Double Tax Treaty Regulations In Turkey

Double Tax Treaty Regulations in Turkey : A Comprehensive Guide - 2024

Turkey has an extensive network of Double Tax Treaties (DTTs) aimed at preventing double taxation and fiscal evasion for businesses and individuals operating across borders. These agreements are designed to prevent the same income from being taxed twice in the relevant countries and to promote international trade and investment

This article will provide you with comprehensive guidance covering the definition, key features, dispute resolution methods, Turkey's stance on double taxation, and more.

Table of Contents

What is Double Taxation?

Double taxation occurs when the same income is taxed by two or more jurisdictions, leading to an excessive tax burden for businesses and individuals. Turkey addresses this issue through its network of Double Taxation Treaties (DTTs) and domestic tax regulations, ensuring that income is not unfairly taxed multiple times.

Double Tax Treaty Regulations in Turkey

Purpose of Double Tax Treaties

Elimination of Double Taxation: DTTs ensure that income generated in one country is not taxed again when it is repatriated to the taxpayer's home country.
Taxation Rules: These treaties outline specific rules on how different types of income—such as dividends, interest, royalties, and capital gains—are taxed between the signatory countries.
Prevention of Tax Evasion: DTTs also include provisions to prevent tax evasion by facilitating the exchange of information between tax authorities in different countries.

Key Features of Double Tax Treaties

Purpose of Double Tax Treaties: Elimination of Double Taxation: DTTs ensure that income generated in one country is not taxed again when it is repatriated to the taxpayer's home country.
Residence & Source-Based Taxation: DTTs usually follow the OECD model, where income is taxed based on the taxpayer's country of residence and the source of the income.
Source Country Based Taxation : The DTTs focus on the taxation of income in the source country.
Taxation Rules: These treaties outline specific rules on how different types of income—such as dividends, interest, royalties, and capital gains—are taxed between the signatory countries.
Prevention of Tax Evasion: DTTs also include provisions to prevent tax evasion by facilitating the exchange of information between tax authorities in different countries.
Dispute Resolution: Many treaties include mechanisms for resolving disputes between tax authorities of the two countries involved.

Turkey's Double Tax Treaty Network

Extensive Network: Turkey has signed DTTs with over 80 countries, including major trading partners like the United States, Germany, the United Kingdom, France, China, and Russia.
Extended Scope: DTTsgenerally focus on income and wealth taxes. In this context, Turkey seeks to prevent double taxation on the following types of income and wealth taxes:
- Real Estate income
- Commercial income
- International transportation income
- Dividend income
- Interest income
- Royalties
- Capital appreciation gains
- Incomes of freelancer
- Salaries
- Company board members' income
- Artists' and athletes' income
Recent Developments: Turkey continues to expand its DTT network, regularly updating existing agreements and negotiating new ones to reflect changes in international tax practices.

Benefits of Tax Treaties for Businesses and Investors

Reduced Tax Burden: By avoiding double taxation, businesses and investors can optimize their tax liabilities, making cross-border operations more cost-effective.
Legal Certainty: DTTs provide legal clarity and predictability, helping companies plan their international operations with greater confidence.
Enhanced Competitiveness: Lower withholding tax rates and the elimination of double taxation enhance the competitiveness of Turkish companies in the global market.

What is the Dividend Tax Rate in Turkey?

Branches in Turkey, considered non-resident entities for tax purposes, are taxed only on income generated within Turkey. Branch profits are subject to a 25% Corporation Income Tax rate. Additionally, when profits are transferred to the headquarters (upstream income repatriation), they are subject to a 10% dividend withholding tax (WHT).

This rate may be reduced under a bilateral tax treaty between Turkey and the headquarters' country of residence for income tax purposes.

Tax Residency Criteria in Turkey by Double Tax Treaty Regulations

Tax residency is a key aspect of Turkey's double tax treaties, as it helps determine the fiscal domicile of individuals and companies. Understanding tax residency is crucial for establishing where a person or business is subject to taxation under these agreements.

Here are those criteria:

Companies: For businesses, the concept of a permanent establishment is used to determine tax residency under Turkey's double tax treaties.
Individuals: Under Turkish law, an individual is considered a local tax resident if they spend at least 183 days in Turkey within a calendar year. For companies, tax residency is determined by the location of their registered seat.
- Individuals with Homes in Multiple Countries: If an individual has homes in two different countries, their permanent residence, and thus tax residency, is considered to be in the country where they have closer economic ties.
- Undetermined Residence: If a person's place of residence cannot be clearly established based on the above, tax residency will be assigned to the country where they currently live.
- Nationality: If the above criteria do not apply, nationality can be used to determine tax residency.
- Mutual Agreements: When none of the criteria suffice, the countries involved in the double tax treaty may establish tax residency through mutual agreements.
- Companies: For businesses, the concept of a permanent establishment is used to determine tax residency under Turkey's double tax treaties.

These regulations ensure that tax residency is clearly defined, preventing double taxation and facilitating smooth cross-border operations.

FAQs About Bilateral Tax Treaties with Turkey

What is the double tax treaty between France and Turkey?

According to the agreement: If a resident of France earns income that, under the provisions of this Convention, is taxable in both Turkey and France, France will grant a reduction in that resident's income tax equal to the amount of income tax paid in Turkey.

Is there a double tax treaty between Spain and Turkey?

Yes there is: If a resident of Spain earns income that, according to the provisions of this Agreement, is taxable in Turkey, Spain shall allow a deduction from the tax on that resident's income equal to the amount of tax paid in Turkey.

Is there a tax treaty between Germany and Turkey?

Yes there is: On 1 Aug. 2012, a new agreement between the Germany and the Turkey for the Avoidance of Double Taxation and Tax Evasion concerning income taxes was enacted, with retroactive effect from 1 January 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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