I- Gross Salary:

Under Turkish Labor Law, gross salary is defined as the salary earned by employees. However, this is not the take-home amount for employees since gross salary is subject to mandatory government deductions and tax liabilities. Such deductions are made from the gross salary and paid to the related authorities by employers on employees' behalf. As a rule, employees are responsible for paying these deductions; however, to simplify the payment and collection process, employers act as intermediaries by making deductions at the source. These deductions consist of income and stamp taxes, employee contribution of social security premiums and unemployment insurance.

• Gross Salary = Net Salary + Social Security Premium (Employee Contribution) + Unemployment Insurance (Employee Contribution) + Income Tax + Stamp Tax

II- Net Salary:

Net salary is the gross salary after deductions, and it represents the total sum that an employee takes home.

• Net Salary = Gross Salary - Social Security Premium (Employee Contribution) - Income Tax - Stamp Tax - Unemployment Insurance (Employee Contribution)

Total employer cost is higher than the gross salary since the employer is obliged to apply deductions for the SSI employer premium and unemployment insurance items. Shortly, this difference is due to the employer contribution of the specified deductions.

III- Total Employer Cost:

• Total Employer Cost = Gross Salary + Social Security Premium (Employer Contribution) + Unemployment Insurance (Employer Contribution)

IV-Social Security Premium:

In deducting the social security premiums gross salary is used as the base and both the employer and employee contributions are considered as the total social security premiums, which correspond to 34,5% of employee's gross salary. Employer and employee contributions are calculated as respectively 20,5% and 14% of the gross salary, and both amounts are paid by the employer until the end of the following month. In addition, employers are able to benefit from a discount offered by the Treasury, which is applied at 5% on the employer contribution of social security premiums, provided that the employer makes its SSI premium payments on time and that all of its employees are insured. When determining the variable applicable for the calculation of premiums, the minimum and maximum amounts declared by the government are compared with the employee's gross salary. In the event that the gross salary level is below the declared minimum, the minimum amount should be considered instead of the gross salary, and conversely, if the gross salary is above the maximum, the latter must be considered in calculating the premium.

• Social Security Premium (Employee Contribution) = 14 % of Gross Salary

• Social Security Premium (Employer Contribution) = 20,5 % of Gross Salary

• Social Security Premium (Total) = 34,5 % of Gross Salary

IV- Unemployment Insurance:

Unemployment insurance is calculated based on the gross salary. Employee and employer contributions correspond to respectively 1% and 2% of the gross salary, and consist of the total of 3 % unemployment insurance amount. The employer is liable to pay the unemployment insurance deduction along with the above stated social security premiums no later than the end of the following month. Unemployment insurance premiums are calculated as the same way as social security premiums.

• Unemployment Insurance (Employee Contribution) = 1% of Gross Salary

• Unemployment Insurance (Employer Contribution) = 2% of Gross Salary

• Unemployment Insurance (Total) = 3% of Gross Salary

V- Income Tax:

Income tax is imposed by the government on financial income generated by businesses and individuals. In the case of employees, income is defined as wages earned (gross salary). Therefore, employers need to deduct income tax from the remainder of the gross salary after the employee contribution of social security premiums and unemployment insurance are deducted (since these are exempt from income tax), and to pay the amount to the tax office on behalf of the employee no later than the 20th of following month. The payment period can be reduced to quarterly periods, allowing employers to make payments every 3 months provided that the employer has 10 employees or less.

• Income Tax Base = Gross Salary - Social Security Premium (Employee Contribution) - Unemployment Insurance (Employee Contribution)

According to the tax table of the Revenue Administration, the income tax rates vary in respect to the cumulative salary brackets. Hereunder, income tax is applied at the rate of 15% for cumulative salaries up to 11.000 TL.

As the cumulative salary enters into next bracket, the standard tax rate is applied for the upper limit of the previous income bracket and a different tax rate is applied for the exceeding part of salary. The highest applicable income tax rate is 35%.

• Income Tax = Income Tax Base Amount * Income Tax Rate (%) VI- Stamp Tax:

Stamp tax, calculated at the rate of 0,759%, is deducted from employee's gross salary. Stamp tax payments along with a declaration can be made at the same time as income tax payments, subject to the same deadlines.

• Stamp Tax = Gross Salary * Stamp Tax Rate (0,759 %)

Application Of Administrative Fines Reduction In The Late Submission Of New Hire And Termination Declaration

Regarding to Article 102 of Law No. 5510, if the new hire declaration of the insurance holder subject to sub-clause (a) of the first paragraph of Article 4 of Law No. 5510 are not submitted within the legal period, an administrative fine shall be applied at the rate of one minimum wage per insurance holder.

In the event that the new hire declaration is given automatically within 30 days after the expiry of the legal period, and the aforementioned penalty is paid within 15 days from the date of the declaration to be made by the concerned parties, the penalty is applied over the amount corresponding to one fourth.

The circular called "Declaration with regard to non-working days entry" numbered 2013-19 has been published on 6 April 2013 by Social Security Institution. Please find below the Social Security Institution's announcement regarding to regulation of employees' recovery reports:

1-Be effective as of 02.03.2013; if employees' recovery reason is shown as 01- Recovery in Monthly Premium and Service Document, this declaration will replace the declaration of non- working days during the recovery period. On the other hand, if the recovery reports are recorded on the old-system, there won't be needed to an additional notification.

Capital Decrease According To The New Turkish Commercial Code

In the new Turkish Commercial Code, the decrease of the capital is stipulated in Articles 473, 474 and 475. In the former version of Turkish Commercial Code, capital decrease was included in Articles 396, 397 and 398. Between the new provisions and the old ones, there is a statement that the reasoning of the new articles is identical to the old article with minor changes in wording.

Regarding the decrease of the capital, the law does not decide to decrease the capital unless the presence of the amount of active in the company that will fully meet the rights of the creditors of the company is determined by the law. The most important change seen here is that the old law requires a 3-person expert report to be appointed by the court to fulfill this provision, while the new law requires the report of the Transaction Auditor.