payroll & tax highlights - mercans

April 20, 2020

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Payroll & Tax Highlights

2020 Global Payroll Country Guide for Turkey

TURKEY

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Table of Contents Doing Business in Turkey .............................................................................................................................. 6

Entity Registration & Incorporation Requirements ....................................................................................... 6 Join Stock Company......................................................................................................................................... 7 Limited Liability Company ............................................................................................................................... 7 Commandite Company .................................................................................................................................... 7 Collective Company ......................................................................................................................................... 7 Company Establishment Procedures .............................................................................................................. 7 Foreign Direct Investment in Turkey .............................................................................................................. 8 Registration with the Tax Office ..................................................................................................................... 8 Banking ............................................................................................................................................................ 8 Working Week ................................................................................................................................................. 9 Basic Facts ........................................................................................................................................................ 9

Tax & Social Security ................................................................................................................................... 10

Corporate Income Tax ................................................................................................................................... 10 Personal Income Tax ..................................................................................................................................... 10 Social Security ................................................................................................................................................ 11 Reporting ....................................................................................................................................................... 11 New Hires ...................................................................................................................................................... 12 Leavers ........................................................................................................................................................... 12

Payroll ........................................................................................................................................................ 13

Employment Law ........................................................................................................................................ 15

Annual Leave ................................................................................................................................................. 15 Maternity Leave ............................................................................................................................................ 15 Paternity Leave .............................................................................................................................................. 16 Sick Leave ....................................................................................................................................................... 16

Immigration ................................................................................................................................................ 17


Turkey– One of the World's Newly Industrialized Countries

Turkey is defined by economists and political scientists as one of the world's newly industrialized countries. Having a strategic geographical location that allows it to be a regional hub between Europe, Asia and the MENA economic zone. A natural bridge between both East-West and North-South axes, thus creating an efficient and cost-effective outlet to major markets.

The country is among the world's leading producers of agricultural products; textiles; motor vehicles, transportation equipment; construction materials; consumer electronics and home appliances. Turkey has the world's 19th-largest nominal GDP, and 13th-largest GDP by PPP.

Beside this; Turkey has the largest youth population compared with the EU and half of the population in Turkey is under the age of 31.7. Because of its demographic vitality, Turkey has a developing young middle-class population with increased purchasing power and orientation towards consumption.

Mercans and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


Doing Business in Turkey

Entity Registration & Incorporation Requirements A legal entity must be established before a payroll can be run in Turkey. The main goal of the New Turkish Commercial Code (TCC) is to develop a corporate governance approach that meets international standards; to foster private equity and public offering activities; to create transparency in managing operations; and to align the Turkish business environment with EU legislation, as well as for the accession process. It is possible to establish a company in a single day by applying to the relevant trade registry office with the required documents. The TCC provides several company structures in Turkey:

• Joint Stock Company,

• Limited Liability Company,

• Commandite Company,

• Collective Company,

• Cooperative Company.

The Joint Stock Company (Anonim Sirket, A.Ş.) and the Limited Liability Company (Limited Şirket, Ltd.) are the most common forms of companies under Turkish Commercial Law. Both have same establishment procedures in Turkey before the relevant authorities. However, these companies slightly differ in terms of their main characteristics; Comparison of the Two Most Common Types of Legal Presence.

THE JOINT STOCK COMPANY (ANONIM SIRKET, A.Ş.)

THE LIMITED LIABILITY COMPANY (LIMITED ŞIRKET, LTD)

Legal Status Independent legal entity Independent legal entity

Number of shareholders Min: 1 Max: No limit

Min: 1 Max: 50

Capital Requirements Minimum Total Capital: 50,000 TL Minimum Total Capital: 10,000 TL

Legal Reserves Must be provided Must be provided

Tax Status Full tax liability Full tax liability

Corporate Income Tax Rate

20% 20%


Join Stock Company The Company’s stock capital is divided into shares and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder. At least one shareholder (real person or legal entity) and a minimum capital of TRY 50,000 are mandatory. The mandatory company shall include a general assembly and a board of directors.

Limited Liability Company It is a company established with at least one shareholder (real person or legal entity) and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder. A minimum capital of TRY 10,000 is mandatory.

Commandite Company It is the company established to operate a commercial enterprise under a trade name. Whereas the liability of some shareholders is limited to the capital subscribed and paid by the shareholder (commanditer), for some shareholders there is no limitation of liability. Legal entities can only be commanditer. No minimum capital is required. The rights and obligations of the shareholders are determined by the articles of association.

