Double Tax Treaties in Turkey

Turkey has a broad double tax treaty network that allows for the avoidance of double taxation. Individuals and companies that produce income both in Turkey and in the other signatory country benefit from reduced tax rates and withholding taxes. 

The usual corporate tax on profits is 20% in Turkey. A Turkish company with non-resident shareholders (corporate bodies or individuals) must pay taxes in Turkey and in the country of residence of the shareholders.

Below, our company formation agents in Turkey offer general information on the country’s double taxation conventions. We also have a team of specialists in the accounting filed who can help foreign investors doing business in Turkey to understand their benefits in relation to the double tax treaties signed by Turkey and their home countries.

Taxes covered by Turkey’s double tax agreements

The taxes covered by the Turkish double tax agreements are usually particularized for each country, as each state has its own levies. Generally speaking, Turkish double tax treaties cover the following taxes:

• -       the personal income tax imposed on the citizens of the signatory states;
• -       the corporate income tax applied to companies in Turkey and the other country;
• -       the tax imposed on various types of incomes, such as dividend and interest payments;
• -       taxes covering incomes arising in the country where an individual resides for a limited period of time.

Most Turkish double taxation treaties also cover international transportation by sea and air which are usually exempt from taxation.

Double tax treaties signed by Turkey

To prevent double taxation, and in order to attract foreign investment, Turkey has concluded many treaties for the avoidance of double taxation with: Albania, Algeria, Australia, Azerbaijan, Austria, Bahrain, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Japan, Jordan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Moldova, Mongolia, Montenegro, Morocco, the Netherlands, New Zealand, Northern Cyprus, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, Singapore, Slovakia, Slovenia, Spain, Sudan, Syria, Sweden, Tajikistan, Thailand, Tunisia, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom, the United States of America, Uzbekistan and Yemen.

Draft agreements are in still in pending and are waiting to be ratified by the Turkish government. Our company registration agents in Turkey can give you detailed information about the existing treaties and the ones that will be included in the tax treaty network.

Tax residency according to Turkey’s double tax treaties

One of the most important aspects covered by Turkey’s double tax agreements refers to the residence of the taxpayers. The importance of tax residency arises when establishing the fiscal domicile of a person or company covered by such an agreement.

According to the Turkish laws, a local tax resident is considered a person who lives at least 183 days in a country, while in the case of company, tax residency is established on the country the business has its registered seat in. Under the double tax treaties signed by Turkey, however, the following regulations apply in the case of individuals and companies:

1. for individuals having homes in two different states, the permanent residence will be deemed to be the one to which the persons have closer economic relations in;
2. for individuals whose place of residence cannot be determined as above, the tax residency will be established in the current country they live;
3. nationality in another way of establishing a person’s tax residency, where none of the two criteria above apply;
4. where none of the criteria above apply, the states singing the double tax treaties will have create mutual agreements;
5. in the case of companies, the permanent establishment status applies when it comes to determining the fiscal and tax residency of a business.

Our Turkish company formation specialists can help foreign investors set up businesses here and can inform them on the rights and obligations they have under Turkey’s double tax conventions. We can also help you if you need accounting in Turkey or you want to open a company in a free zone in Turkey. 

Permanent establishments under Turkey’s double tax treaty

As mentioned above, the permanent establishment is one way of determining the tax residency and the way in which a foreign company operating in Turkey will be taxed under an agreement for the avoidance of double taxation.

All Turkish double tax treaties contain provisions about permanent establishments which are considered a fixed place of business and which can be registered under one of the following forms:

• - a management seat or place of management;
• - an office;
• - a branch office;
• - a factory,
• - a mine, oil and gas well;
• - a workshop;
• - a quarry;
• - a place where natural resources are extracted from;
• - a building or a construction site;
• - an installation project.

Special provisions apply to foreign companies exploiting mineral resources in Turkey and the other state. Such activities must be completed only through permanent establishments. Also, special provisions apply to construction sites which must be established in Turkey for no less than 6 months in order to be deemed as permanent establishments.

We remind investors that each Turkish double tax agreement is subject to particular provisions in certain situations.

The provisions of the double tax treaties

According to these double tax treaties, the income and the capital are exempt from taxation if the company is paying the same taxes in the treaty country. If the regulations of the double tax treaties are not followed, the company may claim the refund of the paid taxes. This is possible only after providing evidence that the taxes were already paid in the treaty country.

The double tax avoidance treaties also allow for reduced withholding taxes on dividends, interest, and royalties for the signatory states. The usual dividend tax in Turkey is 15% but under an applicable treaty, it can be 10% or 5%. An eligibility criterion applies: the 5% rate applies when the dividend payment is made to a company that owns at least 25% of the company making the payment. If this is not the case, then the usual 15% rate applies.

The taxes for which the double tax treaties apply in Turkey include the income tax, the capital tax and any other taxes that may be levied in place of or in addition to these two after the double tax treaty was signed. These bilateral agreements apply to residents of one or both contracting states.

More recent treaties, elaborated after the OECD model, also stipulate that the treaty countries must provide lists of taxpayers or any information that could lead to the avoidance of tax fraud.

Special protocols are concluded every year with offshore jurisdiction with the same purpose of avoiding tax evasion. 

You can benefit from personalized offers regarding payroll in Turkey. This type of service is among the most important, along with bookkeeping and preparation of annual financial statements. With the help of these services, salaries can be distributed appropriately, after calculating taxes. We also mention that certain programs are used by accountants, with the help of which salaries are calculated in a company.

Special provisions in Turkey’s double tax agreements

All double tax treaties signed by Turkey contain specific provisions related to:

• -       permanent establishments which operate in the other signatory country and which can take the forms of branch or management offices;
• -       the status of associated enterprises which are taxed on the business profits earned in the country where they are established;
• -       the taxation of immovable property held by an individual or a company in the other contracting country;
• -       how the avoidance of double taxation occurs – the main methods are tax exemptions and tax credits.

Taxation of business income under Turkish double tax agreements

The profits earned by a company in Turkey will be taxed only here, however, foreign companies will be taxed on the income derived in Turkey, under a double tax convention. Also, permanent establishments of a foreign company will be taxed only in Turkey, while Turkish companies with permanent establishments in other countries will be taxed there only through their establishments.

Our company formation agents in Turkey can offer more information on the taxation of foreign companies here.

Taxation of immovable property under Turkey’s double tax treaties

One of the most important aspects covered by all double tax treaties signed by Turkey relate to immovable property which can take the form of real estate (in most cases), but also forests and land plots exploited for agricultural purposes.

The term of immovable property will be deemed for taxation under the laws of the country where it is located, which is why special provisions apply when it comes to its taxation under double tax conventions.

Under Turkey’s treaties for the avoidance of double taxation and under the Turkish laws, the taxation of income derived from immovable property will arise from its direct use and letting.

Avoidance of double taxation in Turkey

The main ways of avoiding double taxation in Turkey is by offering a tax credit against the tax paid in the other contracting state or through a tax relief. It is important to know that method for avoiding the double taxation of an income depends on the type of income. Tax exemptions are also available under most of Turkey’s double taxation conventions, especially in the case of individuals.

Investors interested in setting up companies in Turkey and in other European countries, such as Spain, Sweden or Ukraine, may contact our local agents and lawyers. Please contact us if you want to open a company in Turkey.