PAYROLL BASICS (2018)

          Updated: 01.01.2018

Fixed parameters of 2018 presented in this page represents basic payroll accounting in Turkey. However please note that there might be other benefits and allowances applicable to the employees. Below calculations excludes daily food, family and children allowances and other exemptions. Also please consider that, following information is for informational purposes only.

 

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I – DEFINITION OF WAGE AND ITS TAXATION UNDER TURKISH LAW

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1. DEFINITION OF WAGE UNDER TURKISH LEGISLATION

Definition of wage exists in a variety of relevant Turkish laws and regulations. Article 32 of 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 work performed by him.”

More detailed definition of wage is given under the article 61 of the law no: 193 on Income Tax Law. Accordingly, wage is defined as;

“Wage is a benefit provided by cash in kind and cash, represented by cash, in return for services performed by employees registered and subject to an employer. It does not change the true nature of wage by paying it 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 provided not to have the attribute of a partnership. ”

2. COMPONENTS OF WAGE

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

For the purpose of law no: 193 on Income Tax, on article 61, components of wage are defined as; (1) being subject to an employer, (2) work in association with a specific place of business (3) being paid in return of services performed

3. TAX TREATMENT TO THE WAGE AND SALARIES

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

Taxable income is determined after the deduction of some allowed expenditures from the gross amount. These deductions explained under article 63 and 89(1) of Law no: 193 on Income Tax as;

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

(2) Premiums and contributions made to the social security institution.

(3) 50 % of life insurance premiums made by employees on their own behalf or on behalf of their spouse and/or children to private insurance and retirement companies which are resident in Turkey and whose headquarters, registered head offices or business centers are in Turkey, Insurance premiums made 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 total amount premiums deducted shall not exceed %15 of monthly income and yearly amount of minimum wage.

(4) Payments made for labor union membership.

Additionally, following benefits are (fully or partially) exempted from income tax;

  • Benefits, provided by the employer in the form of the free meal within the business place or its annexes are excluded from the scope taxable income. In the case of not providing free meal within business place or its annexes , obtaining meal service from the outside providers such as by using meal tickets, income tax exemption will be applicable only up to daily settled limit by law (In accordance with Income Tax General Communiqué with Serial no: 287, – 16 TL – in 2018) . In the latter case, the employer required to pay the price for the meals directly to the meal service provider, or intermediary. Any payment made directly to the employees under the name of the meal or food allowance is subject to income tax. (Article 23 (8) of Income tax law)
  • Benefits, paid to employees due to birth and marriage, are exempt from income tax. This exemption is limited up to two months’ salary of the employee. In the excess of this limit, the remaining amount is subject to income tax. (Article 25(5) of income tax law)
  • Payments made to the employees in the name of ‘child benefits’ are exempt from income tax. This exemption is applicable for maximum two children and limited to the settled amount received by the government employees. (Article 25(4) of income tax law)

Employee benefits and their exemption amounts 2018;

I. FOLLOWING AMOUNTS ARE NOT SUBJECT TO SOCIAL SECURITY PREMIUM.

CHILD ALLOWANCE (Applicable max. for two children) — 40,59 TL

FAMILY ALLOWANCE — 202,95 TL

DAILY FOOD ALLOWANCE — 4,06 TL

II. FOLLOWING AMOUNTS ARE EXEMPTED FROM INCOME TAX

CHILD ALLOWANCE  (Applicable max. for two children)

For 0 to 6 Years old 48,02 TL, above 24,01 TL

DAILY FOOD ALLOWANCE — 16 TL

*The list provided above is not exhaustive. There might be other expenses, benefits or payments that are exempt from income tax and social security premium. Please consult with your accountant for more information.

MINIMUM LIVING ALLOWANCE

Effective from January 1, 2008, a tax-free minimum living allowance is available for wage earners. Income tax payable (taxable income) is calculated after deducting MLA from the income tax.