Collective Company It is the company established to operate a commercial enterprise under a trade name and, the liability of none of the shareholders is limited only to the capital subscribed and paid by the shareholder. No minimum capital is required. It is mandatory that all the shareholders be real persons. The rights and obligations of the shareholders are determined by the articles of association.

Company Establishment Procedures Three copies of articles of association (one copy original) which are notarized are prepared. Following the notarization of articles of association, within 15 days at the latest and application to the relevant trade registry office with the documents set below is needed. Documents for the Company Establishment;

1. A company establishment petition and a notification form duly filled in and signed by persons authorized to represent the company. The list of the documents to be procured, and forms to be filled can be downloaded at www.sanayi.gov.tr and www.hazine.gov.tr

2. Articles of association including notarized signatures of founders and notary certification proving that all shares constituting the registered capital have been subscribed by the founders in the articles of association

3. Founders’ statement signed by the founders 4. The bank letter proving that the share capital has been deposited 5. The bank receipt indicating that 0.04% of the company capital has been deposited to the

account of the Turkish Competition Authority at a state bank 6. Permit or letter of compliance for companies whose corporation is subject to the permit or

letter of compliance issued by the relevant ministry or other official institutions

http://www.hazine.gov.tr/


7. Notarized copy of signatures of persons with the authority to represent and bind the company 8. Application number indicating that the trade name to be used has been checked and

confirmed by the Trade Registry Office 9. Company establishment statement form (3 original copies) 10. Certificate of residence of founding partners 11. Notarized translation of passport in the case of the foreign shareholder being a real person;

apostilled and notarized translation of registry document issued by the competent authority in case the foreign shareholder is a legal entity.

Foreign Direct Investment in Turkey The Turkish Government welcomes inward investment from foreign multinational corporations. Government policy including low levels of taxation and attractive incentives provides a welcoming environment for investors. Turkey has a developed infrastructure and stable political environment that further supports investment opportunities.

Registration with the Tax Office Please note that corporate entities require an office address to be registered with the tax office on the same day or before the registration date. A tax registration number is received, and legal books are certified by a Public Notary. The rent contract must be certified by the Notary Public as well as the notarized Circular of Signatory which should be submitted to the related Tax Office. The registrations of the company for payroll purpose with the Tax and Social Security Institute are completed during the legal entity establishment process. It is worth mentioning that having the “umbrella service” which some payroll provider’s offer can be a solution for processing payroll without a legal entity in Turkey.

Banking According to Turkish Labor Law, wages, bonuses, premiums of employees in the workplaces employing 5 or more employee must be paid through banks as of 1st June 2016. Employees must open an account in Turkish Banks before starting to work. Also, for employer starting with 01.01.2020 all tax payments have to be done only from government banks. Which means the employer have to open an account from one of the below government banks.

• ZİRAAT BANK

• HALK BANK

• VAKIFBANK

• EMLAK KATILIM BANK The banks work 5 days a week, taking the Saturday and Sunday as weekly rest days. Banks are open from 09:00 to 17:00 Monday to Friday.


Working Week Office hours of companies are from Monday to Friday from 07:30 or 08:30 am to 17:30 or 18:30 pm Saturday and Sunday are the weekly holiday. Lunch breaks are usually one hour. Government institutions do not have office hours on weekends. Banks are open till 5:00 pm from Monday to Friday. According to Labor Law, weekly work hour is maximum 45 hours. However, it may change between 40 to 45 hours a week depending on the business needs.

Basic Facts

Official State Name Turkish Republic

Population 82 Million

Capital Ankara

Major Languages Turkish

Currency Turkish Lira (TL or TRY)

Main Industries Clothing and textiles, fruit and vegetables, iron and steel, motor vehicles and machinery, fuels and oils.

