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Turkey

Why turkey?

Situated at the crossroads of the Balkans, Caucasus, Middle East, and eastern Mediterranean, Turkey occupies a unique geographic position, lying partly in Asia and partly in Europe. Turkey has operated a mixed economy, in which both state and private enterprises contribute to economic development. The economy has been transformed from predominantly agricultural to one in which industry and services are the most productive and rapidly expanding sectors. There are significant deposits of manganese, zinc, lead, copper, and bauxite. Turkey supports a wide range of manufacturing activities. The leading manufacturers are chemicals; food, beverages, and tobacco; and textiles, clothing, and footwear. However, the major manufacturing employer is the textile industry. Foreign trade has played an increasing role in the Turkish economy since World War II. Turkey’s leading exports are textile fibers, yarns, fabrics, clothing, iron and steel, fruits and vegetables, livestock products, tobacco, and machinery. Imports include machinery, chemicals, petroleum products, transportation equipment, and consumer goods. Germany is its main trading partner of Turkey. Russia and The Republic of Turkey (Türkiye) is one of the 51 founding members of the United Nations when it signed the United Nations Conference on International Organization in 1945.

Advantages

Doing business in Turkey is attractive to many foreign investors. Plentiful business opportunities and political stability increase the chances of business success in Turkey.

Economy

The Turkish economy is an emerging market economy (based on the IMF definition). Turkey is the world’s 20th-largest economy by GDP, and the 11th-largest economy by purchasing power parity.

Dominant Industries

Turkey’s dominant industries are agricultural and industrial manufacturing, including textiles, motor vehicles, ships, other vehicles, construction materials, and white goods.

Population and Language

Turkey has a predominantly young population. Although the population consists of a high percentage of Turks, there are also Kurds, Arabs, Zazas, Megrels, Georgians, and Circassians. Turkish is the main language spoken, but Kurdish and Arabic are also spoken.

Business Culture

The adoption of the free-market system has accelerated in the last 30 years. Independent regulatory and supervisory boards such as the Capital Markets Board, Turkish Competition Authority, Banking Regulation and Supervision Agency, Energy Market Regulatory Authority, and Information and Communication Technologies Authority were established during the 90s and 2000s to narrow the sphere of influence of politics and to regulate and supervise some privatized sectors.

Foreign Investment

There are no general restrictions on foreign investment, ownership, or control in Turkey. Foreign investors are free to incorporate or invest in companies or open branches or liaison offices. Foreign individuals can freely invest in real estate, subject to some general (geographical and military zone) limitations. Foreign investment companies may require a permit to own real estate property (depending on their fields of operations). Foreign investors outside of Turkey can freely buy and sell Turkish securities or other capital market instruments through authorized banks or brokerage houses.

Incentives and Tax Exemption

Turkey offers various incentives based on volume, project, type of investment, or region. The incentives include:

  1. VAT exemptions.
  2. Customs duty exemptions.
  3. Tax deductions or delays.
  4. Employer’s national insurance contribution exemptions.
  5. Land allocation.
  6. Social Security premium (SSP) support.
  7. Income tax withholding support.
  8. The interest rate or profit share support.

Simple Tax Regime

Income Taxes Rates

Turkey taxes its residents on their worldwide income, whereas non-residents are taxed on Turkish-source earnings only. Income tax is levied on taxable income at progressive rates after certain deductions and allowances. There is no special tax regime for expatriates.

The following rates apply to employment income from 1 January 2022 (numbers in parentheses represent rates and brackets applicable to non-employment income):

  1. Income from (Turkish lira) TRY 0 to try 32,000 is liable to be taxed at a rate of 15%.
  2. Income from TRY 32,000 to TRY 70,000 is liable to be taxed at a rate of 20%;
  3. Income from TRY 70,000 to TRY (170,000) 250,000 is liable to be taxed at a rate of 27%;
  4. Income from TRY (170,000) 250,000 to TRY 880,000 is liable to be taxed at a rate of 35%; and
  5. Income from TRY 880,000 and above is liable to be taxed at a rate of 40%.

