Turks do not usually order the entire meal at once. Instead they order one course at a time, deciding what to eat next only after finishing the last course. The ‘continental’ style of dining is a must: the fork is held in the left hand the knife in the right. Turks may smoke between courses. Let them know that you are disturbed by the smoke, they will not take it personally. They also do not know that it is rude to do so in foreign countries, so take it lightly. A toothpick is usually offered at the end of the meal. You may use it at the table, but ensure that you to cover your mouth with your hand. Tea is one of the national drinks, alongside Turkish Coffee. It is is poured into small, tulip-shaped glasses and is very hot. You should hold the glass by the rim to avoid burning your fingers. Sugar may be added to tea, but never milk. Turkish coffee is very strong, and is usually consumed as an after dinner drink. You will be asked to indicate whether you want it plain (sade), with little (az sekerli), medium (orta sekerli), or lots of sugar (sekerli) . It’s a mistake to drink all of the cup, since there will be coffee grounds at the bottom. Milk is not added to Turkish coffee but is generally offered with instant coffee (Nescafe).

Income earned by individuals in Turkey is subject to income tax. Regulating laws are Income Tax and Tax Procedures Law. Turkish resident individuals are taxed on their worldwide income. The definition of Turkish residents or assumed residents has been laid in the Income Tax Law.

According to this definition; either having the residence in Turkey or, staying in Turkey more than six months in a calendar year (in 1/1.-31/12. period) is sufficient to be regarded as Turkish resident. Other individuals and so-called non-resident individuals will be subject to income tax only on earnings, income and gains earned or received in Turkey.

10.1.1. Business profits

1.1. Conditions for taxation

Business profits can only be earned by a non-resident individual through either a Permanent Establishment (i.e. place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well), or by a Permanent Representative in Turkey.

Profits earned through a permanent establishment and by a permanent representative are regarded as Business Profits (Attribution Principle). Without those conditions any earnings or income can only be regarded as a different type of income and will subject to different taxation procedures.

1.2. Method of taxation

Business profits should be maintained in official records and books to be kept in accordance with Turkish Tax Procedures Law.

VAT and Withholding Tax Returns must be filed every month. Every three-months, net profit should be calculated, declared and advance (provisional) tax must be paid within 45 days after the period. The rate of this advance tax payment is 20%. The payment is deducted from the final – annual income tax.

Following the end of each calendar year an annual tax return is filed within 3 months. The calculated tax (at rates of 20-40%) is paid in two equal installments in March and July.

In calculating the taxable income (net profit):

- Direct related expenses incurred in Turkey or outside;

- Head office expenses share of Turkish branch;

- Traveling expenses from and to Turkey of head office personnel, and

- Salary charges allocate to Turkish trading business.

Should be allocated accordingly. Interest and commissions charged from head office, any share of losses of the head office, or of other branches of the owner, are disallowed.

1.3. Tax treaties

In general, Article 7 of the tax treaties concluded by Turkey deals with the taxation of business income.

10.1.2. Agricultural profits

2.1. Conditions for taxation

Incomes earned through agricultural activities are called Agricultural Profits.

A non-resident individual can earn this type of income only by means of a representative staying and working in Turkey.

2.2. Method of taxation

In line with the taxation of business profits, the net agricultural profit is calculated by means of proper books, records and accounts, and declared annually. Agricultural income is not subject to quarterly advance payment tax. All other information given above for business profits is the same for agricultural income of non-resident individuals.

10.1.3. Wages and salaries (dependent personal services)

3.1. Conditions for taxation

Wages and salaries are defined in the income tax law as payments made to individuals who work for an employer, within his premises, and as per his instructions.

All kinds of payments for such dependent activities are included in the total wages or salaries, no matter what they are called or named.

3.2. Method of taxation

All kinds of income earned in Turkey by non-resident individuals are subject to withholding tax, at the same rates applicable to Turkish residents (from 15% to 35%).

3.3. Tax treaties

Most tax treaties concluded by Turkey allocate the right to tax employment income to Turkey if,

- the recipient is present in Turkey for a period or periods exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

- the remuneration is paid by an employer resident of Turkey, and

- the remuneration is borne by a permanent establishment resident in Turkey or a Turkish company.

10.1.4. Independent personal services (professional income)

4.1. Conditions for taxation

Income earned by a person in respect of professional services or other activities of an independent character is called professional income.