The calculation is made on the basis of minimum wage regardless of the wage of the employee. In the calculation of the minimum living allowance, the marital status and the family composition of the employee is taken into account.

Calculation: 50% for the taxpayer, 10% for the spouse provided who is unemployed, 7.5% each for the first two dependent children, 10% for the third dependent children and 5% each for the following dependent children.

DISABLEMENT DEDUCTION

The employee who lost working capacity at minimum 80 % is regarded as 1st degree disabled, minimum 60 % is 2nd degree disabled, minimum 40 % is 3rd-degree disabled worker. In calculating income tax, the following monthly deductions are applicable to the taxable income of the employees.

4.TAX EXEMPTION REGARDING THE WAGES PAID BY EMPLOYERS WITH LIMITED TAX LIABLITY[1]

  • In accordance with article 3(2) of Corporate Income Tax law numbered 5520[2], Corporations[3] have a limited tax liability for income deriving from Turkey if neither their registered office nor their business center is within Turkey. Full liability taxpayer corporations are subject to corporation tax on their worldwide income.
  • As per article 23(14) of Income tax law, employees working for limited liability corporations whose registered offices and business centers are not located in Turkey are exempt from income tax if; (this usually applies to the liaison offices)
  1. The wage is paid out from the earnings and revenues generated abroad.
  2. The wage is paid out in the form of foreign currency.
  3. Wage is not evaluated in Turkey.[4]

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

[2] Law No. 5520, Official Gazette of 21.06.2006, No. 26205.

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

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

 

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II. PAYROLL PARAMETERS FOR 2018

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I- Gross Salary:

Gross Salary refers to the amount of salary which is earned by employees according to Turkish Labor Law.

  • Gross Salary = Net Salary + Total Deductions (Social Security Premium Employee’s Share (including Unemployment Insurance) + Income Tax + Stamp Tax)

II- Net Salary:

It is the amount of salary actually received by the employees.

  • Net Salary = Gross Salary – Total Deductions

III- Employer’s Cost:

In addition to the gross salary, the employer must pay the employer’s share of social security and unemployment insurance premiums.

  • Total Cost of Employee to Employer = Gross Salary + Social Security Premium Employer’s Allocation (including Unemployment Insurance)

IV-Social Security Premium and Unemployment Insurance:

Total social security premium is 37.5% (including unemployment insurance) of Earning Subject to Premium. 15% of the total is deducted from the gross salary as employee’s allocation and 22.5% of Earning Subject to Premium is calculated additionally as the employer’s allocation. (Effective from 01/09/2013 Short term insurance branches premium rate is determined as 2% of earning subject to premium regardless of the gravity of the danger of the work.)

 

Insurance Branches Employee’s Allocation (%) Employer’s Allocation (%) Total Allocation (%)
Short Term Insurance Branch Premium 2 2
Invalidity, Old Age and Death Insurance Premium 9 11 20
General Health Insurance 5 7,5 12,5
Unemployment Insurance 1 2 3
Total 15 22,5 37,5

 

SOCIAL SECURITY BASE AND CEILING

MONTHLY (TL)

BASE (01 Jan 2018 – 31 Dec 2018)

2029,50

CEILING (01 Jan 2018 – 31 Dec 2018) – BASE (x) 7,5

15221,40

V- Income Tax:

Employee’s Wage Income is subject to income tax and the employer is responsible to deduct and pay to the tax office on behalf of the employee.

  • Income Tax Base (Taxable Income) = Gross Salary – Social Security Premium (Employee’s Share)
  • Income Tax = Taxable income * Income Tax Rate (%)

Income Tax (Cumulative) (Wage Income)(2018)

Rates

Up to 14 800  TL

%15

Between 14 800 and 34 000 TL (For the 13 000 TL of the total amount, income tax is 2220 TL) In excess

%20

Between 34 000 and 120.000 TL* (For the 30 000 TL of the total amount, income tax is 6060 TL) In excess

%27

Over 120.000 TL (For the 120 000 TL of the total amount, income tax is 29280 TL) In excess

%35

VI- Stamp Tax: (2018)

Stamp tax is based on the gross salary. The rate of tax is 0,00759

  • Stamp Tax = Gross Salary * Stamp Tax Rate

VII- Minimum Living Allowance (MLA)

Effective from January 1, 2008, a tax-free minimum living allowance is available for wage earners. Income tax payable is calculated by deducting MLA from the income tax.

