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:

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.