Withholding tax, which is an important part of the taxation system, is a type of tax withheld before the income reaches its source and is transferred directly to the state treasury.  In this type of tax, tax is deducted from certain items of income at certain rates before it reaches the income owner, and the amount of this deduction is paid to the tax office.

In this way, the obligations of taxpayers are fulfilled in advance at predetermined rates. Withholding tax plays an important role in both increasing tax revenue for the state and easing the tax burden for taxpayers.  Withholding tax imposes significant legal and financial obligations on both businesses and individuals.

Failure to calculate it correctly and pay it on time may result in criminal penalties. In this article, we will examine in detail what is withholding tax, who pays it, in which cases it is withheld, why it is paid, how and when it is paid, and how it is calculated.

What is Withholding Tax?

Withholding tax definition; It is the process of deducting the earnings subject to Income Tax and Corporate Tax from the source and depositing them to the relevant tax office as soon as they are obtained. In this way, the taxpayer pays part of the tax that must be declared in the year-end declaration in advance.

Withholding tax also helps taxpayers to distribute the tax burden more evenly throughout the year and avoid high payments that may occur during the declaration period.

Who pays the Withholding Tax?

Withholding tax is paid by individuals and institutions that are obliged to withhold withholding tax. This obligation is as follows:

Employers: When paying wages to their employees, they are obliged to withhold withholding tax at a certain rate on the gross wage and deposit it to the relevant tax office.

Tenants: When paying rent to real estate owners, they are obliged to withhold withholding tax at certain rates on the gross rent amount and deposit it with the relevant tax office.

Buyers: When purchasing certain goods and services, they are obliged to withhold withholding tax at certain rates on the invoice amount and deposit it to the relevant tax office. For example, withholding deductions are made from rental fees, real estate buy fees, and self-employment payments.

Public Institutions and Organizations: Public institutions and organizations are also obliged to make withholding deductions on their purchases and payments and deposit them to the relevant tax office.

What is Withholding Deduction? In Which Situations?

Withholding tax deduction is the process of deducting withholding tax at source. Withholding tax deduction is made in the following cases:

Wage payments: In wage payments made by employers to their employees, withholding deductions are made at certain rates on the gross wage.

Rent payments: For rental payments made by tenants to real estate owners, withholding tax is deducted at certain rates on the gross rental amount.

Purchase of certain goods and services: For purchases of goods and services with an invoice amount exceeding TRY 4,000, withholding tax is deducted at certain rates over the invoice amount.

Purchases and payments made by public institutions and organizations: For purchases and payments made by public institutions and organizations, withholding tax is deducted at certain rates over the invoice amount.

Self-employment payments: Withholding tax is deducted from payments made to self-employed persons.

Expense vouchers: Withholding tax is deducted by the recipient for expense vouchers exceeding a certain amount.

Why is Withholding Tax Paid?

Withholding tax is paid for the following reasons:

To ease tax collection: Withholding tax allows taxes to be collected in advance, thereby preventing tax evasion. It is paid for this reason.

Easing the tax burden: Thanks to withholding tax, the tax burden is more evenly distributed throughout the year, reducing the tax taxpayers must pay in the year-end declaration.

Increase government revenues: Withholding tax contributes to increasing government revenues.

How is Withholding Tax Paid?

Withholding tax can be paid through the electronic services of the Tax Withholding Calculator of the Revenue Administration (RA) or authorized banks. The person or organization that withholds withholding tax must pay the withholding tax withheld to the relevant tax office by the end of each month.

When is Withholding Paid?

Withholding tax must be paid to the relevant tax office by the end of the month following the withholding deduction. For example, if an employer withholds withholding tax from wage payments made to employees in January, the withholding tax must be paid by the end of February.

How is Withholding Tax Calculated?

The calculation of withholding tax in Turkey varies according to the type of withheld payment and the legally prescribed rates. Withholding tax rates are set out in the Income Tax Law and Corporate Tax Law. You can follow the steps below to calculate withholding tax:

1. Determine the Type of Payment for Withholding Tax Deduction:

The rate of withholding tax varies according to the type of payment for which withholding is deducted. For example, the withholding tax rate on wage payments varies between 15% and 40%, while the withholding tax rate on rental payments is 20%.

2. Determining the Withholding Tax Deduction Amount:

To calculate withholding tax, you need to know the amount to be withheld. This amount may vary such as wages, rent, self-employment income, and expense voucher amount.

3. Find the Legally Determined Withholding Rate:

Find the legally determined withholding rate according to the type of payment to be withheld. You can learn these rates from the Income Tax Law and Corporate Tax Law or the website of the Revenue Administration.

4. Calculate the Withholding Tax:

To calculate the withholding tax, you need to multiply the amount to be withheld by the legally determined withholding rate.

In conclusion; Withholding tax is an important tool for the state and taxpayers. Knowing about withholding tax and applying it correctly contributes to a fair and efficient distribution of the tax burden. Remember that withholding tax can be a complex issue and different rules may apply depending on your specific situation. If you have any questions or concerns about withholding tax, it is advisable to consult a tax professional.