Taxation of certain income from certain financial instruments is carried out by withholding tax (WHT), and the rates are 0%, 10%, 15%, or 18%, depending on the type of income and instruments.

Local income taxes

There are no local taxes on personal income in Turkey.

There are no provincial or municipal taxes on corporate income in Turkey.

Corporate income tax

There are Turkey, companies (other than those in the financial sector) are subject to a standard corporate income tax rate of 20%. However, the rate is temporarily increased to 25% for the income generated in 2021 and to 23% for the income generated in 2022. The applicable rate as of 2023 will return to 20% unless the legislation is amended. For financial sector companies, the corporate income tax rate is 25%.

Companies (other than banks, financial institutions, insurance companies, and pension funds) offering at least 20% of their shares via their first initial public offering (IPO) on the Istanbul stock exchange are subject to a CIT rate reduced by two percentage points (i.e. 21% instead of 23% for 2022) for five years starting from the year when the IPO is made.

The taxable income of a company is computed based on its net accounting profits after adjustment for exemptions and deductions and including prior-year losses carried forward, to a limited extent. no local taxes on personal income in Turkey.

Turkey Companies

Foreign businessmen who wish to open a company in Turkey can choose between a limited liability company, joint stock company, limited partnership, or commercial partnership.

Joint stock company

A joint stock company is a company whose capital is definite and divided into shares and which is responsible for its debts only with its property holdings. Shareholders are only liable to the company with the capital shares they have committed. Joint stock companies may be established for any economic purpose and subject that is not prohibited by law.

Joint stock companies are the only type of company whose shares are offered to the public and whose shares are traded on the stock exchange.

Limited Company

A limited company is a company whose capital is definite and divided into shares and is responsible for its debts only with its property holdings. Limited companies cannot be offered to the public. A limited company with a single shareholder can be established. The number of shareholders may not exceed fifty. Partners of a limited company may be real or legal persons.

Collective company

The collective company is established with at least two partners. Each partner has the right and duty to manage the company separately. However, management business may be assigned to one, several, or all of the partners, either by company agreement or by the majority of partners. Only real persons may be partners in the collective company. The partners of the company are second-degree unlimited liable to the creditors of the company.

There is no capital requirement for collective companies.

Limited Partnership

The ordinary limited partnership is a private company, and the limited partnership divided into shares is a capital company. A limited partnership can be established by at least two people, one of which is an active partner (unlimited responsible) and the other one is a dormant partner (limited responsible). The active partners can only be real persons. The dormant partners can be both real and legal persons. The responsibility of the dormant partners is limited by the amount of capital that they put in or commit. Dormant partners cannot manage the company. There are two kinds of limited partnership companies; ordinary limited partnership and limited partnership divided into shares.

Cooperative Company

The cooperative can be established with at least seven partners, without prejudice to special types. Each partner undertakes at least one, at most five thousand shares. The value of a partnership share is 100 Turkish Liras.

All partners, except those who were not partners three months before the general assembly, may participate in the cooperative general assembly. This requirement is not required in building cooperatives.

The board of directors consists of at least three persons who are Turkish citizens and who meet the other requirements depicted in the Law. members of the board of directors may be elected for a maximum term of four years. Unless otherwise provided for in the articles of association, they may be re-elected.

Situated at the crossroads of the Balkans, Caucasus, Middle East, and eastern Mediterranean, Turkey occupies a unique geographic position, lying partly in Asia and partly in Europe. Turkey has operated a mixed economy, in which both state and private enterprise contribute to economic development. The economy has been transformed from predominantly agricultural to one in which industry and services are the most productive and rapidly expanding sectors. There are significant deposits of manganese, zinc, lead, copper

Author: Chandrawat & Partners

Topic: Doing Business in Turkey

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