Turkey has become one of the most attractive destinations for global investors thanks to its strategic location, young workforce, and growing economy. But before entering the market, one of the most crucial aspects every investor should understand is Turkey’s tax system.
Designed to balance competitiveness with compliance, Turkey’s tax regime supports both domestic and foreign investment through a combination of reasonable corporate tax rates, bilateral treaties, and sector-based incentives.
In this article, we’ll explain everything foreign investors need to know about Turkey’s tax system in 2025, from corporate and income taxes to VAT, withholding obligations, and investment incentives.
1. Overview of the Turkish Tax System
Turkey operates a comprehensive and modern tax framework that applies to both residents and non-residents conducting business in the country. The tax system is governed primarily by the Turkish Tax Procedure Law, the Income Tax Law, and the Corporate Tax Law.
Taxes in Turkey are categorized into three main groups:
- Income Taxes – Corporate and personal income taxes
- Expenditure Taxes – VAT, Special Consumption Tax, Stamp Duty
- Wealth Taxes – Property Tax, Motor Vehicle Tax, and Inheritance Tax
Foreign investors benefit from equal treatment under Turkish law, meaning they are subject to the same taxation rules as local companies. Additionally, Turkey has Double Taxation Avoidance Agreements (DTAAs) with more than 85 countries, helping investors avoid being taxed twice on the same income.
2. Corporate Income Tax (CIT)
Standard Corporate Tax Rate
As of 2025, the corporate income tax rate in Turkey is 25%. However, the government continues to review potential reductions to stimulate investment in key industries such as technology, energy, and manufacturing.
Companies incorporated in Turkey are taxed on their worldwide income, while branches or permanent establishments of foreign companies are taxed only on income generated within Turkey.
Taxable Income
Taxable income is calculated as total revenue minus deductible expenses, which may include:
- Employee salaries and social contributions
- Depreciation of assets
- R&D expenses
- Marketing, rent, and interest expenses
- Donations to registered charities (up to legal limits)
Filing and Payment
Corporate taxpayers must file annual tax returns by the end of April following the fiscal year and make quarterly advance payments throughout the year.
Incentive Programs
Certain regions and industries benefit from reduced CIT rates or complete exemptions—particularly in free zones, technology parks, and R&D centers.
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3. Value Added Tax (VAT)
VAT Rates
Turkey applies Value Added Tax (Katma Değer Vergisi – KDV) on most goods and services. The standard VAT rate is 20%, but reduced rates apply to certain products:
- 10% – Basic food items, healthcare products, hotel accommodation
- 1% – Essential agricultural goods, newspapers, and housing
Exports, international transportation, and certain financial services are zero-rated, allowing businesses to reclaim input VAT.
VAT Registration
Businesses generating taxable supplies in Turkey must register for VAT. Non-resident companies may be required to appoint a tax representative for compliance purposes.
VAT Returns
VAT returns are filed monthly by the 26th day of the following month. Late filings may result in administrative penalties.
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4. Withholding Taxes
Withholding taxes apply to certain payments made to non-residents. The payer is responsible for withholding and remitting the tax to the authorities.
Common Withholding Rates
- Dividends: 10%
- Interest: 10% (varies under DTAAs)
- Royalties: 20%
- Service fees and professional income: 20%
Turkey’s double taxation treaties may reduce or eliminate withholding tax rates, depending on the country of residence of the recipient.
5. Personal Income Tax (PIT)
Individuals who are residents of Turkey are taxed on their worldwide income, while non-residents are taxed only on their Turkish-sourced income.
Progressive Tax Rates (2025)
The personal income tax rates in Turkey are progressive and range from 15% to 40%, depending on income levels.
| Annual Income (TRY) | Tax Rate |
|---|---|
| Up to 110,000 | 15% |
| 110,001 – 230,000 | 20% |
| 230,001 – 580,000 | 27% |
| 580,001 – 3,000,000 | 35% |
| Over 3,000,000 | 40% |
Employers are required to withhold income tax from salaries and remit it to the government monthly.