When such services are performed in Turkey, or paid and recorded as cost in books and accounts as deductible expense, the earnings of non-resident individuals are taxable in Turkey according to Turkish income tax regulations.

4.2. Method of taxation

Most commonly such earnings are subject to tax at a rate of 22%.  When a taxpayer is making the payment it withholds the tax at the time of payment (at source). (If the owner of the work is not a taxpayer). If the services are performed for a Turkish resident, not subject to Turkish taxes, then no withholding tax can be levied at source and in these cases the recipient non-resident professional will file a special tax return and declare these earnings within 15 days. Tax will be calculated at the same rates as Turkish residents (from 20% to 40%).

As an alternative, the non-resident professional individual can keep books and proper accounting according to Turkish regulations and at the end of the work can file a tax return and calculate his taxable income, subsequently he can deduct withholding tax he has already paid (deducted from the payments to him) from the final calculated tax amount.

Proper books and documents should be kept in order to demonstrate proper calculation and allocation of related direct expenses. A relevant feature of this alternative is the ability of the tax office to audit all the books and accounts. Only after such an audit has taken place and approval has been obtained from the Turkish tax authorities, any excess tax will be refunded.

4.3. Tax treaties

Most tax treaties concluded by Turkey allocate the right to tax professional earnings to Turkey if,

- the recipient is present in Turkey for a period or periods exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, or

- the recipient has a fixed base in Turkey for the purpose of performing his services or activities.

In most of such agreements, independent services include independent scientific, literary, artistic, educational or teaching activities, independent activities of physicians, lawyers, engineers, architects, dentists, and accountants and other independent activities requiring specific professional skill.

10.1.5. Income from immovable property (rent)

5.1. Conditions for taxation

Earnings received by letting land, properties, buildings, fixed assets, equipment, motor vehicles and royalty, know-how, patent, trade marks are called income from immovable property and are subject to income tax if received by an individual.

When received by a non-resident individual, if:

- The property or the fixed asset is in Turkey or,

- The above mentioned intangibles are utilized in Turkey, and

- The rent payment is recorded into the books and accounts of a resident individual or company as deductible expense, and then the income is taxable in Turkey.

5.2. Method of taxation

Rent payments made by taxpayers in Turkey are subject to withholding tax at the rate of 22%. For residents the withholding tax is creditable against the final income tax liability.

For non-resident the withholding tax is a final tax, possibly subject to reduced rates under tax treaties.

Returns should be submitted before the end of March of the following calendar year. Rental income will be taxed at the same rates as for residents (from 20% to 40%). The tax is paid in two installments; in March and July.

5.3. Tax treaties

According to agreements signed by Turkey, rental income can be taxed in Turkey only if the land or property is situated in Turkey.

Royalties received for intangibles can only be taxed if the intangibles are utilized in Turkey. Aircraft, ships and boats are not regarded as immovable property.

10.1.6.  Capital gains/investment income

6.1. Conditions for taxation

The following gains derived from capital investments are considered to be capital gains

Withholding Tax

- Dividends   10 %

- Bank deposit interests   7 % - 18%

(Change as for duration and type of the deposit)

- Interest on government papers   0%

- Investment Bonds (A)   0%

- Investment Bonds (B)  10%

- Overnights  22%

- Investment on Receivables  10%

QUESTION:

What is meant by “Overnights”? One day (or One night) demand deposit

For capital invested and used in Turkey, gains derived from such investment is taxable income for non-resident individuals.

6.2.  Method of taxation

Capital gains are subject to a fund withholding tax. The rates in force in 2005 are set out above. If there was no withholding tax, these gains should be declared within 15 days in a special return and taxed with normal rates applicable to Turkish residents. Gains to be declared are subject to a reduction to eliminate the effect of the inflation. The net balance after such reduction will be taxed.

6.3. Tax treaties

Agreements make a differentiation between interest and dividends.

According to the tax treaties concluded by Turkey, Turkey has a limited right to tax capital invested in Turkey. The maximum rates vary between 12-35%. When a participation in a Turkish company is more than a certain percentage (usually 25%) maximum tax rates of withholding tax on dividends are reduced to generally 15%. But anyhow, as explained the rate of withholding tax for dividends is 10%. As for interest, the maximum rates of withholding tax are between 10-15%.

