TAX STRUCTURE IN TRNC

Within 25 years, since the independence declaration of Turkish Republic of Northern Cyprus (TRNC) on 15 October 1983 until today, the most beautiful island of Mediterranean, which has been waiting to be recognized worldwide but is only recognized by Republic of Turkey due to various political reasons, has made a big step in Tourism Sector and its Financial Arrangements in terms of invigorating the economy and taking off embargos.

Many national companies make investments in TRNC, especially Turkey. The natural beauty and environment of the country are the main reasons investments focused especially on Tourism. “Casino” factor is another reason in parallel to it.

Except real investments and ongoing real investments, although TRNC is not recognized globally, it has a more advantageous Tax System in comparison to current legal regulations in many European countries and the world. Free Port, International Business Companies, Overseas Branch and legal corporate structure are some examples of the mentioned Tax System that has different advantages.

TRNC Income Tax Law and tax system is mainly based on Anglo-Saxon system and shows numerous differences in Tax Structure of Republic of Turkey.

Companies with Legal Entities (excluding free port, international business companies), which currently run business in TRNC and are established as per Section 113 Companies Act within the scope of UK Companies Act 1959, have a tax burden of 23,5% as per Corporate Tax Law. However, it is 20% different than Corporate Tax in practice in Turkey and this 23, 5% of burden tax in TRNC has an unknown feature. The exact calculation of this ratio is: 15% withholding Income Tax deduction is made regardless if the amount remained after 10% Corporate Tax payment for earnings before tax is distributed or not distributed. In other words, no additional withholding or tax payment is made to partners on net profit distribution.

On the other hand, liables with Natural Person status (Private Companies) and subsistence wage indexed individuals are subject to taxation as per Income Tax Law in accordance with various percentiles of tax ratios on remained amounts after the deduction of special exemptions and on net income after the annual declaration of exemptions on the remained amount. For instance;  after the 17% deduction for wage earners and 10% deduction for others on Taxable income and calculation of individual discount of 15,725,00 YTL , the remained amount of Income Tax has a taxation of 10% up to 3.000,00 YTL, 20% up to 6,000,00 YTL, 25% up to 13,600,00 YTL, 30% up to 23.650,00 YTL and 37% above 23.650,00. The marital status (married, single, widowed) to the mentioned exemptions

has an additional exemption right. This arrangement enables the implementation of social justice principles in relation to taxation.

Above-mentioned Corporate Tax and Income Tax is calculated at least on 30 April of the following year it is completed and should be returned to Tax office as required by the law and Tax Return should be sent to liables by the Tax Office by post. 

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