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 the other signatory countries benefit from reduced tax rates. Below, our agents for setting up a company in Turkey offer general information on the country’s double taxation conventions.
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. 15%, 10%, and 20% are the regular withholding tax rates imposed on interests, dividends, and royalties paid to non-resident companies in Turkey. Lower rates are provided with the help of the double tax treaties signed by Turkey with countries worldwide. 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 other countries;
- 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.
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 still 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.
How are foreign branches taxed in Turkey?
Branches of foreign companies are seen as non-resident entities in Turkey. Thus, the profits of branches are taxed with 25% as corporate income tax. As for the transfer of profits or income repatriation, the withholding tax on dividends is 10%. In this last case, the rate can be lower, if Turkey has signed a double taxation agreement with the country where the branch of the foreign company in question originates.
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 Turkish laws, a local tax resident is considered a person who lives at least 183 days in a country, while in the case of a company, tax residency is established in the country where the business has its registered seat. Under the double tax treaties signed by Turkey, however, the following regulations apply in the case of individuals and companies:
- 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;
- for individuals whose place of residence cannot be determined as above, the tax residency will be established in the current country they live;
- nationality is another way of establishing a person’s tax residency, where none of the two criteria above apply;
- where none of the criteria above apply, the states singing the double tax treaties will have to create mutual agreements;
- 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 inform them of the rights, and obligations they have under Turkey’s double tax conventions.
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.
Special provisions apply to foreign companies exploiting mineral resources in Turkey and other states. Such activities must be completed only through permanent establishments. Also, special provisions apply to construction sites that must be established in Turkey for no less than 6 months to be deemed permanent establishments.
We invite you to watch the video below for information on Turkey’s double taxation agreements:
Special provisions in Turkey’s double tax agreements
All double tax treaties signed by Turkey contain specific provisions related to:
- 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 immovable property under Turkey’s double tax treaties
One of the most important aspects covered by all double tax treaties signed by Turkey relates 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 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.
About the taxes in Turkey
The corporate income tax is the main tax in Turkey. This is set at a 25% rate and imposed on taxable business profits. The exception in this case are finance companies that are taxed with 30% rates. Here is other information about the taxes paid in Turkey:
- Companies that offer at least 20% of their shares through the first initial public offering (IPO) can benefit from a 2% lower corporate income tax for 5 years.
- Royalty income resulting from a company in Turkey is subject to the normal corporate income tax.
- The VAT in Turkey is 20% rate. Lower rates apply to specific products and services.
- There is no VAT for export transactions in Turkey.
- The banking and insurance transactions tax (BITT) in Turkey is a 5% rate imposed on the profits of such corporations from their transactions. Exceptions may apply.
- A 25% exemption applies to capital gains resulting from the sale of immovable property in Turkey if held for at least 2 years and purchased before 15 July 2023.
- Special consumption tax is imposed on luxury goods, tobacco products, vehicles, petroleum products, etc.
- Stamp tax in Turkey is charged as a percentage of the value stated in the treaties. The rates vary between 0.189% and 0.948%.
- Social security is set at 34.5% of the employee’s salary. 14% is paid by the employee while the rest of 20.5% concerns the employer.
- Unemployment contribution in Turkey is 3% of the salary. 1% for the employee and 2% for the company. And speaking about business, you might be interested in company incorporation in Turkey and the ways in which our experts can help you register for tax payments in this country.
Investors interested in setting up companies in Turkey and other European countries, such as Spain, Sweden, or Ukraine, may contact our local agents and lawyers. You can also ask for the services of our accountants in Turkey, among which payroll in Turkey is the most important. Please contact us if you want to open a company in Turkey.