GDP Growth 1.9%

Internet Domain .tr

International Dialing Code +90

Dates & Numbers Dates are usually written in the day, month and year sequence. For example, 1 July 2020 or 1.7.2020


Tax & Social Security

Corporate Income Tax In accordance with Turkey’s tax legislation there are two main income taxes, corporate income tax and personal income tax In Turkey, the corporate income tax rate levied on business profits is 20%. The rate for corporate income tax has been increased to 22% for the tax periods 2018, 2019, and 2020; however, the Council of Ministers is authorized to reduce the 22% rate to a rate as low as 20%. Corporate taxpayers defined in the law are as follows:

• Cooperatives

• Public economic enterprises

• Joint ventures

• Economic enterprises owned by associations and foundations

• Capital companies

Personal Income Tax All person’s income is subject to personal income tax. Income is defined as the amount of all earnings and revenues derived by an individual within a single calendar year. An individual’s income may consist of one or more income elements listed as follows:

• Salaries and wage Income from

• independent personal services es

• Income from immovable property and rights (rental income)

• Agricultural profits

• Business profits

• Income from movable property (income from capital investment)

• Other income and earnings

Income Base Amount Rate

0,00 TL – 22,000 TL %15

22,000 TL -49,000 TL %20

49,000 TL -180,000 TL %27

180,000 - 600,000 TL %35

600,000 TL - … %40


Social Security Under the law, all employees of Turkish private entities are subject to a national social insurance system that covers work-related accidents and illness, general social security, disability and death. The law also provides retirement benefits. All employees must be declared to Social Security Institution before start to work. All employees, including foreign nationals, are subject to compulsory social security. Only the application of unemployment insurance is exceptional for a foreigner, depending on the existence of reciprocal provisions between his/her home country and Turkey. On the other hand, in the case where an assignee remains in the social security system in the home country and substantiates his/her social security coverage through a document received from the competent authority in his/her home country, he/she is not subject to social security in Turkey. The payment and declaration of the social security has to be made electronically.

Reporting Tax is imposed on a calendar-year basis in Turkey. Employers must withhold income tax from salaries and wages paid to employees. All withholding taxes must be declared monthly on the 23rd day and paid on the 26th day of the month following the month of payment. Annual income tax return due date is 25th of March of the following year. Full amount declared to the Social Security Corporation is contributed every month; Employers employing insured persons within the scope of the first paragraph of Article 4 (4) of the 4th Article of the Law No. 5510 shall deduct premium amount of premiums of insured persons to be calculated on the principal earnings of the insured employed by them within one month and add the premium amounts corresponding to their own shares to these amounts, month / period until the end of the period. If the last day of the payment period encounters a formal holiday, the premium amounts will be paid to the Agency within the first business day following the latest day at the latest. Example: Premiums for insurance premiums in a private sector workplace from 1 June 2020 to 30 June 2020 will be paid no later than 31/07/2020. The insured and premium service declaration containing the insured 's basic income and service information for the current month shall be issued by the authorized tax office until 23:59 on the 23rd day of the following month at the latest. The following notification must be made to SSI in time;

• Full wage of employee,

• Starting or leaving of an employee,

• Missing days of employee should be declared by monthly premium and service document,

• Employee who receive temporary disability allowance from SSI should be notified in certain periods determined by law,

• Social Security premiums should be paid on time.


New Hires When a new employee is hired, the employer must notify the authorities of new starters immediately by submitting a notice of employment. The declaration must be submitted online to the authorities one day before the start date at the latest. The documents required to register the new starts are as follows:

• Copy of identity card

• Graduation Certificate

• Disabled/non-disabled information

• Criminal Record Certificate

Leavers When the employees who are working against wage under an employment contract leave the employment (termination of employment contract), SSI/SGK should be informed by filling the form online in its website within 10 days as of the leaving the date. This procedure is also called deregistration of leavers. A leaver declaration should be filled in SSI website; stating the date of termination of employment contract, reason of termination and occupation code. In case the last submission day of leaver declaration coincides with an official holiday, declaration can be submitted on the day following the official holiday


Payroll Payroll is a document that shows all earnings, deductions and all legal deductions. Payroll is a document proving that the employer demonstrates the obligation to pay wages to the worker. For this reason, the arrangement and implementation of the payroll is very important for both the employer and the worker. Requirements for Payroll There are many issues to be considered when preparing payrolls. In the table below, there are matters that should be included in the payroll according to the Labor Law No. 4857, Social Insurance and General Health Insurance Law No. 5510, Tax Procedure Law No. 213:

Labor Law No. 4857 Social Insurance and General Health Insurance Law No. 5510

Tax Procedure Law No. 213

Worker's name and surname Registration number of the workplace

Name, surname, signature or seal of receipt of fee

The day and the period of payment

The payroll's month and period Date and number of the tax card, if any

The amount of any additions to the original wage, such as overtime, weekends, holidays and general holiday fees.

