Anasayfa
Intern
Uluslararası
İrtibat
Tarih: 31.03.2021
Pursuant to Article 30 of the Corporate Tax Code, those who provide the earnings and revenues determined in the same Article to the non-resident taxpayers have been obliged to withhold corporation tax on such earnings and revenues. The earnings subject to corporate tax withholding (WTH) and the withholding rates are determined in the same article.
The earnings and proceedings, which are subject to WTH include the followings:
In this text, general information on corporate tax withholding liability has been explained.
Turkish residents are subject to income tax on their worldwide income. An individual whose domicile is in Turkey or any person who remains in Turkey more than six months in one calendar year is deemed to be a resident of Turkey.
Companies whose legal or business headquarters are located in Turkey are subject to corporate tax on their worldwide income; described as full liability taxpayers in the legislation. Limited liability taxpayers whose legal and business headquarters are not located in Turkey are taxed on their income derived in Turkey.
The basic principles regarding WTH liability can be summarized as follows:
1. Before determining the WTH liability, the true nature of the payments (as per Tax Treaties and as per local legislation respectively) made to non-residents should be clearly identified.
For that purpose, the agreements regarding the payments should include clear description of the scope of the work.
2. According to the nature of the payments; the taxation principles (whether the payment is subject to WTH, if yes the WTH rate) as per the local legislation should be identified.
For example, while commercial income is not subject to WTH as per local legislation, independent professional service income is subject to WTH at a rate of 20%.
3. If the payment is not subject to WTH as per the local legislation, there is no need to calculate any WTH.
Resident companies in Turkey are obliged to apply withholding tax upon certain types of payments made to non-residents.
(*) Withholding tax will not be applied to principal, interest and dividend payments for the borrowings obtained from foreign financial institutions and also insurance and reinsurance payments.
These rates might be reduced under an applicable Double Tax Treaty (DTT).
Depending on the agreement with the service provider, it is possible to pay the invoice amount after deducting the corporate withholding tax liability. In such cases, the tax base will be the invoice amount and the net payment will be the invoice amount minus WTH.
If contrary is agreed, the withholding tax base should be calculated by grossing up the net payment amount by considering the effective withholding tax rate, and therefore the cost for the Turkish entity will rise by the WTH amount.
The parties are free to choose any of above options by considering who undertakes the WTH burden. However, in order to prevent any confusion, it is advisable to set aprovision which clearly states the responsible party for the WTH burden, in the agreement.
The gross method covers the invoicing with gross amount, which means that the amount includes the withholding tax (WTHT). The invoice recipient pays the net amount to the invoice issuer and the WTHT to the Turkish Tax Authority. For example:
Invoice Amount = WTHT base : 1.000.000 Euro
WTHT Rate : 10 %
WTH Tax : 100.000 Euro
Net Invoice Amount
(Payment to Non - Resident Company) : 900.000 Euro
If the invoice amount is accepted as gross, it is possible that the WTHT over gross amount of invoice can be refunded by non-resident company, so that the WTHT paid/calculated in Turkey is no additional cost for both parties.
The net method covers the invoicing with net amount, which means that the WTHT amount must be calculated separately. The invoice recipient pays the invoice amount to the invoice issuer and the separately calculated WTHT to the Turkish Tax Authority. For example:
(Payment to Non - Resident Company) : 1.000.000 Euro
WTH Tax : 111.111 Euro
Gross Amount incl. WTH Tax : 1.111.111 Euro
If the invoice amount is accepted as net, it is not possible to refund the WTHT by non-resident company, so that the WTHT paid/calculated in Turkey is an additional cost for resident company.
According to the Article 35 of the Corporate Tax Code, the provisions of the international agreements are reserved. In other words, if a Double Tax Treaty (DTT) has been concluded between Turkey and the country in which the limited taxpayer firm is resident, the provisions of the double tax treaties should firstly be applied in the taxation of the limited taxpayers.
If the payment is subject WTH as per the local legislation, the following steps should be followed:
a. Determine whether there is an effective Double Tax Treaty (DTT) between Turkey and the country in which the limited taxpayer firm is resident.
The table demonstrating the double tax treaties concluded by Turkey with other countries and still in effect and the dates when these treaties started to be applied as well as the Turkish texts of the treaties are provided on the website www.gib.gov.tr of the Revenue Administration.
b. If there is an effective DTT, apply taxation principles of the DTT stated in the related article. If not, apply taxation as per local legislation.
c. Obtain Certificate of Residency (CoR) if any advantageous provisions of a DTT are applicable.
Since provisions of double tax treaties are applied to those resident in countries which are parties to the treaties, those who want to benefit from the treaties must obtain residency certificates from the authorized offices of the country where they are resident.
Residency is regulated in the article 4 of the Double Tax Treaties and the cases where real or legal persons will be considered to be resident in a country are explained in detail in the same article.
A CoR should
It is also required to obtain Turkish translation of the CoR approved by public notary or Turkish consulate in the country in which the service provider is resident together with the original copy of the CoR.
If requested, CoR should be submitted to the relevant Tax Authority in Turkey.
With the recent regulations, it is observed that the financial administration has a tendency to tax. Therefore, each transaction should be evaluated carefully within the scope of the DTTs.
The true nature of the transactions made with non-residents should be clearly identified and the agreements regarding the payments should include clear description of the scope of the work.
The basic principles regarding WTH liability should be determined clearly. If there is an effective DTT, the articles of DTTs should be well analyzed.
Explanations in this article reflect the writer's personal view on the matter. Rödl &Partner disclaim any responsibility in respect of the information and explanations in the article. Please be advised to first receive professional assistance from the related experts before initiating an application regarding a specific matter, since the legislation is changed frequently and is open to different interpretations.