10.1.7. Other gains and earnings (other income)

7.1. Conditions for taxation

Other taxable gains and earnings are defined as follows:

Sales gains:

- Gains derived from sale of real estate within 4 years of acquisition;

- Gains derived from sale of shares trading at the stock Exchange within 3    months of acquisition for non-quoted companies within one year of acquisition;

- Gains derived from sale of stocks, partnership rights and similar participation privileges.

Gains resulting from transport activities:

- For a non-resident individual, gains resulting from transport activities between Turkey and his country are subject to tax.

7.2. Method of taxation

The net gains, regarding the sale of real estate, bonds or stocks are calculated by taking into account the monthly price increases (adding them to the cost of the real estate or papers).

Further, foreign exchange losses are deductible and only a net gain needs to be declared and taxed.

The rates are the same annual rates as for Turkish residents, ranging from 20% to 40%.

Special tax returns need to be filed for these gains within 15 days after receipt. As an exception, gains derived from the sale of patent and copyrights are subject to withholding tax of 25%.

7.3. Double taxation agreements

Based on the tax treaties concluded by Turkey’s taxation of gains derived from the sale of real estate is allocated to Turkey.

As to gains from sale of stocks and participation rights, Turkey’s right to taxation depends on the following conditions:

- Sale should be made to a Turkish resident and,

QUESTION:

“to” or “by” a Turkish resident?   To a Turkish resident

- Sale should also be made within a certain time limit depending on the applicable tax treaty.

10.2. Entities/corporation tax

Non-resident companies are those companies that have their statutory seat outside Turkey and/or have an effective place of management outside Turkey. So-called non-resident entities are those companies, which have their headquarters neither legally, nor business wise in Turkey.

The non-resident entities are subject to Turkish corporation tax only on the part of their income earned in Turkey, while others – Turkish Companies – are being taxed on income earned in and outside of Turkey, i.e. their worldwide income.

Based on the Turkish Corporation Tax Law (K.V.K.) there are seven kinds of income for non-resident entities. These types of income are explained below, and maximum burdens of taxation as set forth in Turkish law and tax treaties, as applicable.

10.2.1. Business profits

1.1. Taxability conditions

When a foreign company has a permanent establishment in Turkey or has a representative the profits are generated through and by a permanent establishment or representative is regarded as business profit of the foreign entity and subject to Turkish tax. We refer to paragraph “I.1.1. (Individuals) Business Profits”.

1.2. Method of taxation

As explained in the first section in paragraph “I.1.2.”, annual income and expenses will be recorded and books need to be kept, according to Turkish Procedure Law and at the end of the accounting year an annual tax return needs to be submitted. Tax is levied on net profit attributable to the place or activities where it was generated.

Taxable profit comprises the taxable entity’s gains from all sources, derived by any means and in any form. Exemptions are provided to encourage investments and stock exchange operations. These exemptions reduce the applicable rate.

Profit and loss is calculated on an annual basis. In principle the taxation year is the calendar year. Exceptions can be granted where the business so requires or the parent company has a different accounting year.

Normally all expenses related to the business are deductible.

The corporation tax rate amounts to 30%. When profits are distributed or transferred to abroad (Head Office) then 10% withholding tax is applicable on the dividend.

QUESTION:

Is the 10% rate still applicable? Yes

An advance tax payment is made quarterly at the rate of 30 % on the period’s net profit. These payments are deducted from the annual corporation tax to be paid.

To encourage investments, a certain percentage of the costs of the investment may be deducted from the taxable income. The extra deduction amounts to 40% and may increase to 100% (in some cases the percentages are 40% and 200% respectively) depending on the region and the sector in which the investment is made. (see also 6.1.)

Losses can be carried forward for five years to be off set against future profits.

Specific provisions for bad and doubtful receivables are deductible.

For inflation purposes, please see the inflation adjustment regulations mentioned earlier in paragraph 6/1.

Depreciation and accumulated depreciation are calculated on the increased amounts according to inflation rate.

Tax returns should be filed within four months of the year-end closing. A tax assessment is then made and calculated tax, after the deduction of prepaid corporation tax payment made, is payable in April.

1.3. Tax treaties

The conditions, principles and determinations set forth in double taxation agreements as to kinds of income of foreign entities have been explained in the first section, paragraph 10.1 - 1.1.3.

10.2.2. Agricultural profits

2.1. Conditions for taxation

The types of agricultural activities and the conditions that should be met have been explained in paragraph 10/1. These conditions are also applicable to agricultural income of entities.

2.2. Method of taxation

Agricultural profits are followed, recorded and declared annually, like individuals’ income and the same as business profits as explained above.