The calculation is made on the basis of minimum wage regardless of the salary of the employee. In the calculation of the minimum living allowance, the marital status and the family composition of the employee is taken into account.

Calculation: 50% for the taxpayer, 10% for the spouse provided who is unemployed, 7.5% each for the first two dependent children, 10% for the third dependent children and 5% each for the following dependent children.

  • Income Tax Payable = Income Tax – Minimum living Allowance

MINIMUM LIVING ALLOWANCE RATES EFFECTIVE 01 JAN 2018

UNEMPLOYED SPOUSE

(01 Jan 2018 – 31 Dec 2018)

STATUS MINIMUM LIVING ALLOWANCE
SINGLE 152,21 TL
MARRIED 182,66 TL
ONE CHILD 205,49 TL
TWO CHILDREN 228,32 TL
THREE CHILDREN 258,76 TL
FOUR CHILDREN 258,76 TL
 FIVE CHILDREN 258,76 TL


EMPLOYED SPOUSE

(01 Jan 2018 – 31 Dec 2018)

STATUS MINIMUM LIVING ALLOWANCE
SINGLE 152,21 TL
MARRIED 152,21 TL
ONE CHILD 175,04 TL
TWO CHILDREN 197,88 TL
THREE CHILDREN 228,32 TL
FOUR CHILDREN 243,54 TL
 FIVE CHILDREN 258,76 TL
 

 

VIII – Disablement Deduction

The employee who lost working capacity at minimum 80 % is regarded as 1st degree disabled, minimum 60 % is 2nd degree disabled, minimum 40 % is 3rd-degree disabled worker. In calculating income tax, the following monthly deductions are applicable to the taxable income of the employees (2018).

  • For the 1st degree 1000 TL
  • For the 2nd degree 530 TL
  • For the 3rd degree 240 TL

 

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III – MINIMUM WAGE CALCULATION

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MINIMUM WAGE CALCULATION – SINGLE EMPLOYEE WITH NO CHILDIREN*

( PERIOD BETWEEN 01.01.2018 – 31.12.2018)

GROSS SALARY 2029,50
Social Security Premium Employee’s allocation (14%) 284,13 TL
Unemployment insurance Employee’s allocation (1%) 20,30 TL
Income tax base 1725,07 TL
Income tax (15%) 258,76 TL
Minimum living allowance
(Single and no children)
152,21 TL
Income tax payable 106,55 TL
Stamp tax (0,00759) 15,40 TL
Total Deductions (Income tax payable +Stamp Tax + Social Security Premium Employee Allocation +Unemployment Insurance Employee Allocation)  426,38 TL
NET SALARY 1603,12 TL
TOTAL COST OF EMPLOYEE TO EMPLOYER  
Gross salary 2029,50 TL
Social Security Premium Employer’s allocation (15.5%)** 314,57 TL
Unemployment Insurance (2%) 40,59 TL
TOTAL COST 2384,66 TL

 


* Calculation is applicable to single employees with no children. Different Minimum Living Allowance amounts should be considered for other calculations.

**”For the private sector employers who employ insurance holders under item (a) of paragraph one of Article 4 of this Law, the amount corresponding to five points of employer share in the premiums of invalidity, old – age and survivors insurances pursuant to item (a) of paragraph one of this Article shall be covered by the Treasury.” SOCIAL INSURANCE AND UNIVERSAL HEALTH INSURANCE LAW (Law no:5510 – Article 8-I )

 

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