CORPORATE TAX LAW 102 – Tax ID, Cycles, Submission Of Declarations & Invoicing In Turkey – Withholding Tax

A. Overview

As summarized in our previous article (Corporate Tax 101), Turkey has a rather
complex tax system with regulated by numerous laws and secondary
regulations, especially when it comes to corporate tax. As noted
above, there are different tax cycles and different durations for
submissions of tax declarations, depending on the tax type. In this
respect, understanding how the TAX ID system as well as the tax
cycles, submissions of tax declarations and corporate invoicing in
Turkey works will be crucial for foreign investors to understand
how to handle the day-to-day operations of their companies.

B. Tax Identification in Turkey

Article 2 of the Law No.4358 sets forth that
“Public Administrations and offices along with other real and
legal persons shall be required to determine the tax ID numbers of
real and legal persons who are parties to transactions to be
determined by the Ministry of Finance and shall be required to
include such tax ID numbers at the relevant documents, accounts and
records.”

A separate communique enacted to extend the usage of tax ID
number further sets forth that “Real and legal persons to
which this Communique applies to shall be required to do the
following, in addition to determining the identification, address
and other information of all real and legal person customers who
are conducting or are dealing with the transactions set forth at
the Communique; 1. Determine their tax ID numbers, 2. Use such
numbers at the relevant documents, accounts and records”.

With regards to Law No. 4358, tax ID numbers shall be used in
below listed transactions:

Notary Public transactions,

Debt collection transactions,

Title Registry transactions,

Registration transactions under Traffic
Law No 2918,

Issuance of Bank Cheques,

Transactions to be carried out by Banks
and other financial institutions,

Acquiring Passports,

And any other transactions to be
determined by the Turkish Ministry of Finance

C. Corporate Tax Cycles in Turkey

There are a number of different tax types that are applicable to
corporate transactions in Turkey, and as such, each different tax
type will have different declaration, submission and payment
cycle.

VAT: For VATs, a tax submission will be drafted
and submitted to the tax office every month, which will show the
amount of VAT charged by the company and the amount of VAT paid by
the company during the relevant month, which will then be offset
against each other to calculate the final VAT amount that needs to
be paid. To make sure you do not pay any excess VAT, you will need
to provide all receipts and invoices you or the company receives
within the relevant to the accountants.

Withholding: A separate withholding tax
declaration (Muhtasar) will also be drafted and submitted to the
tax office every month, which will show the withholding tax levied
from rent payments of the company, personnel payments (royalty
payments etc) and other withholding taxes applied in any invoices
the company received (if any). It will be paid monthly (so every
month’s withholding taxes will need to be paid by the end of
next month).

Quarterly Tax: As briefly mentioned above in
the relevant examples, there is also a quarterly CIT tax
declarations that needs to be submitted at the end of each quarter.
The declaration and payment schedule of this quarterly tax is noted
below:

Quarter Tax Period Payment Date
1st Quarter January-February-March May 17th
2nd Quarter April-May-June August 17th
3rd Quarter July-August-September November 17th
4th Quarter October-November-December February 17th (the following year)

D. Invoicing in Turkey & Issues Regarding Payments w/out
Invoices

For companies, issuing and receiving invoices are crucial
aspects for managing the day-to-day transactions. Due to rigorous
tax office inspections, it is generally advised for companies to
make payments in return for official invoices (there can be notable
exceptions here), as any amount transferred out from a company
account without an accompanying invoice may prove the be a problem
in case of a tax inspection. Obviously, a company can make the
payments before receiving the official invoice (i.e. advance
payments etc.), the important thing here is to make sure that the
company receives the relevant invoice corresponding to these
payments within the same calendar year (for end of year
closures).

As for issuing invoices, please note that most companies are
subject to e-invoice procedures and therefore need to issue
electronic invoices through certified e-invoice service providers.
As such, there are certain limits to what accounting can do with
regards to modifying invoices etc. (as the system itself has
limits). If for any reason, the company needs to cancel any invoice
that is issued, there will be a 7-day grace period to cancel any
invoice that is issued and approved. If an invoice is not cancelled
within this period, then the main method to cancel the invoice is
by having the other company or person (to whom the invoice is
issued) issue a separate “return” invoice for the exact
same amount.

E. Depositing & Withdrawing Money from Company Accounts by
the Shareholder

A shareholders primary debt to the company is to pay the
committed capital amount. Beside this initial capital, a
shareholder can deposit new funds to the company if the company
requires new funds to pay for a service, application or purchase of
products etc. Any amount deposited by the shareholder will be
recorded as a debt to the company, meaning the company will owe the
shareholder the amounts deposited.

Withdrawing money directly from company accounts is more
problematic. As noted above, technically, any amounts to be
transferred out from the company accounts need to have accompanying
invoices for tax and accounting purposes. However, no such invoice
will be available for funds withdrawn directly by the shareholder.
Instead, the shareholder will owe the company money corresponding
to the amount withdrawn (so in this case, the Company will become
the creditor), and the company is required by the law to charge
interest to the funds lent to the shareholder (so as a shareholder,
you will technically be required to pay the company for the amounts
you owe + interest).

F. Final Remarks

Although this article dives into more detail regarding corporate
tax applications in Turkey, it should still be treated as a
beginners guide only. There are numerous issues that needs
consideration when handling tax declarations, submissions and when
issuing invoices, and any error in these may result in hefty
administrative fines for the company. Unpaid tax debts (including
fines) will also present significant problems for corporate
entities, which may lead to an eventual bankruptcy. To avoid such a
drastic outcome and to pay exorbitant amounts in administrative
fines, all tax and invoicing of the company should be handled
diligently by experts.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.