By Av. Serkan Kara, Istanbul Bar No. 53770. Last updated: 14 June 2026.
Corporate income tax in Turkey is governed by Corporate Tax Law No. 5520, value added tax (KDV) by Value Added Tax Law No. 3065, and tax assessment and penalty procedure by Tax Procedure Law No. 213, so a foreign-owned company secures its position by structuring entity, pricing, and customs treatment under these codes before its first invoice is issued rather than after an audit begins.
Serka Law Firm advises foreign investors, multinational groups, technology funds, and import-export companies on Turkish corporate tax, transfer pricing, value added tax, customs regulation, and tax dispute resolution. We work with sworn-in certified public accountants (Yeminli Mali Müşavir) to build tax positions that the legal file and the accounting records explain the same way, and we defend assessments and customs proceedings when the authorities challenge that position.
What does tax and customs law cover for a foreign company in Turkey?
Tax and customs law for a foreign company in Turkey covers corporate income tax under Corporate Tax Law No. 5520, value added tax (KDV) under Value Added Tax Law No. 3065, transfer pricing between related companies, withholding on cross-border payments, and the customs treatment of imports and exports under Customs Law No. 4458. The practical objective is a structure where the transaction, the invoices, the customs declarations, and the transfer-pricing records all describe the same commercial reality.
Foreign direct investment enters a digitally administered regime in which the Revenue Administration (Gelir İdaresi Başkanlığı) cross-checks electronic invoicing data to flag anomalies in corporate accounts. That is why tax cannot be treated as a year-end accounting task. The entity type, the financing model, the intercompany pricing, and the import classification all need to be decided as the architecture of the business, because exposure usually surfaces only after the operating model is already in place and hard to unwind.
How is corporate income tax structured under Law No. 5520?
A Turkish joint-stock company (Anonim Şirket) or limited liability company (Limited Şirket) is a full taxpayer that pays corporate income tax on its net commercial profit under Corporate Tax Law No. 5520. The corporate tax rate, and any surcharge for particular sectors such as financial institutions, is set by law and revised periodically, so confirm the current rate that applies to your entity before modelling after-tax returns; never rely on a fixed percentage as a current fact.
Profit extraction is the part foreign shareholders most often misjudge. After corporate tax is paid, distributing the remaining profit abroad as a dividend triggers a separate dividend withholding tax, also set by law. A double taxation treaty between Turkey and the shareholder’s jurisdiction can reduce that withholding, but the reduction depends on the specific treaty and on the shareholder genuinely being the beneficial owner of the income rather than an interposed entity used to obtain a better treaty rate. We structure the holding chain and document beneficial ownership so the treaty rate survives scrutiny.
What are the transfer pricing and thin-capitalization rules?
Transfer pricing rules require that transactions between related companies, such as a Turkish subsidiary and its foreign parent, be priced as if they were between independent parties. This is the arm’s length principle (emsallere uygunluk), and it is the core of the disguised profit distribution rules in Corporate Tax Law No. 5520, Article 13. Mispricing intercompany goods, royalties, software licences, or management fees to shift profit out of Turkey is the single most audited cross-border structure.
Two mechanisms recharacterize artificial structures. Where intercompany pricing departs from arm’s length, the authority reclassifies the diverted amount as a disguised profit distribution and taxes it accordingly. Where a related-party loan is excessive relative to the company’s equity, the interest on the excess can be treated as thin capitalization (örtülü sermaye) and disallowed as a deductible expense. The exact debt-to-equity limits and the disallowance mechanics are defined by law and regulation; confirm the current thresholds before financing a subsidiary with shareholder debt. We prepare transfer-pricing documentation, using accepted comparison methods, to justify intercompany pricing before an audit rather than during one.
What tax incentives apply to free zones and technology zones?
Free trade zones (Serbest Bölgeler) and technology development zones (Teknopark) offer statutory exemptions designed to support exports and research and development. A company manufacturing inside a free trade zone for export, and a company deriving income from software developed inside a technology development zone, can qualify for corporate tax and value added tax exemptions on the qualifying activity, together with customs relief on inputs. The precise exemption conditions, export ratios, and time limits are fixed by the governing legislation and revised periodically, so confirm the current rules and your eligibility before relying on a zero-tax assumption.
These are conditional regimes, not automatic ones. Qualification depends on the activity actually performed in the zone, on meeting export or production conditions, and on a bureaucratic application handled through the competent ministry. Serka Law Firm assesses whether a free zone or technology zone genuinely fits the business model, then runs the application and structures the entity so the exemption is granted and maintained on audit.
How does customs law and AEO status affect cross-border trade?
Customs treatment of imports and exports is governed by Customs Law No. 4458, which controls tariff classification, customs valuation, duties, and the procedures for clearance and dispute. The two recurring exposures for foreign trading companies are tariff classification (assigning the correct GTİP/HS code, which determines the duty rate) and customs valuation (whether the declared value is supported by the underlying documents).
A misclassification dispute can escalate from an administrative correction into a criminal allegation under the Anti-Smuggling Law No. 5607, with the goods detained and the company director exposed. The first response is usually to secure release of the goods against a guarantee so the supply chain is not broken, then to contest the classification on technical grounds before the customs directorate and, if needed, the administrative courts, while separating any criminal exposure by showing the absence of intent. Authorised Economic Operator (AEO) certification streamlines clearance for compliant traders and reduces friction at the border. We handle classification disputes, valuation challenges, and AEO applications as part of the same trade-compliance practice.
