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 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: 329 – 240 TL – excluding VAT in 2025) . 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 for the second half of 2025;

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

CHILD ALLOWANCE (Applicable max. for two children) — 520,11 TL

FAMILY ALLOWANCE — 2.600,55 TL

DAILY FOOD ALLOWANCE — 205,01  TL *Per day actually worked during the month.

II. FOLLOWING AMOUNTS ARE EXEMPTED FROM INCOME TAX

CHILD ALLOWANCE

• For children aged 0 to 6 years old — 506,28 TL
• For children aged above 6 — 253,14 TL

DAILY FOOD ALLOWANCE — 240 TL excluding VAT.

TRANSPORTATION ALLOWANCE – 126 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.

DISABLEMENT DEDUCTION

The employee who lost working capacity at minimum 80 % is regarded as 1^st degree disabled, minimum 60 % is 2^nd 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:

• For the 1^st degree 9900 TL
• For the 2^nd degree 5700 TL
• For the 3^rd degree 2400 TL

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.

Income and Stamp Tax Exemption Amounts to be Applied in 2025

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.