Tax Law

Turkey remains one of the most attractive investment destinations connecting Europe, the Middle East, and Central Asia. However, for foreign investors establishing a company in Turkey, acquiring real estate, or generating income, one of the most challenging areas is understanding how taxation in Turkey actually works. While tax rates often receive the most attention, the Turkish tax system operates on a broader legal framework where company structure, transaction design, and legal classification directly affect tax outcomes.

Foreign investors frequently assume that taxation in Turkey follows the same logic as in their home jurisdiction. In practice, however, Turkish tax law has its own concepts, compliance rules, and interpretation principles. The same commercial activity may be taxed differently depending on whether it is carried out through a Turkish company, a branch, or a foreign entity without permanent establishment. For this reason, understanding tax law in Turkey requires more than numerical calculations; it requires a legal assessment of how business activities are structured.

This guide provides an overview of the Turkish tax system from a legal perspective, focusing on the main types of taxes applicable to foreign investors, including corporate income tax, value added tax (VAT), withholding tax, and taxation of personal and rental income.

Overview of the Turkish Tax System

The Turkish tax system is structured around a comprehensive legal framework designed to tax income, consumption, and certain assets in a systematic manner. For foreign investors, understanding this framework is essential not only for compliance purposes but also for assessing the overall cost and feasibility of doing business in Turkey. While tax legislation is detailed, the system itself follows clear principles that distinguish between different types of taxable activities and income sources.

At its core, taxation in Turkey is administered by the Ministry of Treasury and Finance and implemented through tax offices operating across the country. Tax liabilities arise based on legally defined criteria such as the place of income generation, the nature of the transaction, and the tax residency status of the taxpayer. These criteria apply equally to domestic and foreign investors, although their practical implications often differ depending on the investor’s legal presence in Turkey.

Main Categories of Taxes in Turkey

Turkish tax law broadly classifies taxes into direct taxes and indirect taxes, each serving a distinct function within the system. Understanding this distinction helps foreign investors identify where their primary tax exposure is likely to arise.

Direct taxes are imposed directly on income or wealth and are linked to the taxpayer’s financial capacity. The most relevant direct taxes for foreign investors include corporate income tax and personal income tax. These taxes focus on the net income generated during a specific period and are assessed through annual declarations. For foreign investors, direct taxation is closely connected to concepts such as tax residency, permanent establishment, and source of income.

Indirect taxes, by contrast, are transaction-based and embedded within commercial activities. The most significant indirect tax in Turkey is Value Added Tax (VAT), which applies to the supply of goods and services as well as imports. Indirect taxes are generally collected at each stage of a transaction chain and transferred to the tax authorities by the party responsible for the transaction. Because these taxes are closely tied to invoicing and contractual relationships, they often raise legal questions regarding the classification of services and the place of taxation.

In addition to these primary categories, Turkish tax law also includes various transactional and formal taxes, such as stamp tax, which may apply to contracts and official documents. While these taxes may appear secondary, they can become relevant in corporate transactions, financing arrangements, and long-term commercial agreements.

Corporate Income Tax in Turkey

Corporate income tax is one of the central components of the Turkish tax system and is particularly relevant for foreign investors establishing a commercial presence in Turkey. The scope of this tax is determined primarily by the legal status of the taxpayer and the source of income, rather than by the nationality of shareholders or directors.

Under Turkish tax law, corporate income tax applies to companies and certain legal entities that generate taxable income. The rules governing corporate taxation are uniform in principle, yet their application may differ depending on whether the taxpayer is considered fully or limitedly liable in Turkey.

Who Is Subject to Corporate Income Tax?

Companies incorporated under Turkish law are regarded as full taxpayers and are subject to corporate income tax on their worldwide income. This includes companies wholly owned by foreign shareholders. Once a company is established as a Turkish legal entity, it is treated no differently from a domestically owned company for corporate tax purposes.