How are tax assessments and penalties challenged?
A tax assessment or penalty is challenged through a settlement procedure or litigation, and the deadline to act is short and set by law, so the file has to be assembled immediately on receipt of the notice. The first route is the assessment settlement procedure (uzlaşma), a negotiation with the tax administration commission that can reduce a penalty where the taxpayer can show good faith and the economic reality of the disputed transaction. The second route is a lawsuit before the Tax Court (Vergi Mahkemesi) seeking cancellation of the assessment.
The decisive factor in both routes is evidence that the disputed transaction was commercially real. For a challenged intercompany fee, that means the contracts, deliverables, correspondence, and payment flow proving the service was actually provided. The deadlines to request settlement or file suit are fixed by the Tax Procedure Law No. 213 and run from the date of notification; confirm the exact period that applies and do not let it lapse. Deliberate evasion is separately penalized under Tax Procedure Law No. 213, Article 359, which is why a documented, defensible position built in advance is the real protection.
How should a cross-border tax position be planned?
A cross-border tax position should be planned at the entity-design stage, because the choice of structure determines how profit is taxed, how it can be repatriated, and how exposed the group is to recharacterization. The decision is rarely a single answer; it is a comparison between routes, each with a different tax, customs, and compliance profile.
| Structuring decision | What it controls | First legal priority |
|---|---|---|
| Standard onshore company (A.Ş. or Ltd.) | Full corporate tax on worldwide commercial profit; dividend withholding on repatriation | Use an applicable double taxation treaty and prove beneficial ownership to optimise withholding under Law No. 5520 |
| Free trade zone or technology zone company | Conditional corporate tax and KDV exemptions for qualifying export or R&D activity | Confirm current eligibility conditions and run the ministry application before relying on the exemption |
| Intercompany financing and pricing | Deductibility of interest and intercompany charges; disguised-profit-distribution risk | Document arm’s length pricing under Law No. 5520, Article 13, and the current thin-capitalization limits before funding |
| Import and export operations | Duty rate, clearance speed, and customs-dispute exposure | Verify GTİP/HS classification and customs valuation under Law No. 4458; pursue AEO status where eligible |
Why Serka Law Firm for cross-border tax and customs work?
Serka Law Firm advises international clients on Turkish tax and customs matters in English alongside Turkish, working within the framework of Corporate Tax Law No. 5520, Income Tax Law No. 193, Value Added Tax Law No. 3065, Tax Procedure Law No. 213, and Customs Law No. 4458. We coordinate with sworn-in certified public accountants so the legal structure and the accounting records align, we prepare transfer-pricing documentation before audits arise, and we represent clients in settlement negotiations, tax-court litigation, and customs proceedings. Our positioning is cross-border by default: we structure for foreign shareholders, treaty repatriation, and international trade rather than purely domestic tax filing.
This practice connects with our wider commercial work, including corporate and commercial law, foreign direct investment, and establishing companies in Turkey, so tax structure is decided together with how the business is owned and operated.
Frequently asked questions
Does a foreign software company without a Turkish office owe tax on sales to Turkey?
It depends on whether the company has a permanent establishment in Turkey and on the value added tax (KDV) rules under Law No. 3065. Without a permanent establishment, an applicable double taxation treaty may relieve corporate tax, but VAT on cross-border digital services is handled through specific mechanisms, including reverse charge by the Turkish business buyer for B2B supplies and a registration obligation for some non-resident providers selling to consumers. Confirm the current VAT treatment for your sales model before assuming no Turkish obligation arises.
What is the deadline to challenge a tax penalty in Turkey?
The period to request the assessment settlement procedure (uzlaşma) or to file a cancellation suit before the Tax Court runs from the date you are notified of the assessment and is fixed by Tax Procedure Law No. 213. The exact number of days is set by law and should be confirmed the moment the notice arrives, because missing it can forfeit the right to contest the assessment. Treat any tax notice as time-critical and assemble the supporting file immediately.
How is transfer pricing documented to survive an audit?
Transfer pricing is documented by preparing a transfer-pricing report that applies an accepted comparison method to show that intercompany prices match what independent parties would charge, consistent with the arm’s length principle and the disguised profit distribution rules in Corporate Tax Law No. 5520, Article 13. The report should rest on real comparables, contracts, and deliverables, and it should exist before an audit begins rather than be assembled in response to one. Documentation prepared in advance is the difference between defending a position and conceding it.
Can free zone or technology zone tax exemptions be relied on as permanent?
No exemption should be treated as permanent or fixed. Free trade zone and technology development zone incentives are conditional on the qualifying activity, on meeting statutory conditions, and on time limits and rules that are revised periodically. Eligibility must be confirmed against the current legislation at the time of structuring and maintained through accurate compliance, because losing the conditions can withdraw the benefit and trigger retroactive assessment.
Request a confidential case assessment
Serka Law Firm advises foreign investors, multinational groups, and trading companies on Turkish corporate tax, transfer pricing, value added tax, and customs law. To review an entity structure, a transfer-pricing position, a customs dispute, or a tax assessment, request a confidential case assessment: contact Serka Law Firm and a member of our tax and customs team will respond with the next steps. For deeper background, see our guides on the tax system in Turkey, value added tax (KDV), international tax planning, and banking and finance law.
Legal disclaimer
General information, not legal advice. Turkish law; verify your specific situation with qualified counsel.