Income tax changes on the horizon for foreigners in Turkey

ISTANBUL - Hürriyet Daily News

The draft code on income tax aims to limit a current exemption for foreigners living in Turkey, by saying that even those who have not settled in the country will have to pay tax on their overall income after three years of working.

The draft code on income tax that has been presented to Parliament makes foreigners who have been working in Turkey for over three years pay income tax to Turkey for their overall income.

If the draft, which the Finance Ministry sent to Parliament on June 13, passes into law, business people, specialists, public officers, media and press employees who work in Turkey for over three years will be full taxpayers in Turkey.

According to the current scheme, benefiting from a phrase in the law, foreigners working in Turkey “temporarily” are accountable to pay tax only for the amount they earned in Turkey.

For the first three years, this will be still the case for foreign employees living in Turkey, but the new scheme introduces new regulations after this period. The regulations relate to foreigners staying in Turkey for 183 days or more within an uninterrupted 12-month period. Scientists will be exempted from the regulation, an official from the Finance Ministry told the Hürriyet Daily News.

The Finance Ministry says the new measure for deciding full tax-payer status is in line with the implementations of the Organization of Economic and Development Cooperation (OECD).

The new taxes imposed on foreign business people are part of the broader intention of the government to expand the tax base. The government has been desperately seeking ways to fill the country’s current account gap, and in the draft code it chooses to create new income sources through lifting some of the exemptions, rather than raising the rates.

The government has been repeatedly stating that the tax on income and gains is far below the country’s economic capacity.

The total value of the income tax and corporate income tax amounted to 5.8 percent of gross domestic product in Turkey, while the average is 11.4 in OECD countries and 10.4 percent in the European Union, Finance Minister Mmhemet Şimşek said in a presentation in late May.

The draft code narrows the exceptions over earnings yielded by possessed immovable, share certificates, partnership rights, and shares. It aims to impose tax on these assets gradually. This means the owners of these assets will pay tax based on the amount of years they holds.

The draft also promotes the Turkish prime minister’s three children encouragement for families, by raising the tax reduction for the third child from 5 percent to 10 percent.