Some arrangements have been made for the taxation of the income earned from abroad by foreign citizens who are in Turkey through any legal means. In this direction, more than one tax will not be paid on the same tax. In this regard, certain conditions must be met.
You can find comprehensive information about the taxation of income earned abroad in Turkey from the continuation of this article prepared by our expert lawyers.
What is Double Taxation?
Double taxation is generally a situation where more than one tax is levied on a single tax subject. In terms of Turkish law, the rule on taxation is to levy only one tax on a single subject.
Double taxation is defined in the Tax Procedure Law as ‘the demand or levy of tax more than once on the same tax base for a certain taxation period in the application of the same tax law’.
On the other hand, there may be cases where the same phenomenon is taxed on different subjects. However, as mentioned, this situation is not based on the same subject. Central and local governments may levy different taxes on the same activity.
Along with all these, agreements are made between countries in order to prevent double taxation and in line with this situation, the taxpayer pays only one tax on the same subject.
Is Income Earned in a Foreign Country Taxed in Turkey?
Turkey has made a number of arrangements and agreements with other countries in order to prevent double taxation on income taxes. Turkey has signed double taxation avoidance agreements with 60 countries. 49 of these agreements have entered into force. In this respect, the countries with which Turkey has signed and put into force double taxation avoidance agreements are as follows:
- United States of America (USA)
- Germany
- Albania
- Austria
- Azerbaijan
- Belarus
- Belgium
- United Arab Emirates
- Bulgaria
- Algeria
- People’s Republic of China
- Denmark
- Indonesia
- Finland
- France
- South Korea
- Croatia
- India
- Netherlands
- England
- Israel
- Sweden
- Italy
- Japan
- Kazakhstan
- Kyrgyzstan
- Kuwait
- Turkish Republic of Northern Cyprus (TRNC)
- Lithuania
- Hungary
- Macedonia
- Malaysia
- Egypt
- Mongolia
- Moldova
- Norway
- Uzbekistan
- Pakistan
- Poland
- Romania
- Russian Federation
- Singapore
- Slovakia
- Saudi Arabia
- Tajikistan
- Tunisia
- Turkmenistan
- Ukraine
- Jordan
Income derived in these countries will be taxed in only one country in accordance with the principles underlying double taxation treaties.
Double Taxation Treaties
Three principles are taken into consideration in double taxation avoidance agreements. These are: Residence principle, source principle and nationality principle.
A- Taxation of Income Earned in a Country Different from the Country of Residence (Residence Principle)
The issue of taxation of the income earned by individuals through their activities outside their country of residence poses a question mark for many people. For example, how will the income of a person residing in Turkey from the activities in Germany be taxed?
In accordance with the ‘residence principle’, which is based on the double taxation agreements signed by Turkey with many states, the income obtained as a result of the activities carried out in the treaty countries will be taxed only in the country where the person resides.
B- Taxation of Income from Different Countries in the Country of Activity (Source Principle)
In double taxation agreements to be realised in line with this principle, taxation is applied in the country where the person earns the income. This principle is not frequently preferred in treaties.
C- Payment of Tax on Income Earned in a Foreign Country to the Country of Nationality (Nationality Principle)
In accordance with this principle, the income earned by individuals in treaty countries should be taxed in the country to which they are bound by citizenship.
Which of these double taxation principles does Turkey accept?
Taxation of Income Earned in Different Countries in Turkey
Turkey adopts the principle of residence and nationality in the double taxation treaties it has signed. This is stated in Article 3 of the Income Tax Law as follows
‘Thefollowing real persons shall be taxed on all income and profits derived in and outside Turkey:
- Those residing in Turkey;
- Turkish citizens who are affiliated to official departments and institutions or organisations and undertakings headquartered in Turkey and reside in foreign countries due to the affairs of the said departments, institutions, organisations and undertakings“
Accordingly, Turkish and foreign citizens residing in Turkey and Turkish citizens residing abroad as affiliated to companies/institutions headquartered in Turkey will be taxed in Turkey on the income they derive from different countries.
On the other hand, if the income earned by Turkish citizens who are affiliated to an enterprise headquartered in Turkey in a foreign state is taxed in the state where they are located, it will not be taxed again in Turkey.
Taxation of Foreigners in Turkey
As mentioned above, foreigners residing in Turkey will be taxed in Turkey on their income from different countries in accordance with the Income Tax Law.
At this point, it is also extremely important to make a legal assessment of the agreements between the country of income, the country of citizenship and Turkey with the support of a specialist lawyer.
Which Income Elements Are Not Taxed in Two Different Countries?
Double taxation agreements are only valid for some income elements. Accordingly, income earned in the above-mentioned treaty countries will be subject to double taxation if it is earned in the following areas:
- Income from property owned
- Earnings from commercial activities
- Interest income
- Capital appreciation gains
- Fee income
- Company-related income of the members of the Board of Directors of the Company
- Income of artists and athletes
- Pension income of private sector employees
Some of the income areas subject to double taxation agreements are given above. However, taxation practices in the areas determined in line with the double taxation agreements concluded with the country where the income is obtained will be determined by these agreements.
Why Us?
The taxation in Turkey of income earned in different countries in certain areas is regulated by some special agreements. Accordingly, if there is a double taxation agreement with the country where the income is obtained, different taxation practices can be carried out in this direction.
As Güneş & Güneş Law Office, you can contact us to provide you with the professional support you need for the taxation of your income from different countries with our expert team of lawyers who speak and serve in 4 languages (Turkish, English, Russian and German).
Frequently Asked Questions
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Should people who receive income from their country of citizenship pay tax in Turkey?
Turkey adopts the principle of ‘paying tax in the country of residence’ in its relevant laws on taxation. On the other hand, Turkey is also a country that prevents double taxation agreements and double taxation agreements. Therefore, if no taxation has been applied according to the source country of the income earned and the subject of the income, the persons residing in Turkey will pay tax only in Turkey. This situation may vary with the relevant agreements.
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In which country do Turkish citizens pay the tax on the income they earn from a different country?
If Turkish citizens have not paid the tax on the income they have earned in the country where they earned it, they will pay the tax in Turkey as a lump sum. This situation is determined according to the double taxation agreements.
As Güneş & Güneş Law Office, we provide professional support in such complex tax processes with our lawyers specialised in tax law and international legal processes. In order to protect the rights of our clients at the highest level, we provide legal consultancy and defence services in processes such as taxation and double taxation. With more than 25 years of experience and our expert staff, we stand by our clients in national and international criminal cases.