10.2.3. Wages and salaries

3.1. Conditions for taxation

Under Turkish tax law an entity can earn wages, through its employees. The wages paid to an employee of a non-resident company are then considered as earned by the company.

3.2. Method of taxation

Wages and salaries are taxed according the withholding tax method. When the income of a non-resident company consists of wages or salaries, the withholding tax amounts 25% and it is withheld by the payer at source.

3.3. Tax treaties

When a double taxation agreement exists the following conditions need to be met:

- The employees of the foreign company should be present in Turkey at least 183 days;

- The income must be paid in Turkey;

- The payment should be borne by the payer, by entering the payment into the records as a deductible expense.

10.2.4. Independent services

4.1. Conditions for taxation

The conditions under which gains for independent services are taxable are similar to the conditions as explained in 10.1 - 4.1. for the individual independent earnings. According to these terms and conditions such payments or earnings of a non-resident entity are regarded as Independent Services Income earned in Turkey and taxation is levied accordingly.

4.2. Method of taxation

Independent services earnings are subject to withholding tax at the rate of 22% when they are not included within the business or agricultural income and thus are not be subject to an annual declaration. The withholding tax withheld will be the final taxation. When these earnings are included, the tax withheld will be deducted from the gross tax amount to be paid.

However, the non-resident recipient company may opt to be taxed as a business company at the annual corporation tax rate by keeping proper books and filing an annual return at the end of the accounting year.

This option may be advantageous if the deductible expenses incurred produce a tax saving.

4.3. Tax treaties

For the terms and conditions and the applicable maximum rates and other necessary information we refer to the first section (10.1) at paragraph 4.3.

10.2.5. Income from immovable property

5.1. Conditions for taxation

Income from immovable property received by non-resident companies is taxed in the same manner for non-resident individuals.

5.2. Method of taxation

Income from immovable property is subject to withholding tax at the rate of 22%. A resident payer makes deductions at source and this taxation in most cases is final (when they are not to be included into business or agricultural profits to be declared at the end of the year).

5.3 Double taxation agreements

We refer to paragraph 10.1.5.3.

10.2.6. Capital gains

6.1. Conditions for taxation

Types of capital gains and the conditions for their taxation in Turkey are given in 10/I.6.1. and is similarly applicable to non-resident entities.

6.2. Method of taxation

Most capital gains are subject to withholding tax. The rates in force as in 2005 are:

- Dividends 10%

- Bank deposit interests 7% - 18%

(Changes as for duration and type of the deposit)

- Interest on government papers  0%

- Investment Bonds (A)  0%

- Investment Bonds (B) 10%

- Overnight 22%

- Investment on Receivables 10%

QUESTION:

What is meant by “Overnights”? One day (or One night) demand deposit

Procedures and conditions for gains, which are not subject to any withholding tax, such as government papers, have been explained in section I, paragraph 6.2.

6.3. Tax treaties

Taxable capital gains received by non-resident companies and the maximum rates set forth in the double taxation agreements are the same as given in 10/I.6.3, for individual recipients.

10.2.7. Other gains and earnings

7.1. Conditions for taxation

As per the existing regulations, taxable other gains and earnings are as follows:

Sales gains

- Gains derived from sale of real estate (if sold within 4 years),

- Gains derived from sale of shares (stocks) (if sold within 3- 12 months),

- Gains derived from sale of other rights,

- Gains derived from sale of partnership rights and similar participation privileges.

Casual gains

For a non-resident entity, casual gains could only be earned by doing transportation business between Turkey and its country of residence.

7.2. Method of taxation

Royalties, sums derived from the sale or transfer of copyrights, patents and trademarks are subject to withholding tax of 25%.

The other casual gains, net gains form the sale of shares and properties must be separately declared by special returns within 15 days of the date of receipt of the earnings or gains. The calculation of the net gain will be made as explained earlier in  10.1.7.2.

Imports of goods and services are subject to tax at the customs clearing. Goods are considered movable and immovable, property and supplies are almost all business transactions. The KDV is applied on the invoice. The KDV born on purchases is credited against the KDV on sales. The balance is payable to the tax office in the following month.

Certain supplies are exempt from tax, in particular the export of goods and services and the purchase and repair of air, sea and rail means of transport. International transport of goods may be exempted on a reciprocal basis.