Name and surname of the insured Unit fee (monthly, weekly, daily, hourly or piece rate)

All kinds of deductions such as tax, insurance premium, advance deduction, alimony and execution

Social security (TC Number) registration number of the insured

Working time or wage related period

Payment day Total number of days paid The amount of taxes calculated on the fee

Employer's signature Insured's fee Amount paid Signature of the insured that the

fee has been received


A sample standard payslip is provided below:


Employment Law Although there are several types of employment contracts owing to the nature of work, regular staff of a company is usually employed under an (open-ended) employment contract for an indefinite period which has a start date but no specified duration or an end date. Authorized private employment agencies can establish a temporary employment relationship by transferring its employees to the employer with a temporary employment contract in the following circumstances;

• During the suspension period of a continuing work contract of employees who cannot perform their works for the employer because of pregnancy, military service, annual leave or sickness

• In seasonal agricultural works

• In domestic jobs without any time limit

• In some particular works, that are deemed as out of establishment's everyday main work routine, performed in short time and with intervals, for 4 months at the most.

Annual Leave Each employee shall be entitled to annual leave with full pay for 14 days per year of service unless more than that period was agreed upon, provided that the annual leave shall be 21 days if the employee remains in the service of the employer 5 successive years. Entitlement to Paid Annual Vacation Details; 1 – 5 years (inclusive) 14 days 5 – 15 years 20 days 15 years and longer 26 days The public holidays, religious feasts and the weekly holidays shall not be calculated from the annual leave unless they took place during it. If the employee’s period of service is less than a year, then they shall be entitled to pro rata paid leave for the period which they have worked.

Maternity Leave According to the relevant rules of the current Turkish Labor Law, female employees are permitted to have a paid maternity leave period of eight weeks prior to and eight weeks after giving birth (i.e. a total paid maternity leave period of 16 weeks). It is also possible to optionally take unpaid maternity leave of up to six months in addition to the paid leave period of 16 weeks. Significant amendments concerning maternity leave in Labor Law came into effect on 29 January 2016, providing flexible working choices for mothers. Working women will be offered a choice to work half time up to two months on her first childbirth, four months on her second and six months for the third child, without losing their full-time earnings after the expire of their statutory maternity leave.


Paternity Leave An employee whose wife has given birth will be granted five days paid paternity leave and, in the case of adoption, employees will be granted three days paid leave. Weekends and national holiday coinciding with leave period are not taken into consideration, so the leave may be over 5 days in these cases. Addition to this, employed parents whose child has at least seventy percent disability or chronic disease based on medical report, shall be allowed to take up to 10 days leave of absence with pay in a year for attending the treatment of the child; on condition that leave may be taken only one of the parents and without interruption or with segments.”

Sick Leave Employers are not obligated to provide sick pay to employees, but employees are entitled to sick pay through government disability programs. If a sick employee has not been working for at least three days, the employee can receive sick pay from the Social Security Institution provided that the employee has a medical report. The process is as follows;

• A medical report prepared by the doctor online is sent automatically to Social Security Institution.

• The Social Security Institution makes sick pay payments to the named bank, under the national ID number of the insured.

• There is no maximum period after which sick pay elapses but medical reports exceeding 40 days must be received from a doctors’ panel instead of a single doctor.

• Finally, if the time spent on sick leave by the employee goes six weeks beyond the notice period given in the employment contract between the parties, the employer will be entitled to terminate the employment contract with just cause.


Immigration Foreign national individuals to be employed in Turkey need a work visa and a work permit in order to be eligible to work and reside in Turkey. The first step to obtain authorization to work in Turkey is applying for a work visa through the Turkish representative (consulate/embassy) in the individual’s country of residence or citizenship. Within 10 days following the work visa application, a work permit application must be filed with the Ministry of Labor by the Turkish employer (or the sponsoring entity). After the work permit is issued, the employee should visit the Turkish Representative, with whom the work permit application was filed, and obtain the work visa. Authorities must be informed of the individual’s Turkish residence address within 20 days of entrance into Turkey. The following evaluation criteria for the work permit applications have recently been determined by the Ministry of Labour as follows:

• A local employment quota is introduced (five local employees per foreign national)

• A certain minimum amount of paid-in capital or gross sales or exports figures will need to be met;

• Minimum salary levels ranging between TRY2,943.00 and TRY17,072.50 (to be revised in January 2021) must be paid to foreign national employees; and

• If the foreign individual is to be the shareholder of the company, a requirement for a certain

• minimum share and amount of capital share must be met.


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April 20, 2020

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