Foreign companies that are not incorporated in Turkey may still fall within the scope of corporate income tax if they carry out taxable activities through a permanent establishment or a permanent representative in Turkey. The existence of a permanent establishment is assessed based on factual circumstances, such as the continuity of business activities and the manner in which commercial operations are conducted. This assessment does not depend solely on whether a formal branch has been registered.

As a result, corporate taxation in Turkey focuses on the economic connection between the income-generating activity and Turkish territory. Where such a connection exists, corporate tax liability may arise even in the absence of a Turkish company.

Corporate Tax Base and General Framework

Corporate income tax in Turkey is calculated on the basis of net taxable profit derived from business activities during the relevant fiscal year. Taxable profit is determined by deducting legally allowable expenses from gross income. While financial accounting records form the starting point, Turkish tax law applies its own rules regarding income recognition and deductible expenses.

Certain expenditures may be deductible only if they are directly related to the generation and maintenance of business income. Expenses that are deemed personal, non-business-related, or lacking sufficient documentation may be excluded from deduction, regardless of how they are recorded in accounting books. For this reason, the legal characterization of transactions plays a significant role in determining the corporate tax base.

Value Added Tax (VAT) in Turkey

Value Added Tax (VAT) is one of the most significant components of taxation in Turkey and directly affects almost all commercial activities involving goods and services. For foreign investors, VAT often represents the most complex part of the Turkish tax system, not because of the rates themselves, but due to the rules governing when VAT applies, where a transaction is deemed to take place, and who is responsible for declaration and payment.

VAT in Turkey is regulated as a general consumption tax and applies to the delivery of goods, the provision of services, and the importation of goods. The system is designed to tax value creation at each stage of economic activity while allowing businesses to offset VAT paid on inputs against VAT collected on outputs.

How VAT Works in Turkey

The Turkish VAT system operates on a credit mechanism. Businesses charge VAT on their taxable supplies and deduct the VAT they have paid on purchases related to those supplies. The difference between collected VAT and deductible VAT is declared and paid to the tax authorities on a periodic basis.

VAT liability arises based on the nature of the transaction, not merely on the status of the parties involved. A transaction may be subject to VAT if it is legally classified as a taxable supply of goods or services and if it has a sufficient connection to Turkey. This connection is determined by criteria such as where the goods are delivered or where the service is performed or utilized.

Invoices play a central role in the VAT system. The issuance of a valid invoice is generally required to document taxable transactions and to enable VAT deduction. Errors in invoicing, such as incorrect VAT rates or mischaracterization of the transaction, may lead to VAT assessments even where there is no intention to evade tax.

VAT rates are set by legislation and may vary depending on the type of goods or services supplied. However, for foreign investors, understanding which transactions fall within the scope of VAT is often more important than knowing the applicable rate.

VAT for Foreign Investors and Cross-Border Transactions

Foreign investors frequently encounter VAT issues in the context of cross-border services and international transactions. Turkish VAT law contains specific rules addressing services provided by or to non-resident entities, and these rules are based on the concept of place of supply and place of use.

In certain cases, services provided to foreign entities may qualify as exported services and be exempt from VAT, provided that statutory conditions are met. These conditions typically relate to the location of the service recipient, the place where the service is actually utilized, and the availability of proper documentation. VAT exemption is not automatic and depends on strict legal criteria.

Conversely, services received from abroad may still trigger VAT obligations in Turkey if they are deemed to be utilized within Turkish territory. In such cases, VAT may be accounted for through mechanisms that shift the tax responsibility to the service recipient in Turkey. This approach reflects the source-based nature of VAT and aims to ensure neutrality between domestic and foreign service providers.

For foreign investors, VAT exposure often arises not from the core business activity itself but from ancillary services, such as management services, consulting, software usage, or licensing arrangements. The VAT treatment of these transactions depends on their legal classification and the factual circumstances surrounding their performance and use.