The standard rate of KDV is 18%. Other rates are:

- On financial leases and agricultural products, etc…..1%;

- On goods regarded as essential such as food medicine, etc…… 8%;

- On many educational goods and services,     8%.

As an investment incentive, KDV on machinery and equipment imported and purchased locally are exempted.

Exporting companies can recover the KDV borne on goods and services purchased if they prove that they are attributable to goods exported. Goods for re-export can be invoiced to exporters without any KDV charge, but the export of the goods must be documented.

Banking and insurance activities are not subject to KDV. A special transaction tax at the rate of 5% applies to all kinds of bank charges and insurance premiums.

Customs duties

Any entity or individual is required to obtain an import or export license.

Being a member of the European Customs Unity no customs duty exists with respect to the countries of the European union.

Import from other countries is subject to customs duty at various rates.

All procedures are followed and fulfilled by customs experts firms on behalf of the importers or exporters.

These agreements are set and determine some tax exemptions, deductions and the maximum percentages of withholding taxes.

Double taxation agreements have been made so far with many countries including USA, UK, nearly all European countries and Israel.

The latest list of such countries is as follows:

1. Austria  21.Emirates   41.Russian Fed.

2. Norway  22.Hungary   42.Indoesia

3. South Korea  23.Kazakhstan   43.Litvania

4. Jordan  24.Macedonia   44.Croatia

5. Saudi Arabia  25.Albania   45.Moldovia

6. Tunisia  26.Algaria   46.Singapore

7. Romania  27.Mongolia Republic of 47.Kyrgyzstan

8. Nederland  28.China   48.Tajikistan

9. Pakistan  29.India   49.Sudan

10. United Kingdom 30.Malaysia   50.Czech Republic

11. Finland  31.Egypt   51.Bangladesh

12. Northern Cyprus 32.Turkmenistan  52.Letonia

13. France  33.Azerbaijan   53.Spain

14. Germany  34.Bulgaria   54.Slovenia

15. Sweden  35.Uzbekistan   55.Syria

16. Belgium  36.U.S.A.   56. Greece

17. Denmark  37.Belarus   57.Luxembourg

18. Italy  38.Ukraine   58.Estonia

19. Japan  39.Israel   59.Thailand

20. United Arab 40.Quwait   60.Iran

An individual who stays more than 183 days in a calendar year is treated as resident.

Resident individuals resident in Turkey are liable to pay income tax on all their income derived from all sources in Turkey and, in theory, from abroad.

A major deduction is available for wage earners for family living expenses. It is calculated as one third of the total annual expenditure on items such as education, health, food and clothing. The amounts must be documented and the total must not exceed 35% of wages, and the relief is deductible from the tax payable the following year.

QUESTION:

Is this still applicable? Yes

The individual tax rate is progressive, starting at 15% and rising to 35 on wages. For other income, the tax rate is between 20 - 40%. A tax return is due in March and payable tax is due in two installments, in March, and July. At the same time advance tax is assessed at 20 % of quarterly net commercial and professional incomes of individuals, and is creditable against the year’s final tax.

Gift and inheritance tax

Any kind of benefit acquired by inheritance or gift is subject to tax. Different rates are used for gifts and inheritance:

- For gifts progressive from 10 % to 30%.

- For inheritance progressive from 1% to 10%

All legal entities incorporated in Turkey are subject to both corporation tax and various withholding taxes. In principle, a branch of a foreign company is taxed in the same way as a company. Tax is levied on profit attributable to a branch.

Corporation tax is assessed on taxable profit, which is determined in accordance with the tax legislation, which consists of Corporation Tax Law, Income Tax Law and Tax Procedures Law. Taxable profits comprise all the taxable entity’s gains, from all sources, derived by any means and in any form. Within this profit, capital gains are subject to lower taxation through a cost escalation mechanism to reduce partly the effect of inflation. Exemptions are provided to encourage investments and stock exchange operations and do not usually extinguish the tax but help to reduce the applicable rate.

Profit and loss is calculated on an annual basis. In principle, the taxation year is the calendar year. Exceptions can be granted where the nature of the business so requires or if the parent company has a different accounting year. Expenses related to the business are normally deductible. Accrued provisions, except for some specific cases, are not deductible for taxation purposes.

An advance provisional corporation tax payment is made on a quarterly basis, at the rate of 30% on net profit. These payments are deducted from the annual corporation tax.

The rate of corporation tax is reduced to 30 % from 01.01.2005 on.

