What is Double Taxation? – Simple and Legal Explanation

Introduction

In today’s globalized world, people work abroad, companies invest in different countries, and individuals earn rental or investment income overseas.
This is where the concept of double taxation comes into play:
Being taxed on the same income by two different countries.

In this article, we will explain what double taxation is, why it occurs, and how it can be avoided – in a way that is both simple for everyone to understand and grounded in legal principles.

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1. What is Double Taxation?

Double taxation occurs when the same income is taxed by both the country where it is earned (source country) and the country where the person resides (residence country).

Example:

• Ahmet, a Turkish resident, owns an apartment in Germany and earns rental income from it.
• Germany taxes this rental income (source country tax).
• Turkey also requires Ahmet to declare this foreign income (residence country tax).
  Result: Ahmet ends up paying tax on the same income in both Germany and Turkey.

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2. Why Does It Happen?

Double taxation usually occurs for two main reasons:

1. Residence-based taxation:
   The country of residence taxes the person’s worldwide income.
   (Turkey applies a “full taxpayer” system)
2. Source-based taxation:
   The country where the income is earned taxes that income within its borders.

When these two systems overlap, a double tax burden arises.

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3. Double Taxation Avoidance Agreements (DTAAs)

The heavy burden of double taxation can be reduced or eliminated through Double Taxation Avoidance Agreements between countries.

Turkey has signed agreements with more than 80 countries, including the USA, Germany, the Netherlands, the UK, and France.

These agreements use two main methods:

• Exemption method: Income is taxed only in the source country and not in the residence country.
• Tax credit method: Income is taxed in both countries, but the residence country deducts the tax paid in the source country from its own tax.

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4. Legal Basis

• Turkish Income Tax Law (Articles 123 and following)
• Tax Procedure Law
• DTAAs signed by Turkey
• OECD Model Tax Convention

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5. What Does This Mean for Citizens?

• If you work abroad or earn rental/investment income overseas, this income can be taxed in both Turkey and the foreign country.
• If Turkey has a DTAA with that country, you won’t pay double tax – you’ll only pay the higher difference, if any.
• Always keep official proof of any taxes paid abroad when filing your Turkish tax return.

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6. Conclusion and Recommendations

Double taxation is a common issue for anyone engaged in global trade, investment, or cross-border work.
If you earn income from more than one country:

• Check if Turkey has signed a DTAA with that country.
• Consult a tax advisor or lawyer.
• Keep all documents proving the tax paid abroad.

With the right knowledge and documentation, you can avoid the burden of paying tax twice on the same income.

Conclusion

Double taxation can significantly impact individuals and businesses engaged in cross-border activities. Understanding how it works and knowing your rights under Double Taxation Avoidance Agreements (DTAAs) is essential to protect your income from unnecessary tax burdens.
By seeking professional legal and tax advice, keeping proper documentation, and ensuring compliance with both domestic and international regulations, you can lawfully minimize or completely avoid paying tax twice on the same income.