Withholding Tax and Source-Based Taxation in Turkey

Withholding tax is a source-based taxation mechanism under the Turkish tax system and applies to certain payments at the time they are made. Unlike annual income or corporate tax declarations, withholding tax is collected directly through the payer, ensuring tax collection at the point where income arises. Under Turkish tax law, withholding tax applies to specific categories of income such as service fees, rent, interest, dividends, and royalty-type payments. The obligation to withhold tax lies with the party making the payment, regardless of the tax status or location of the income recipient.

For foreign entities, withholding tax becomes relevant where income is considered to have a Turkish source. This assessment is based on legal and economic criteria, including the connection between the payment and activities carried out in Turkey. The classification of the payment—rather than its contractual label—determines whether withholding tax applies. In cross-border transactions, applicable double taxation treaties may limit withholding tax exposure. However, treaty protection operates only after the income is deemed to have a Turkish source. As such, withholding tax in Turkey functions as a primary tool for taxing income connected to Turkish territory, particularly in transactions involving non-resident recipients.

Personal Income Tax and Rental Income in Turkey

Personal income tax in Turkey applies to individuals who earn income through employment, self-employment, investments, or real estate. For foreign individuals, tax liability is primarily determined by tax residency status and the source of income, rather than nationality. Individuals who are considered tax residents in Turkey are generally subject to personal income tax on their worldwide income. Non-residents, by contrast, are taxed only on income sourced in Turkey. Residency is assessed based on factual criteria such as length of stay and the individual’s center of economic and personal interests.

Rental income derived from real estate located in Turkey is subject to Turkish taxation regardless of the property owner’s nationality or residency status. This applies equally to Turkish citizens and foreign individuals. Rental income must be declared in accordance with Turkish tax rules, and the taxable amount is determined based on legally defined calculation methods and allowable deductions. In addition to income tax on rental earnings, property ownership in Turkey may also give rise to certain local taxes. These taxes are generally assessed independently from income tax and are linked to the ownership of real estate rather than the generation of income.

For foreign investors holding property or earning personal income in Turkey, understanding how residency status and income source affect tax liability is essential for assessing overall exposure under the Turkish tax system.

Capital Gains Tax in Turkey

Capital gains tax in Turkey applies to income derived from the disposal of certain assets, including real estate, shares, and other capital assets, provided that statutory conditions are met. For individuals, capital gains arising from the sale of real estate may be subject to income tax if the asset is disposed of within a legally defined holding period. Gains obtained after this holding period may fall outside the scope of taxation. For corporate entities, capital gains are generally included in taxable business income and subject to corporate income tax. The taxation of capital gains depends on factors such as the type of asset, the holding period, and the legal status of the seller, rather than nationality.

Tourist Tax in Turkey

Turkey applies a tourism-related accommodation tax to overnight stays provided by hotels, guesthouses, holiday villages, and similar accommodation facilities. This tax is charged as a percentage of the accommodation service price and applies regardless of the nationality of the guest. The obligation to calculate, declare, and pay the tourist tax lies with the accommodation provider, not with the individual tourist. As a result, visitors do not make a separate payment to the authorities; the tax is included in the accommodation cost. The tourist tax in Turkey forms part of the broader indirect tax system and is distinct from VAT, although it is calculated alongside accommodation services.

Key Tax Rates Applicable in Turkey

The following are the main tax rates generally applicable under the Turkish tax system. These rates are determined by legislation and apply broadly, although specific sectors or transactions may be subject to special rules.

Corporate Income Tax

• Standard rate: 25%
• Applies to companies incorporated in Turkey, including foreign-owned companies.
• Certain financial institutions may be subject to higher rates.

Value Added Tax (VAT)

• Standard VAT rate: 20%
• Reduced rates: 10% and 1%
• The applicable rate depends on the legal classification of the goods or services supplied.

