1. One Tax System, Two Kinds of Taxpayer
The starting point is the distinction the Corporate Tax Law No. 5520 draws between full and limited taxpayers. A company incorporated in Turkey — whoever owns it — is a full (resident) taxpayer and is taxed on its worldwide income. A foreign company operating through a Turkish branch is a limited (non-resident) taxpayer, taxed only on its Turkish-source income; we examine the branch regime, including the remittance withholding on repatriated profits, in our guide to branch and liaison offices in Turkey. This article concentrates on the structure most foreign investors actually use: the Turkish subsidiary, typically a limited şirket formed through the standard registration procedure. Nationality of the shareholders changes nothing in the rates or the base; what it adds is a cross-border layer — withholding on distributions, treaty relief, and the interaction with the shareholder's home-country tax — which is where the planning genuinely lives.
2. Corporate Tax: The 25 Percent Headline
Corporate profits are taxed at the general rate of twenty-five percent in 2026. The base is the commercial profit adjusted under tax rules — non-deductible expenses added back, exemptions and deductions applied — and the tax is not settled once a year in arrears: companies pay quarterly advance corporate tax (geçici vergi) during the year at the same rate, credited against the final liability declared in the annual corporate tax return filed by the end of April of the following year. The statute also contains targeted rate reductions — most notably a five-point reduction on qualifying export income and a one-point reduction on qualifying production income — which matter to trading companies and should be built into the accounting from the first invoice rather than reconstructed at year-end. Companies providing software, design, engineering and similar services to non-resident clients may also benefit from the service-export earnings deduction under Article 10/1(ğ) of the Corporate Tax Law No. 5520; the individual-side counterpart is covered in our remote work tax guide. The practical point for a foreign founder is that Turkish corporate tax is a real-time system: the company's accountant is calculating and paying tax on profits every quarter, which is one more reason the choice of accountant is not an afterthought.
3. The New Floor: Domestic Minimum Corporate Tax
The most significant recent change in Turkish corporate taxation arrived with Law No. 7524, published in the Official Gazette on 2 August 2024, which added Article 32/C to the Corporate Tax Law. From the 2025 fiscal year onwards, the corporate tax computed under the ordinary rules cannot be less than ten percent of the corporate profit before most exemptions and deductions are applied. The mechanism is a comparison: the ordinary tax and the minimum tax are each calculated, and the higher figure is what the company pays. The regime exists to ensure that companies making heavy use of incentives, exemptions and deductions still contribute a base level of tax, and it applies to limited taxpayers declaring Turkish income as well as to resident companies.
Two features matter especially to foreign founders. First, newly established companies are outside the minimum tax for their first three fiscal periods — a company incorporated in 2026 is not exposed to it before its 2029 fiscal year — although companies created through merger, conversion or division do not count as newly established for this purpose. Second, the detailed computation is genuinely technical: certain exemptions remain deductible from the minimum-tax base while others do not, aspects of the implementing rules have been tested in the courts, and the calculation runs through the quarterly advance tax periods as well. This is a regime to model with the company's accountant before relying on any incentive-heavy structure, not one to discover in the April filing.
4. VAT: Rates, Returns and Imported Services
Value added tax under Law No. 3065 applies to supplies of goods and services in Turkey at three rates — one percent, ten percent and twenty percent, with twenty percent as the standard rate — and the company files VAT returns monthly, offsetting input VAT on purchases against output VAT on sales. Two practical points routinely surprise foreign-owned companies. The first is that the return is due even in months with no activity: a nil return is still a return, and skipped filings accumulate penalties quietly. The second is reverse-charge VAT on services purchased from abroad: when a Turkish company buys services from a non-resident provider — software, consultancy, licences, the ordinary diet of a modern business — it is generally the Turkish company that must self-assess and pay the VAT through a separate responsibility return. Foreign founders who run lean companies plugged into foreign service providers should expect this mechanism to apply to a meaningful share of their cost base.
5. Withholding Taxes: Dividends and Payments Abroad
The company's profit reaches its foreign shareholder through dividends, and dividends bear withholding tax at source — currently applied at fifteen percent. For a non-resident individual shareholder this withholding is, in the ordinary case, the final Turkish tax on the distribution; the planning question is whether an applicable double taxation treaty reduces the rate, which many of Turkey's treaties do for qualifying shareholdings. Profit that is retained and reinvested bears no withholding, which is why the distribution policy deserves a decision rather than a default.
Withholding also runs in the other direction. Payments a Turkish company makes to non-residents — royalties, professional and technical service fees, certain interest — are subject to withholding under Article 30 of the Corporate Tax Law at rates set by presidential decree, commonly twenty percent for services and royalties, again subject to treaty relief. A foreign-owned company that pays management fees or licence fees to its own parent abroad must price this withholding (and the transfer-pricing documentation that supports the charge) into the arrangement from the start; intra-group flows are precisely where the tax office looks first.
6. Double Taxation Treaties: Where the Cross-Border Planning Lives
Turkey maintains an extensive network of double taxation treaties — around ninety are in force — and for a foreign shareholder the treaty with their country of residence is the single most consequential document in the tax picture. Treaties typically reduce dividend withholding for qualifying shareholders, cap or eliminate withholding on certain interest and royalties, and allocate taxing rights over capital gains when the Turkish company's shares are eventually sold. None of it applies automatically: relief at source generally requires the shareholder to document treaty residence with a certificate of tax residence from their home authority, apostilled and sworn-translated, renewed as the payer's practice requires. In our practice, the treaty analysis belongs at the structuring stage — before incorporation, when the choice of holding jurisdiction is still open — because the difference between a treaty-relieved and an unrelieved distribution, compounded over years, is rarely trivial.