The distribution of profit to foreign individuals and foreign entities and to local shareholders is subject to 10% withholding tax. There is no dividend withholding tax on dividend distributions to resident corporate shareholders or permanent establishments or representatives of non-resident companies.

Dividends paid to local companies are exempt from further taxation. Dividends received by individuals must be declared for income tax purposes.

To encourage investment, a certain percentage of the cost of investments may be deducted from the taxable income. The investment allowance rate is 40% (as of 24 April 2003). Based on transitional provision companies with an investment document received before 24 April 2003 can still apply the old regime. Based on this regime the investment allowance rate varied from 40% to 200% depending on the region or the subject of the investment.

Losses incurred in routine business transactions can be carried forward for five years and offset against future profits. Capital losses are not deductible for individuals.

For inflation purposes; at the beginning of 2004 Article 5024 has been enacted by the Parliament, which made amendments to the Tax Procedural Law, Income Tax Law and Corporation Tax Law, as Inflation Adjustment and Re-evaluation.

Inflation Accounting is to recalculate the financial amounts of the non-monetary assets and liabilities – shareholders’ equities – by multiplying them with the calculated adjustment rate in order to show their real values at the time when their financial tables are structured.

The positive and negative differences will be recorded as profit or loss. At the first application of this inflation adjustment mechanism (as of 31^st December 2003) such differences will not be considered as taxable or tax deductible. Afterwards they will be taken into account as tax deductible or taxable amounts.

According to this regulation, if the cumulative inflation exceeds 100% in the last three annual tax periods and if the inflation exceeds 10% in the current tax period, the inflation adjustment will be made.

The inflation adjustment will terminate if both of these conditions are not realized simultaneously.

For almost all fixed assets, depreciation may be charged against profits over five years. The rates are determined by the government according to the economic lives of the relevant fixed asset.

If the declining-balance method is chosen, the annual depreciation rate is double.

Tax returns should be filed by the 15thday of the fourth month of the following book year (if book year is calender year by15th April). An assessment is then made on the profit declared. There is no final assessment system, which would be based on an official control.

The tax thus calculated after the deduction of prepaid provisional corporation tax is payable in April.

6.2. Withholding taxes

Income taxes on salaries are withheld on a progressive basis. Payments for professional fees and rents paid to individuals by legal entities are subject to 22% withholding tax.

For the construction and contracting business the withholding tax is 5% on the gross payments to them.

All the taxes thus paid are taken into consideration when the final tax is declared and calculated.

6.3. Stamp duty

Stamp duty applies to most business documents. The general rate is 0.75% of the proceeds (0,15% of rental contracts) and applies to all business agreements except labor agreements. The rate on the payment of salaries is 0.6%.

QUESTION:

Is the rate of 0,6% still applicable? Yes

6.4. Other taxes

- Motor Vehicle Annual Tax; (Depending on the ages and capacity of the engines and weight of the vehicles.)

- Land and Building Purchase Tax……..1,5%

- Land and Building Annual Tax………..0,1-0,6%

- OTV (Special Consumption Tax). (Mainly on car purchases, petroleum and some luxurious goods)…..27-50%

6.5. Bookkeeping regulations

All companies must have an accounting system within the generally accepted accounting standards and in accordance with “Standard Turkish Accounting Program”.

Minimum books should be kept and approved by the Notary are as follows:

- Journal

- Ledger

- Inventories and Balance Sheet Book

QUESTION:

Is the notary obligatory? Yes

They must be kept 5 years for tax and 10 years for Commercial Code purposes.

Bigger companies’ having assets or sales exceeding certain limits are subject to CPA audit and approvals.

6.6. Working in a high inflation environment

There were numerous measurements and adjustments within Turkish tax and commercial regulations with respect to the high inflation environment and they were abolished when the inflation Adjustment regulation has been adopted as mentioned above.

6.7. Working on foreign currency base

All books and accounts must be kept in Turkish and New Turkish Lira, according to the relevant laws. Recent change has made the original language and currency records possible as long as the Turkish translation and equivalents are expressed along with.

The accounts – and figures – can always and any time be converted into any foreign currency.

- Limited: app. 15 days

- Anonym: app. 15-20 days

5.2. Incorporation fees

Cost of formation of such companies varies depending on the capital involved and the number of the shareholders. These costs are mainly:

• Notary charges 0.4% of the capital, which cannot exceed a certain amount,
• Charges for registration and announcements,
• Fees for legal and tax consultants etc.

