Other Taxes Payable in Turkey by Non-residents
In general, a person who is non-resident for tax purposes has few contacts with the Turkish tax system and they are fairly painless.

Income Tax
As stressed above, the Turkish tax system is complex: this is only a brief summary of the position. Non-residents generally only pay income tax (gelir vergisi) on:
•  income generated from land and buildings located in Turkey; if you own a building in Turkey and let it out, the Turkish government collects the first wedge of tax from you.
•  income from Turkish securities and capital invested in Turkey; there are certain exemptions and the rules change frequently.
•  income from business activities in Turkey.
•  earned income if you are employed or self-employed in Turkey.

Income tax is calculated on these amounts at various band rates going from 20 per cent to 45 per cent. If you are letting out your property you will usually have to pay tax on every penny earned, without deductions or allowances. However where you let a property out for accommodation purposes, the first TL1.500 million of rental income is exempt from tax. For some people it can, therefore, be more sensible to set the rental up as a business and claim the normal business reliefs and allowances.

Tax on your income for the year 1 January 2004 to 31 December 20043 is declared and paid in 2005.
Taxes on employment are, generally, deducted at source by your employer.

Corporation Tax
A foreign company will pay tax on the profits it makes from activities in Turkey but not its activities else where. The tests of company residence and these taxes are not considered further here.

Wealth Tax
There is no Turkish wealth tax (varlik vergisi) on your assets in Turkey.

Capital Gains Tax
You will pay tax on the capital gain you make on the sale of real estate in Turkey. However, if the gain is a result of the sale of a residential property that was purchased more than five years previously, the gain will not be taxed. If the property was purchased within the previous five years then the gain will be taxed, not under capital gains tax but as income tax under the rates prescribed.

Inheritance Tax and Gift Tax
Inheritance tax is paid in Turkey on the value of any assets in Turkey as at the date of your death. The tax is an inheritance tax rather than, as in the UK, an estate tax. That is, the tax is calculated by reference to each individual's inheritance rather than on the basis of the estate as a whole. Thus two people each inheriting part of the estate will each pay their own tax. Even if they each inherit the same share, the amount of tax they pay may be different, depending on their personal circumstances.

All of the assets will have to be declared for the purposes of UK taxation. Again, double taxation relief will apply so you will not pay the same tax twice. UK tax is not further considered in this book.

The overall value of the part of the estate you inherit is calculated in accordance with guidelines laid down by the tax authorities. Real estate, for example, is valued at fair market value and an exemption is allowed for the first part of the inheritance. In 2003 the exemption for an heir inheriting was £21,000 and for a surviving spouse the first £42,000 of the inheritance was exempt. The exemption was only £500 for donations.

Any debts (including mortgage or overdraft) are deducted from the asset value, as are medical bills and funeral costs.

Inheritance tax rates and gift tax rates in 2003 are as shown in the two tables below (exchange rate at time of printing £1 = TL_2,500,000).

Taxes Payable in Turkey by Residents
Income Tax
Again this is a brief summary of the very complicated laws relating to Turkish income tax (gelir vergisi).the detail is immensely complicated and made worse because it is so different from the UK system.
Taxes are paid to the national government. Turkish tax returns are filed in the February and March following the year to which they relate.

If your total income is subject to any of the permitted exemptions, you need not file a tax return unless you are running a business or self-employed.

Types of Income Tax
Income is divided into two basic categories: employment income and other income. The tax rates and thresholds vary according to category

As a tax resident you will generally pay tax in Turkey on your worldwide income. Remember that taken overall, not just in relation to income tax, Turkey is a high tax society, although the levels of tax collection remain low by EU standards. Whether for this reason or out of an independence of spirit, many people (probably 30 per cent of Turkish people and just as many foreign residents) significantly under-declare their income. As mentioned above, this is dangerous. The penalties are severe. There are, however, quite legitimate tax-saving devices that you can use to reduce your liabilities. These issues are best addressed before you move to Turkey as there are then many more possibilities open to you.

The amount of an employee's share of the monthly social security premium plus a fixed monthly special allowance are exempt from income tax. The amount of this special allowance in 2003 wasTL.45 million.

Tax Credits and Deductions
In 2003 employees were eligible to claim a tax credit against the following year's tax liability on their salaried earnings. This tax credit relates to tax paid in the current tax year for one-third of documented rent, food, clothing, health and education expenses in Turkey. The amount of this tax credit cannot exceed 35 percent of the income tax base for the year.

Private insurance premiums are deductible against the tax base for the year.

Capital Gains Tax
Capital gains are generally only taxed when the gain is crystallised, such as on the sale of the asset. You will pay tax on the capital gain you make on the sale of real estate in Turkey. However, if the gain is a result of the sale of a residential property that was purchased more than five years previous the gain will not be taxed. If the property was purchased within the previous five years then the gain will be taxed, not under capital gains tax but as income tax under the rates prescribed.

Inheritance Tax and Gift Tax
The taxes are similar to the taxes paid by non-residents except that, subject to the provisions of double taxation treaties, tax is paid in Turkey on your worldwide assets as at the date of your death.
VAT
VAT is a major generator of tax for the Turkish. Detailed consideration of VAT is beyond the scope of this book.

Other Taxes
There is a miscellany of other taxes and levies on various aspects of life in Turkey. Some are national and others local. Individually they are usually not a great burden. They are beyond the scope of this book.

Taxes Payable by New Residents
New residents are liable to tax on their worldwide income and gains from the date they arrive in Turkey. Until that day they will only have to pay Turkish tax on their income if it is derived from assets in Turkey.

The most important thing to understand about taking up residence in Turkey (and abandoning UK tax residence) is that it gives you superb opportunities for tax planning and, in particular, for restructuring your affairs. To do this you need good advice at an early stage - preferably several months before you intend to move.

TAXATION OF RENTAL INCOME
If you are thinking about letting out your property it is vital that you get legal advice from a lawyer who understands the Turkish and English law and tax systems.