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6. Social Security Contributions
Employers and employees in Turkey must contribute to the Social Security Institution (SGK), covering retirement, disability, healthcare, and unemployment insurance.
| Contribution Type | Employer Share | Employee Share |
|---|---|---|
| Social Security (retirement, etc.) | 20.5% | 14% |
| Unemployment Insurance | 2% | 1% |
Foreign employees working under local contracts are generally subject to SGK contributions unless covered by a social security agreement between Turkey and their home country.
7. Stamp Duty and Other Transactional Taxes
Stamp Duty
Stamp duty applies to official documents such as contracts, financial statements, and leases. The rate varies from 0.189% to 0.948%, depending on the document type.
Special Consumption Tax (SCT)
SCT applies to certain goods, including fuel, alcohol, tobacco, motor vehicles, and luxury products. Rates can range from 25% to 200%, depending on the item category.
Property Tax
Owners of real estate in Turkey pay annual property tax based on the property’s location and type. Rates typically range between 0.1% and 0.6%.
8. Free Zones and Tax Incentives
Turkey’s Free Zones (FZs) and Technology Development Zones (TDZs) offer major tax advantages for both local and foreign investors. These zones are designed to promote exports, R&D, and innovation.
Free Zones
Businesses operating in designated Free Zones enjoy:
- Exemption from corporate tax on manufacturing and export activities
- No customs duties or VAT on imported goods
- 100% profit repatriation
- Exemption from income tax for employees in export-oriented operations
Technology Development Zones
Companies in TDZs benefit from:
- 100% corporate tax exemption on software and R&D activities
- No income tax on R&D personnel salaries
- VAT exemption on R&D-related products and services
These zones make Turkey a top destination for tech startups, manufacturing firms, and export-driven businesses.
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9. Double Taxation Treaties (DTAs)
Turkey has signed Double Taxation Avoidance Agreements (DTAAs) with more than 85 countries, including major trade partners like the United States, United Kingdom, Germany, France, China, and the Netherlands.
These treaties ensure that income is not taxed twice—once in Turkey and again in the investor’s home country. They typically reduce withholding taxes on dividends, interest, and royalties and define the rules for tax residency.
Before making any cross-border transaction, investors should review the relevant DTA or consult a local tax advisor or Employer of Record (EOR) for compliance.
10. Using an Employer of Record (EOR) to Simplify Tax Compliance
For international companies expanding into Turkey, understanding and managing taxes can be complex. This is where an Employer of Record (EOR) becomes a strategic partner.
An EOR like Employer of Record Turkey handles all local employment obligations, including:
- Payroll processing and tax withholding
- Social security and income tax filings
- Employment contract compliance
- Benefits administration
By partnering with an EOR, foreign companies can hire employees in Turkey legally without setting up a local entity—saving time, costs, and ensuring full compliance with Turkish tax law.
11. Tips for Foreign Investors
To operate efficiently and remain compliant in Turkey, foreign investors should:
- Work with a qualified tax consultant or EOR partner.
- Keep accurate accounting and payroll records.
- Review applicable incentives and DTAs before structuring investments.
- Ensure timely submission of tax filings to avoid penalties.
- Use digital accounting platforms approved by Turkish authorities.
Proactive compliance and strategic tax planning can significantly improve investment performance and reduce legal risks.
12. A Tax System Designed for Growth
Turkey’s tax system is designed to encourage investment, promote innovation, and support international business development. With moderate tax rates, numerous incentives, and strong legal protections, the country offers an attractive environment for both foreign entrepreneurs and multinational corporations.
While the system is well-structured, navigating its details can be complex for newcomers. Working with local experts—or leveraging EOR services in Turkey—is the most efficient way to ensure compliance and optimize your tax position.
Turkey is more than just a gateway between Europe and Asia—it’s a strategic investment destination where fiscal stability, skilled talent, and tax incentives create a perfect balance for sustainable business growth.