What is withholding tax? How to Calculate?

Withholding tax is a type of tax that is deducted from the source during the generation of income for earnings subject to Income and Corporate Tax and deposited to the relevant tax office. With these payments, the tax debt is paid immediately. Withholding tax is applied in a wide range of areas, from rent payments to personnel payments.

The term withholding comes from French and means “withheld from the front”. As soon as the income or gain is earned, the necessary deduction is made before it reaches the employee or owner. The deduction is deposited to the relevant tax office in the name of the employee or property owner. In this article, we will share what you need to know about withholding tax.

What is withholding tax?

Withholding tax is a tax deduction at the rates specified in tax laws. These deductions are pre-deducted from taxpayers’ total tax liability, making it easier to pay taxes. It is generally used to collect taxes such as income tax and VAT.

Different types of income are the reason why withholding tax is applied at different rates. For example; While withholding rates on wage payments are determined depending on the employee’s salary and current legal regulations, VAT withholding rates vary depending on the type of goods and services.

What is rent withholding tax?

Rent withholding tax is a type of tax applied when real estate is rented in Turkey. During the rental process, withholding tax, calculated as a certain percentage of the rental price, is paid directly to the tax office by the tenant. Thanks to this application, the tenant collects his tax in advance when paying rent, and the tax office collects the income on time.

Rent withholding tax is declared and paid by the tenant. Thus, withholding tax is deducted from the gross rental fee and the net rental fee is forwarded to the lessor. Rent withholding rates, which are determined every year, may change.

What is deposit withholding tax?

Deposit accounts are basically of two types: current or current. When the forward option is chosen, interest is earned depending on the number of days the money is kept in the bank. The deduction made on this interest income is called “deposit withholding tax”. It is possible to easily calculate your interest return with the deposit interest calculation tool offered by Yapı Kredi  .

Withholding rates vary depending on various types of income. You can review the withholding tax rates applied to deposit accounts such as Turkish lira and foreign currency deposit accounts in Yapı Kredi’s deposit withholding rates  section.

What is the place of withholding tax in the tax system?

Withholding tax has an important place in the tax system. Some of these are as follows:

• Effective tax collection: The withholding tax system allows tax offices to collect tax revenues effectively, without the need to collect taxes separately from each income generator.
• Preventing tax evasion: Withholding tax is a system that effectively prevents tax evasion by taxing income at its source. It reduces the possibility of a deficiency in the income earner’s tax return.
• Continuous cash flow: Withholding tax ensures a continuous cash flow by withholding taxes at the time of payment and transferring them to the government.
• Protection of investors and employees: Especially for investors and employees, with the use of withholding tax liabilities are met at regular intervals and the risk of a large tax debt at the end of the year is reduced.
• International taxation: Withholding tax is also important for companies and investors operating internationally. Taxing income earned within a country at source helps avoid international double taxation.

In Turkey and many countries, withholding tax is applied to various types of income. Interest income, rental income, self-employment earnings and dividend payments are examples of these types. Withholding tax rates and practices may differ from country to country and may change over time.

How is withholding tax calculated?

Withholding tax rates are not fixed, they vary depending on the payment type and are calculated on the gross amount. For example, the net salary of an employee whose gross salary is 10,000 TL and who needs to withhold 20% is calculated as follows:

• Gross salary: 10,000 TL
• Income tax withholding: 10,000 x 20% = 2,000 TL
• Net Salary: 10,000 TL – 2,000 TL = 8,000 TL

This calculation is only an example and in actual calculations, different rates and calculations may be applied depending on the taxpayer’s situation and legal regulations.

How to pay withholding tax?

After withholding tax, the amount due is declared to the tax office and then payment is made. Declaration of withholding deductions is made through tax returns. Tax returns are collected at the end of the annual declaration period and the taxpayer’s tax debt is calculated.

Taxpayers withholding tax can go to the tax office at the end of the declaration period and pay their tax debts. In addition, it is also possible to make payments through online services offered by tax offices.