What is tax: where does the state's share come from

A bouquet from Fatma Hanım the florist

Fatma Hanım is a florist. A bouquet seems to sell for 1,000 lira. But those 1,000 lira are not all hers. Part of it belongs to the state, part to whoever supplied the flowers, part goes on the rent, and part is Fatma Hanım's.

This lesson shows, with a simple map, where the state's share comes from. There are no rates here, because rates change often. There is the logic.

1. VAT: money held in trust

VAT (KDV, katma değer vergisi, value added tax) is a tax added to the sale price. The customer pays it, you collect it, and you pay it to the state. As a rule, it is not your earnings; you act as the go-between. There is a trap: once you have issued the invoice, you pay that VAT on time even if the customer has not paid you yet.

When Fatma Hanım sells the bouquet, she collects the VAT share included in the price from the customer. When she bought the flowers, she also paid VAT to her supplier. At the end of the month, the VAT paid on purchases is subtracted from the VAT collected on sales; this is called the VAT deduction (VAT Law, Katma Değer Vergisi Kanunu, art. 29). The difference is paid to the state. If the VAT paid is more than the VAT collected, the difference carries over to the next month. If you are under the simplified method (basit usul), you do not file a VAT return; this calculation does not apply to you.

Think of it this way: the VAT in the cash box is not yours; it carries a "held in trust" label. Whoever mistakes VAT for profit and spends it gets caught short on tax day at the end of the month. For more detail, see the article What is VAT? (in Turkish).

2. Income tax and corporate tax: from profit

These are taxes on your earnings.

• Income tax (gelir vergisi): Charged on the profit of a sole proprietorship (a natural person).
• Corporate tax (kurumlar vergisi): Charged on the profit of a limited company or a joint-stock company (anonim şirket).

What the two have in common: as a rule, if you are making a loss or there is no profit, this tax does not arise. If there is profit, part of it is paid in advance during the year (this is called provisional tax, geçici vergi), and the rest after the year has closed. If you are under the simplified method, your earnings may be exempt from income tax under certain conditions. Whether this applies to you, and what the current rate and payment dates are, ask your mali müşavir (certified public accountant); both change from year to year. In the article Profit but no money (in Turkish) you can read about the difference between profit and cash.

3. Withholding tax: deducting someone else's tax and paying it in

Withholding tax (stopaj) means deducting the other party's tax in advance when you make a payment, and paying it to the state. You do not pay the tax out of your own pocket; you deduct part of the payment, pass it to the state, and pay the rest to the other party.

Example: Fatma Hanım pays her employee a salary. The income tax deducted from the salary is the employee's income tax; the employer deducts it and pays it to the state. The example a new employer meets most often is rent: if you rent your shop from an individual, in most cases you deduct the tax on the rent and pay it in yourself; handing the landlord the full rent and leaving it at that is a common mistake. A similar deduction may apply to payments to self-employed professionals such as lawyers or accountants. If you are under the simplified method, the situation may be different. Ask your accountant which payments involve withholding tax; do not guess on your own.

With withholding tax you are like a "tax collector": you deduct the money and pay it in on time. If you don't, the responsibility stays with you.

4. SGK premium: not a tax, but on the same calendar

The SGK premium (SGK primi) is the money paid for the employee's health and pension rights; SGK is the Social Security Institution (Sosyal Güvenlik Kurumu). It is not actually a tax; it is an insurance premium. But for the employer it comes on the same calendar: every month, for each employee, both the part deducted from the employee's salary and the employer's share are paid to SGK.

The owner of a sole proprietorship pays their own insurance themselves as a Bağ-Kur premium; partners in a limited company are, as a rule, also covered by Bağ-Kur. The Bağ-Kur premium varies according to the earnings level chosen between a lower and an upper limit. Employees' premiums, on the other hand, are calculated from their salaries. Before hiring, read the article When hiring your first employee (in Turkish).

Why prepare in advance?

What these four items have in common is that they all come into your cash box and then go out again. Let's say Fatma Hanım sold 100,000 lira worth of flowers in a month. It is nice to see 100,000 lira in the cash box, but inside it there is VAT, money to set aside for the employee's SGK premium, and income tax if there is a profit. If you spend it all, you will have no money when tax day comes knocking.

The solution is simple: keep part of the money that comes in, at a rate you set together with your accountant, in a separate account. Your accountant will tell you the rate; it varies by year and by business. We turn this into a habit in the lesson Setting money aside for tax (in Turkish).

Putting the map together

What ties all four items to a calendar is the tax calendar (in Turkish). Together with your accountant, write down in a monthly list which payment falls on which date.

Which word means what?

If your accountant says "I've prepared your return this month", a tax return (beyanname) is the report of your accounts with the state. It is used to declare the calculated tax to the tax office (vergi dairesi). You make the payment separately.

Keep one rule in mind: not all the money in the cash box is yours. Part of it is held in trust, part is tax, part is premiums. The rest is what you earned.

Is tax a bad thing?

New employers often see tax as if it were a penalty. In fact, tax is part of the cost of doing business: you work, you earn, and a share goes into the common purse. What is bad is not knowing about tax and being caught unprepared when it falls due. If you keep proper records and do it on time, tax is an expense item you can plan for; it is not a surprise.