Withholding Tax

Withholding tax rates vary depending on the type of payment. Common rates include:

• Service fees: 10% – 20%
• Rental payments: 20%
• Dividends: 10%
• Interest and royalty payments: 10% – 20%

Applicable double taxation treaties may reduce these rates.

Personal Income Tax

• Applied on a progressive scale
• Rates range from 15% to 40%
• The applicable rate depends on the individual’s annual taxable income.

Rental Income Taxation

• Rental income derived from property located in Turkey is subject to personal income tax.
• Progressive rates of 15% to 40% apply, depending on total income.

Property Tax

Property tax rates depend on the type and location of the real estate:

• Residential property: 0.1% – 0.2%
• Commercial property: 0.2% – 0.4%
• In metropolitan municipalities, these rates are applied at double the standard level.

Main Taxes and Rates in Turkey in 2026

The rates below illustrate the overall structure of taxation in Turkey and how different types of income and transactions are treated under the current legal framework. While the applicable rates are set by law, the actual tax outcome in practice depends on how income is generated, categorized, and connected to activities carried out in Turkey. For foreign investors, understanding this structure provides the necessary context for evaluating compliance obligations and assessing the tax implications of operating, investing, or holding assets in Turkey.

Taxation of Foreign Investors in Turkey

Foreign investors operating in Turkey are subject to the same fundamental tax principles as domestic taxpayers. However, the scope and extent of tax liability depend primarily on the investor’s legal presence, the nature of activities carried out in Turkey, and the source of income. As a result, taxation of foreign investors is shaped less by nationality and more by how economic activity is connected to Turkish territory.

Turkish tax law applies a source-based approach alongside residency-based rules. This means that income may be taxable in Turkey even if the investor is not resident, provided that the income is deemed to arise from activities or assets located in Turkey. Understanding these connecting factors is essential for evaluating tax exposure.

Tax Residency and Permanent Establishment

For corporate investors, one of the most important concepts is permanent establishment. A foreign company may be regarded as having a taxable presence in Turkey if it conducts continuous business activities through a fixed place of business or a dependent representative. This determination is based on factual circumstances, such as the duration, continuity, and nature of activities, rather than solely on formal registration.

The existence of a permanent establishment may result in corporate income tax, VAT, and other obligations in Turkey. Consequently, foreign investors may become subject to Turkish taxation even without establishing a local subsidiary or branch, depending on how their operations are carried out.

Double Taxation Treaties

Turkey has concluded numerous double taxation treaties with other countries to prevent the same income from being taxed in both Turkey and the investor’s home jurisdiction. These treaties allocate taxing rights between states and may limit the extent to which Turkey can tax certain categories of income, such as dividends, interest, royalties, or business profits.

Treaty provisions generally apply only after income is classified as having a Turkish source under domestic law. In this sense, treaties do not replace Turkish tax rules but operate alongside them. The application of treaty benefits typically depends on meeting specific conditions, including residence and beneficial ownership requirements.

Our Services

Our practice covers a broad range of legal services related to taxation in Turkey, with a focus on both compliance-related matters and tax disputes arising from the application of Turkish tax law. Our services are structured to address the needs of foreign investors, companies, and individuals operating within the Turkish tax system.

Our tax-related services include, in particular:

• Tax litigation and tax disputes, including lawsuits against tax assessments, penalties, and administrative tax decisions
• Legal representation in corporate income tax, VAT, and withholding tax matters
• Assistance in matters involving tax inspections and audits, including assessment and objection stages
• Legal support in relation to tax compliance obligations arising from commercial activities in Turkey
• Services concerning the taxation of foreign investors, including issues related to tax residency and permanent establishment
• Legal matters relating to personal income tax, rental income, and property-related taxation

These services are provided within the framework of Turkish tax legislation and administrative practice, taking into account the legal classification of transactions and income under Turkish law.

For your inquiries or legal assistance regarding this matter you may contact us at info@paldimoglu.av.tr.