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In the Payroll and taxes in Turkey system, both the employer and the employee contribute to the funding of Social Security, as well as supplementary pensions or vocational training. This contribution takes the form of taxes, employer contributions from the employer’s side and employee contributions from the employee’s side. The tax bracket is determined by net salary paid to the employee each month. The employee working under a Payroll Company in Turkey is no exception to this rule!

Should the employee pay social security taxes ?

As an employee, the consultant is obviously subject to social security payments. On the other hand, he/she will not be responsible for donating to various funds.

Indeed, remember that in the context of Payroll in Turkey, the Umbrella company covers the administrative obligations, unlike for self-employed workers (business managers, etc.).

Which social security taxes does the Payroll Turkey consultant pay?

By donating part of his/her turnover and gross salary, the consultant in Payroll participates in the payment of a few benefits and social schemes. In return, they will benefit regardless in the event of unemployment, illness etc.

Here are a few social contributions paid in Payroll:

  • Unemployment contribution
  • Contribution of family allowances
  • Health Insurance
  • Housing assistance
  • Old-age contribution

Note that the rate charged for each contribution may vary depending on the activity and  company’s payroll, or the status of the employee.

Some of these contributions are made by both the consultant and the Payroll in Turkey portage company, while others are borne solely by one or the other. In both cases, the Payroll Turkey company declares and pays all contributions.

How are the social security contributions collected in Payroll Turkey?

The various social security contributions due are directly deducted from the turnover generated by the consultant. This sampling takes place in several stages.

Here’s the process:

First, the Payroll Turkey company removes the management fees from the monthly turnover generated by the consultant. These are generally around 8%.

Then, the company takes the employer’s charges. We then obtain the gross salary.

Finally, all that remains is to deduct is the employee contributions to obtain the net salary.

In the end, the net salary received by the consultant is equivalent to approximately half of its invoicing, excluding tax.

In addition, let’s not forget that the consultant’s salary is also subject to income tax. This is used to finance research, education, defence, sustainable development and local and regional authorities.

Tax rates in Payroll Turkey

If you want to set-up a company on your own, please find relevant information below.

Consumption taxes

Type of tax: Katma Deger Vergisi tax (KDV) or Value Added Tax (VAT)

The standard rate: Standard rate of 18%

The reduced rate: There is a reduced rate of 8% which is applicable on basic foodstuffs, pharmaceuticals and other necessities. A reduced rate of 1% applies to: newspapers, specific agricultural products, specific machinery and equipment acquired by financial lease.

Other consumption taxes: ÖTV (Özel Tüketim Vergisi) is a special consumption tax levied on petroleum products, cars and other vehicles, tobacco and alcohol as well as luxury goods. Telecommunication services are subject to a special communication tax (Özel İletişim Vergisi).

Corporate taxes

Corporate tax: 22% (between 2018 and 2020)

The tax rate for foreign companies: Resident companies, having their registered office or their place of management in Turkey, are full taxpayers and are taxed on their worldwide income.

Non-resident companies are limited taxpayers and they are only taxed on income earned in Turkey. For more information, see the Invest in Turkey website.

The branch profit transferred to the head office is subject to withholding tax on dividends. The rate is 15% (unless the rate is changed under a tax treaty).

Taxation of capital gains: Long-term capital gains are taxed in Turkey at the standard rate of income tax. With an exemption of 75% of capital gains from the sale of shares held in subsidiaries in Turkey. Provided that shares are held for a minimum period of two years and capital gains from the sale are kept in a special reserve account. Duration is for a minimum period of five years.

Capital gains derived from the sale of real estate is held for a minimum period of two years. Tax exemption is up to 50%.

Capital gains derived from the sale of foreign holdings. The holding  period is at least two years. It must be done by an international holding company resident in Turkey. They are exempt from corporation tax.

Deductions and tax credits: Deductible expenses from taxable income of businesses are: business expenses, property tax linked to activity as well as research and development expenses. Social security premiums for employees engaged in R&D projects which are normally payable by the employer, and then covered up to 50% by the Ministry of Finance. Companies are also exempt from stamp duty on any document related to research and development, and goods imported in this regard are exempt from customs duty. In addition, the increase in R&D expenditure compared to the previous year (minimum of 50%) gives the right to additional deductions.

Business start-up costs are considered deductible once incurred. Furthermore, the taxpayer has the opportunity of capitalising these costs, and then amortising them over a period of five years in equal amounts.

Donations to listed charities as well as to the construction of schools, hospitals and scientific research organisations are deductible up to 5% of the gross profit of the company. Contributions towards retirement as well as severance pay are deductible from corporate tax under certain conditions.

“Strategic” investments (as determined by the government, such as investing in the production of products that are highly dependent on imports) are eligible for a deduction of up to 100% of corporate tax. It also includes several other advantages and mainly concerns customs duties, social security contributions owed by the employer, etc.

Tax losses can be carried forward over a period of five years. Loss carry-back is prohibited, except in the event of the liquidation of a business.

Other corporate taxes: Buildings and land owned in Turkey are subject to an annual property tax at various rates.

  • Social security contributions for the employer and the employee total 34.5% of the employee’s salary,
  • 14% for the employee
  • and 20.5% for the employer.

In addition to contributions to social security, contributions to unemployment insurance amount to:

  • 3% of salary,
  • 1% for the employee
  • and 2% for the employer.

Social security limit was set at TRY 15,221.25 for the period from January 1st to December 31st, 2018.

All this information is necessary if you are looking for a Payroll Turkey company.

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