According to Income Tax Law No. 193, minimum living allowance is applied on the taxation of wages with the “actual method of taxation.”
If the foreign employee in your company’s payroll is “settled” in Turkey, he is deemed as a “full liability tax-payer” and will benefit from the MLA.
But firstly we should clear the above judicial definitions.
Settlement at Turkey
Real persons who have legal domicile and stay for more than 6 months continuously within one calendar year at Turkey are considered as settled in Turkey. Temporary leaves don’t break duration of stay.
Full liability tax-payer
Persons settled in Turkey will have full tax liability status and will be taxed on their income earned both in and outside Turkey.
Actual method of taxation
In Turkey’s practice wages of employees (withholding tax) wages and many other earnings are taxed by actual earning basis.
In this respect the employees have legal domicile and are staying for more than 6 months continuously within one calendar year at Turkey are considered full liability tax-payer and will be benefiting from MLA.
As foreign currency wages paid to employees from the revenue earned outside Turkey by the non-resident limited liability tax-payer employers without a legal business office at Turkey are completely exempted from income tax, there will be no question of MLA.
Application and Calculation of Minimum Living Allowance
Part of the wage that constitutes the amount of minimum subsistence level is not subject to income tax for real persons in Turkey legislation.
Minimum Living Allowance is calculated on the basis of minimum wage regardless of the total earning, and in accordance with the marital status and the number of the children of the employee.
The following rates of annual gross minimum salary are not subject to income tax;
50% for the employee
10% for the non-employed spouse
7,5% for each of the first two dependent children and 10% for third dependent child and 5% for the following dependent children.
Annual gross minimum wage will be multiplied with the total percentage (corresponding to employee) to find the amount not subject to income tax; and the found amount will be multiplied by the first tax bracket percentage (15% for 2015) to find the annual deductible tax. And monthly amount of MLA can be found by dividing 12.
Conditions & Definitions
Employee should fill in and submit the Family Status Declaration to the workplace, declaring his/her marital status and number of children, and employment and income status of the spouses.
Children, in the application of MLA means, those who did not completed 25 years of age while being educated or those who did not completed 18 years of age staying with tax payer or looked after by the tax payer. (including alimony receivers, adoptive sons, and grandchildren lost their mother and father living with tax payer).
Deduction will be applied; only to either wife or husband for children, each one of family members receiving wage income provided not to exceed the amounts calculated as per the above rates.
For divorced, the number of children granted an alimony is taken into consideration when calculating allowance.
Employee married with working spouse and has 2 dependent children.
Annual Gross minimum salary: 1.647 x 12 = 19.764 TRY
%50 for employee + (2x%7,5=%15) for children + %0 for working spouse = %65
14.418 x %65 = 12.846,6 TRY
9.371,70 x %15 (First tax bracket percentage of calendar year) = 1.926,99 TRY (Total annual amount to bededucted from income tax)
1.405,75 / 12 = 160,58 TRY monthly minimum living allowance.
2016 MINIMUM LIVING ALLOWANCE
Marital Status Monthly MLA Monthly MLA
Single/Spouse working + 0 kid 123,53 123,53
Single/Spouse working+ 1 kids 142,05 142,05
Single/Spouse working+ 2 kids 160,58 160,58
Single/Spouse working + 3 kids 185,29 185,29
Single/Spouse working + 4 kids 197,64 197,64
Single/Spouse working + 5 kids 209,99 209,99
Married+Non working Spouse+0 kid 148,23 148,23
Married+Non working Spouse+1 kid 166,76 166,76
Married+Non working Spouse+2 kids 185,29 185,29
Married+Non working Spouse+3 kids 209,99 209,99