5.3. Minimum number of founders required

- For limited company: 2 shareholders.

- For anonym company: 5 shareholders.

5.4. Permissible types of shareholders

- Limited and anonym company shareholders may be individuals or companies, either resident or non-resident. Shareholders are only liable to the extent of the nominal value of the shares.

- An anonym company is managed by the board of directors. A manager can be appointed either from among the shareholders or from outside. Each share has one voting right. Preference shares which provide a preferred fixed dividend or the right to exercise control over aspects of management may be established in the articles of association.

- Bearer shares may be issued when the capital is fully paid. Bearer shares can be transferred freely, while the others must be recorded in the shareholders’ register.

5.5. Directors

5.5.1. Number of Directors

1. Limited: A minimum of one. Individual shareholders and the representatives of company shareholders are accepted as Directors. Directors who are not shareholders can be appointed.

2.   Anonym: A Minimum of three.

5.5.2. Nationality and Responsibilities

The first board members are appointed by the founders and afterwards by the annual general meeting of shareholders. The board members do not have to be Turkish residents.

Directors’ powers and responsibilities are laid down in the articles of association including the day-to-day management of the company and preparation of the annual report. Approval of the balance sheet and income statement ratifies the performance over the preceding financial year.

(Directors) Board members may be appointed for up to three years and may be re-elected.

5.6. Initial capital requirements

- For a limited company: minimum YTL 5.000 (minimum nominal value per share, YTL 25).

- For an anonym company: minimum YTL 50.000. 

5.7. Annual requirements

5.7.1. Financial Statements

Annual balance sheet, income statement and the other financial tables, showing the results of the year and the situation of the company at the end of the accounting year should be prepared.

Financial statements are presented to the shareholders for approval in the annual meeting.

5.7.2. Meetings

Board meetings should be held at least once every 3 months and an annual shareholders’ meeting must be held once a year before the end of the third month of the following financial year.

An extraordinary shareholders’ meeting can be held at any time. The shareholders may be represented by proxies.

Only a general meeting of shareholders may amend the articles of association. The quorum and the majority needed, for important changes of the articles of association such, as the name of the company and capital increases, may need higher majorities.

5.7.3. Audit requirements

At least one auditor is appointed with the power to audit the accounts and transactions of the company. The auditor’s report is presented to the annual shareholders’ meeting.

Several transactions and the financial reports of the company are subject to ratification by authorized external auditing bodies.

5.7.4. Other

1. Accounting requirements

All business enterprises must have an accounting system with a general, standard, and chart of accounts, adapted to the needs of the business in accordance with Turkish Standard of Accounting Plan.

Books and related documents must be kept for a minimum of five years for taxation purposes, and for ten years under the Commercial Code and Social Security legislation.

2. Reporting requirements

Annual reports prepared by the board and ratified by the shareholders’ meeting are submitted to the Ministry of Trade. Companies with foreign investment also prepare an additional financial report to the Treasury summarizing the activities of the previous year.

5.8. Technology transfer

5.8.1. Technology transfer

All kinds of technology transfers into Turkey are welcomed. Imports and exports are unrestricted and exchange control is limited to certain formalities. Proceeds are freely transferred from Turkey.

5.8.2. Royalty payments

After the approval of such agreements by the Treasury all kinds of royalty payments can easily and freely be transferred outside Turkey by simply stating the reason and the source.

5.8.3. Summary

The commercial banks can arrange payments for all imports and exports, and currency transfers.

There is no restriction on importing bank notes, coins and other means of payment in Turkish Lira and foreign currencies.

In Turkey, non-residents may pay, receive and deposit freely using Turkish currency.

Residents may hold foreign currency, open foreign exchange accounts in banks, make payments and cash withdrawals (in foreign bank notes) from these accounts and accept foreign exchange for transactions held in Turkey.

Non-residents may invest, engage in commercial activities, purchase shares and engage in partnerships without any permission. To open branch offices, representative offices and agencies permission is required to be obtained from Treasury. These provisions also apply to intangible rights such as patent rights, production licenses and know-how.

Transfer requests of proceeds and repatriation of foreign capital should be met immediately by the banks.

All kinds of securities may be imported or exported. Foreign currency denominated securities issued in Turkey may be sold to non-residents. Proceeds of domestic securities purchased by converting foreign exchange may be transferred through banks.

Non-residents may purchase real estate and related real rights in Turkey by converting foreign exchange and transfer all proceeds through a bank.

