through a place of business in Turkey or through a permanent representative in Turkey. They include:
- Agriculture-related income: Income from agricultural activities performed in Turkey is regarded as coming from Turkey.
- Employment income: Money and goods provided as compensation to employees.
These terms include salaries, wages, and monetary benefits. In Turkey, there is no distinction between salaries and wages. The term “wages” refers to sums of money paid in cash, as well as indemnities, allowances, overtime pay, advances, subscriptions, premiums, bonuses, expense accruals, and percentages of the profits of businesses that are not partnerships. Rent and utility payments made by employers on behalf of employees are grossed up and subject to taxation as salary and wage income. If either of the following criteria is met, non-resident individuals are considered to have earned wages in Turkey:
- The employment service is rendered in Turkey, where it is also assessed.
- If Turkey is the country of payment for the services.
- If the salaries are recorded as a cost or expense by a Turkish entity.
Receivers of services from resident and non-resident self-employed people are required to deduct a 20% tax from the sums paid to the people and remit the tax to the tax offices on their behalf. The provisions of any applicable double tax treaties must be considered if the service provider is a non-resident.
Self-employed people who run a business or people who engage in commercial activity are allowed to carry business losses over for five years. Loss carrybacks are not permitted.
Immovable property income
Immovable property income, including rental income and royalties from patents and other intellectual property rights, is subject to withholding tax at a 20% rate. According to any applicable double tax treaties, this withholding tax may be eliminated or reduced for non-residents.
Value-Added Tax
It is charged on the majority of imported and domestic goods and services and is a part of customs surcharges. VAT payment is the importer’s responsibility. Before the goods clear customs, the VAT is calculated using the Cost Insurance Freight (CIF) method in addition to the duty rate and any other applicable fees. The VAT rate for the majority of agricultural products is between 1% and 8%, but it can reach 18% for some processed goods. Import taxes are not applied to capital goods, some raw materials, imports by state-owned companies and government organizations, or goods intended for investments with incentive certificates. Turkey primarily raises government revenue through internal taxes rather than trade taxes like customs duties. Over half of the government’s income comes from the VAT and Special Consumption Tax (SCT). The VAT and SCT in Turkey do not, in theory, distinguish between imported and domestically produced goods.
The SCT on alcoholic beverages does, however, vary significantly depending on the type of product, and all alcohol is taxed at a very high rate, with regular reviews for potential increases every six months. American spirits and liquors have been subject to an additional 70% tariff since 2018. Overall, there is a chance that the tax system will encourage the consumption of some goods more than others. Petroleum products, automobiles, aircraft, ships, and durable consumer goods are some of the other products that are impacted by the SCT.
Border controls
Turkey has several border controls, including outright bans, licenses, controls, and restrictions that apply to both imports and exports. A license is needed to import 11 types of goods and export 26 types of goods. Turkey has implemented export quality control checks of some agricultural products and abides by international agreements for the prohibition or control of strategic goods.
