PAYROLL BASICS (2023)

Payroll in Turkey – Updated on 20 June 2023

Net Minimum Wage in Turkey rises to TRY 11,402.32  with 34 percent increase.

Fixed parameters of 2023 presented in this page represents basic payroll accounting in Turkey. Please consider that, following information is for informational purposes only.

DEFINITION OF WAGE AND ITS TAXATION UNDER THE TURKISH LAW

The definition of wage exists in a variety of relevant Turkish laws and regulations. Article 32 of the Turkish Labor Law defines wage as: “Wage is, in general terms, the amount of money to be paid in cash by an employer or by a third party to a person in return for the work performed.”

More detailed definition of wage is given under Article 61 of the Income Tax Law No. 193. Accordingly, wage is defined as:

“Wage is a benefit provided in kind and cash, represented by cash, in return for the services performed by the employees registered and subject to an employer. It does not change the true nature of wage in case of payment under the names of indemnity, allowance, cash compensation (Financial Liability Indemnity), allocation, increment, advance, remuneration, attendance fee, premium, bonus, in return of an expense or determined by a particular percent of revenue on condition of no attribution to a partnership.”

COMPONENTS OF WAGE

In accordance with Article 32 of the Turkish Labor Law, there are three components of wage: (1) wage shall be paid in return for the work performed; (2) wage shall be paid by an employer or by a third party and (3) wage shall be paid in cash.

For the purpose of the Income Tax Law No. 193, within the framework of Article 61, the components of wage are defined as: (1) being subject to an employer, (2) work in a specific place of business (3) being paid in return for the services performed.

TAX TREATMENT TO THE WAGE AND SALARIES

All payments, which are treated as wage under the Income Tax law, are subject to the income tax. As per Article 61 of the Turkish Income Tax Law (Law No. 193) in addition to the wage, all other associated incomes such as allowances, bonuses, anniversary gifts, gratuities, commissions, premiums, compensations and other wage and salary related remunerations including the benefits in kind at market value are also subject to the income tax.

The taxable income is determined after the deduction of certain allowed expenditures from the gross amount. The relevant deductions explained under Article 63 and 89 (1) of the Income Tax Law No. 193 are as follows:

(1) Legal deduction made according to various laws or regulations,

(2) Premiums and contributions made to the Social Security Institution,

(3) 50 % of the life insurance premiums paid by the employees on their own behalf or on behalf of their spouse and/or children to the private insurance and retirement companies which are located in Turkey and the headquarters, registered head offices or business centers of which are located in Turkey, insurance premiums paid by the employees on their own behalf or on behalf of their spouse and/ or children for death, accident, disease, disability, unemployment, maternity, birth and education polices provided that the total amount of premiums deducted shall not exceed %15 of the monthly income and yearly amount of minimum wage and

(4) Payments made for the labor union membership.

Additionally, the below mentioned benefits are (fully or partially) exempted from the income tax:

• The benefits provided by the employer in the form of free meal in the workplace or its annexes are excluded from the scope of taxable income. In the case of not providing free meal in the workplace or its annexes, obtaining meal service from the external suppliers such as by using meal tickets, the income tax exemption will be applicable only up to the daily limit specified by the Law (In accordance with the Income Tax General Communiqué No: 310, – TRY 110 – in 2023). In the latter case, the employer is required to pay the price for the meals directly to the meal service supplier, or intermediary. Any payment made directly to the employees under the name of meal or food allowance is subject to the income tax. (Article 23 (8) of the Income Tax Law).
• The benefits paid to the employees due to birth and marriage are exempted from the income tax. This relevant exemption is limited up to (2) two months’ salary of the employee. In case of exceeding this relevant limit, the remaining amount is subject to the income tax. (Article 25 (5) of the Income Tax Law).
• The payments made to the employees in the name of ‘child benefits’ are exempted from the income tax. This relevant exemption is applicable for maximum (2) two children and limited to the settled amount received by the government employees. (Article 25 (4) of the Income Tax Law).

Employee benefits and exemption amounts for the second half of 2023;

1. The below mentioned amounts are exempted from the Social Security Premium:

Child Allowance TRY 268.29

Family Allowance TRY 1.341,45

Daily Food Allowance TRY 105.75

1. The below mentioned amounts are exempted from the Income Tax:

Child Allowance – For 0 to 6 years old TRY 216.84, above TRY 108.42

Daily Food Allowance — TRY 110 excluding VAT.

*The list provided above is not inclusive. There might be other expenses, benefits or payments exempted from the income tax and social security premium.

TAX EXEMPTION FOR THE MINIMUM WAGE EARNERS

With Law No. 7349 regarding the amendments to the Income Tax Law and certain other laws dated December 22, 2021 published in the Official Gazette dated December 25, 2021 and numbered 31700, with the regulation made in the sub-paragraph (18) of the first paragraph of Article 23 of the Law No. 193, wages corresponding to the remaining amount after deducting employee’s share of social security premium and unemployment insurance premium from the monthly gross amount of the minimum wage are exempted from the income tax.

If the wage income of the employee is equal to the gross amount of the minimum wage valid in the relevant month, employee’s share of social security premium and unemployment insurance premium will be deducted from the gross amount; the income tax and stamp tax will not be deducted. As per the newly added sub-paragraph eighteen (18) of the first paragraph of Article 23 of Law No. 193, in the taxation of the wage income exceeding the exemption, the income slice amounts and rates to be calculated are determined by taking into account the amounts within the scope of the exemption. The tax amount to be paid is calculated by deducting the portion corresponding to the exemption amount from the tax amount found accordingly. The tax that will not be collected due to the exemption cannot exceed the tax that should be calculated over the monthly minimum wage in the relevant month. For those who receive wage from more than one employer, this exemption applies only to the highest wage.

TAX EXEMPTION FOR THE WAGES PAID BY THE EMPLO­YERS WITH LIMITED TAX LIABLITY[1]

In accordance with Article 3 (2) of the Corporate Income Tax Law No. 5520, [2] the corporations[3] have limited tax liability for the income deriving from Turkey in case neither their registered office nor their business center is within Tur- key. The taxpayer corporations with full liability are subject to the corporation tax based on their worldwide income.

As per Article 23 (14) of the Income Tax Law, the employees working for the limited liability corporations, the registered offices and business centers of which are not located in Tur- key, are exempted from the income tax in case (this usually applies to the liaison offices):

1. The wage is paid from the earnings and revenues generated abroad.
2. The wage is paid in the form of foreign currency.
3. The wage is not assessed in Turkey.[4]

[1] The Income Tax Law (Law No. 193) distinguishes the limited tax liability and full tax liability. As a general rule, the resident taxpayers are subject to full tax liability for their worldwide income. (Art.3) The non-resident taxpayers are taxable on their income generated in Turkey. For the purpose of the Income Tax Law, the resident taxpayer refers to those who have legal residence in Turkey and who stay in Turkey for more than (6) six consecutive months within a calendar year (Art.4).

[2] Law No. 5520, OG of 21.06.2006, No. 26205.

[3] Refers to all subjects of the Corporate Income Tax law.

[4] The term assessed refers to the situations in which the salary payments are used as expenses against profits taxable in Turkey.