Limited Liability Companies (and anonym companies)

There are two main types of legal entities:” Limited Sirket” (limited company) and “Anonim Sirket”(anonymous company). They have the same establishment procedures such as registration with the trade registry and publication in the Trade Registry Gazette.

The directors of the company and any changes in the articles of association are also published.

Anonymous companies are the widely preferred types of legal entity. For banks, financial leasing companies and some other specific fields of activity, this type is required. Anonymous companies are also used to place capital with the public through the stock exchange or otherwise.

Branches of Foreign Companies

Branches are treated as fully established companies. Their commercial transactions, all routine matters and returns, expenses, salary payments etc., are subject to commercial, social and tax procedures similar to an independent legal entity.

Representative offices

Representative offices should not have any commercial activities. The salaries of the employees should be paid from abroad. A simple permission from the Treasury is required to set up a representative office.

Joint Ventures or Consortia

A joint venture or a consortium may be set up for international contracts to be carried out in Turkey. A joint venture can be freely established based only on the international contract signed. Without any obligation to establish a company, the joint venture or the consortium can carry out the business activities. The only requirement is the registration of the joint venture with the tax office and the Social Security Institution. When the contract is completed, the Turkish joint venture dissolves.

Current Tax Incentives are:

- Customs duty exemption for investment in imported machinery and equipment and associated expenses.

- Investment incentive allowance which may be granted from 40% to 200% of the amount invested. The allowance is deducted from taxable income.

- Other tax exemptions apply to stamp duty and other charges, to encourage investment and exports.

- Exemption of VAT on investment in machinery and equipment on import and purchased locally.

Non-tax incentives may be given, such as loans with lower interest rates.

Free trade zones (FTZs) are designed to encourage trade to and from Turkey. The FTZs are treated as outside Turkey for taxation and customs duty purposes. As a result, no corporation tax for the companies and no income tax on employees salaries, no VAT and customs duties apply in FTZs.

With its network of developed infrastructure and a globally competitive work force, Turkey has become a geo-strategic base for international business. A rapidly growing emerging market of 68 million people makes the country today one of the key trading partners of the European Union (EU).

Turkey’s economic legislation is progressively aligning with the main policies and standards of the EU, as a result of the 1995 customs union and the EU pre-accession process.

Current economic policy in Turkey envisages increasing the role of the private sector in the economy. The public sector reforms are aimed at the decrease of borrowing requirements and channel excess funds to the more efficient private sector.

Turkey’s network industries and natural monopolies are being introduced to competition by the removal of entry barriers as the state withdraws to a supervisory role in a functioning market economy. Significant number of privatizations will be finalized in the medium term.

On the other hand, the current level of foreign direct investment in Turkey does not affect its qualified labor force, favorable market positioning, high absorption capacity, and tourism potential and strong entrepreneurial spirit.

Turkey also has intense economic relations with the neighboring countries in the Middle East, North Africa and Eurasia.

The investment environment will evolve rapidly within the context of a developing macroeconomic framework where sufficient human and physical capital will be deployed as a result of the demographic, social and financial changes taking place.

With a services sector constituting almost 60 % of its GDP and a public procurement market of over € 30 billion, Turkey offers immense opportunities for European companies in development projects from which they should get higher than usual rates of return.

The elimination of political interference in the economy, public sector reform and the consolidation of the financial sector together pave the way to better functioning market economy and sustainable high growth.

Based on the above, Turkey is among the 20 biggest economies in the world. Furthermore, it is an unsaturated market in almost every category of consumption goods, ranging from fast moving consumer goods to high technology products.

Attaining an average GDP growth of 5.1 % between 2004 and 2006, it is expected that total exports and imports will be € 61 billion and € 72 billion respectively by 2006. The strong demand will lead to higher levels of imports from EU countries.

Foreign investors are welcome to participate in all kinds of businesses. Imports and exports are unrestricted and exchange control is limited to certain formalities. Foreign investors may invest through authorized banks, investment funds and organizations in Turkey. Real estate can be bought by foreign investment companies and, within municipal limits, by individuals. In both cases, a simple permission may be required.

The monetary unit Lira has been replaced by YTL (New Turkish Lira) by leaving six zero (‘000.000 ) out of the Turkish Lira. Over 50 banks operate in Turkey, including 15 foreign banks. Within the banking system there is a wide range of very large full service banks, active in both the wholesale and retail banking.