7. Payroll: What Employing People Adds
The moment the company employs staff — including, in many configurations, the founder personally — a second compliance stream opens. The company withholds income tax on salaries under the Income Tax Law No. 193 through its monthly withholding return, and it registers as an employer with the Social Security Institution (SGK), paying employer and employee social security contributions on each payroll. The combined employer burden is a material percentage on top of gross salary and should be budgeted per employee rather than discovered on the first payslip; the exact contribution rates and the income tax brackets are adjusted regularly, which is one more area where the company's accountant, not last year's blog post, is the source of truth. Foreign employees add the work permit dimension, which we cover separately, and the founder who works in their own company is on this payroll like anyone else once their permit is in place.
8. The Compliance Calendar: What a Year Actually Looks Like
A foreign founder can picture the company's tax year as three loops. The monthly loop: VAT return, withholding return, SGK declarations — filed by the company's certified public accountant (SMMM), whose engagement is a legal necessity, not a convenience — due whether or not the company traded that month. The quarterly loop: advance corporate tax on the year-to-date profit, now with the minimum-tax computation running alongside it. The annual loop: the corporate tax return by the end of April, the financial statements, and the general assembly formalities. Layered over these are the electronic systems — e-invoice and e-ledger enrolment applies once the statutory thresholds or activity categories are met — and the ten-year record-retention obligations. None of this is exotic, but all of it is unforgiving of silence: in Turkish practice, the companies that get into difficulty are rarely the ones that trade and pay, and usually the ones that go quiet and stop filing.
10. Common Pitfalls
The recurring failures are consistent enough to list. Nil months go unfiled, and penalties compound while the company is "not really operating." Reverse-charge VAT on foreign services goes unnoticed until a tax inspection prices it with interest. Dividends are paid informally — money simply moved to the shareholder — creating disguised distribution exposure instead of a clean, treaty-relieved withholding. Management fees to the parent are charged without transfer-pricing support. Incentive-heavy structures are built on pre-2025 advice that never modelled the ten percent minimum tax. And treaty relief is claimed without a current certificate of tax residence, converting an entitlement into a refund claim. Each of these is a sequencing failure more than a knowledge failure: the tax design belongs alongside the incorporation, with the accountant and the lawyer reading the same structure — and, where documents cross languages, with translations that preserve their legal meaning exactly, which is the point at which our combination of counsel and sworn translation in one office earns its place.
11. Frequently Asked Questions
Does foreign ownership change how a Turkish company is taxed? No. A Turkish company is taxed identically whether its shareholders are Turkish or foreign: corporate tax at 25%, VAT on supplies, and withholding on distributions. The cross-border layer — treaties and home-country tax — is what differs.
What is the corporate tax rate in Turkey in 2026? The general rate is 25%, paid through quarterly advance tax during the year and settled with the annual return filed by the end of April. Reduced rates apply to qualifying export and production income.
What is the domestic minimum corporate tax? A floor introduced by Article 32/C of the Corporate Tax Law, effective from the 2025 fiscal year: the corporate tax payable cannot fall below 10% of the profit before most exemptions and deductions. The higher of the ordinary tax and the minimum tax is paid.
Does the minimum tax apply to new companies? Not immediately. Newly established companies are outside the regime for their first three fiscal periods, though companies formed by merger, conversion or division do not qualify as newly established.
What are the VAT rates? 1%, 10% and 20%, with 20% as the standard rate. Returns are monthly and must be filed even for months with no activity.
My company buys software and services from abroad — is there Turkish tax on that? Usually yes. The Turkish company generally self-assesses reverse-charge VAT on services purchased from non-residents, and certain payments — royalties, professional fees — also bear withholding tax, subject to treaty relief.
How much tax do I pay when I take dividends? Dividends bear withholding at source, currently 15%. For a non-resident shareholder this is normally the final Turkish tax, and an applicable double taxation treaty may reduce the rate for qualifying shareholdings.
How do I benefit from a double taxation treaty? By documenting treaty residence — typically a certificate of tax residence from your home tax authority, apostilled and sworn-translated — before the payment is made. Relief is not applied automatically.
Is retained profit taxed like a dividend? No. Withholding applies on distribution. Profit retained in the company bears corporate tax only, which is why the distribution policy is a genuine planning decision.
Do I need an accountant, and what do they file? Yes — Turkish companies must keep their accounts through a certified public accountant (SMMM). The routine cycle is monthly VAT and withholding returns, SGK declarations, quarterly advance tax and the annual corporate return.
What happens if the company is dormant and files nothing? Penalties accumulate. Nil returns are still mandatory, and a silent company builds fines and a flagged tax file that complicate banking and any later restructuring. Formal liquidation is the correct exit for an abandoned project.
If I move to Turkey, does my worldwide income become taxable here? It can. Tax residence — which turns in part on settlement and on presence exceeding six months in a calendar year — brings worldwide income into the Turkish net, subject to treaty tie-breakers. The move should be planned with the company's distribution policy in mind.
Continue reading
Planning the tax side of a Turkish company?
SP Law Istanbul structures the tax position of foreign-owned companies alongside the incorporation — the minimum-tax exposure, the distribution and treaty strategy, transfer pricing on intra-group charges, and the ongoing compliance — with legal work and sworn translation of your residence certificates handled from the same desk.
Get in Touch