Tax Liability in Turkey: Full vs. Limited (Resident vs. Non-Resident) and Double Taxation, Explained for Individuals and Companies

yazarı lawyerfbc

açık Kasım 10, 2025

Executive Summary

Full taxpayers (residents) are taxed in Turkey on worldwide income; limited taxpayers (non-residents) are taxed only on Turkish-source income.
Residency for individuals looks to habitual residence and the >6-month presence rule (with temporary stay exceptions).
Corporate residence hinges on a company’s legal seat and/or place of effective management in Turkey; non-resident entities become taxable on Turkish-source business profits, often via permanent establishment (PE).
Double taxation is mitigated by treaties (OECD Model–aligned) and domestic foreign tax credit rules; the MLI affects treaty interpretation (e.g., PPT anti-abuse and updated tie-breaker for entities).
Cross-border payments (dividends, interest, royalties, certain services) may face withholding tax, often reduced by treaty with certificate of residence.
Correct registration, documentation, and filings (withholding returns, annual returns, VAT, payroll, e-invoicing/e-ledger where applicable) are essential to avoid penalties.

Key Legal Sources & Concepts
Individual Tax Residence & Full vs. Limited Taxpayer Status
What Is Turkish-Source Income?
Permanent Establishment (PE) & Business Profits
Corporate Residence: Legal Seat vs. Effective Management
Withholding Tax on Cross-Border Payments
Double Taxation: How It Arises & How to Eliminate It
Treaty Mechanics: Tie-Breakers, 183-Day Rule, and Special Articles
MLI (Multilateral Instrument) Impacts
Common Scenarios & Case Studies
Registration, Documentation & Compliance Roadmap
Risk Areas: Audits, Anti-Avoidance, TP & Thin Cap
Actionable Checklists
Frequently Asked Questions
Glossary

Key Legal Sources & Concepts

Income Tax Law (Gelir Vergisi Kanunu – “GVK”, Law No. 193): lays down the rules for individuals, including full vs. limited taxpayer status and the residency framework.
Corporate Tax Law (Kurumlar Vergisi Kanunu – “KVK”, Law No. 5520): governs companies, including residence, tax base, and interaction with withholding and treaties.
Tax Procedure Law (Vergi Usul Kanunu – “VUK”, Law No. 213): procedural rules, documentation standards, penalties, statute of limitations, e-books/e-invoices.
Double Tax Treaties (DTAs): Turkey has an extensive network of bilateral treaties largely aligned with the OECD Model Convention.
OECD MTC & MLI: interpretive backbone and anti-abuse modernization via the Multilateral Instrument.
Resident vs. Non-Resident (often phrased in Turkish practice as tam mükellefiyet vs. dar mükellefiyet) determines whether a person or entity is taxed on worldwide vs. Turkish-source income.

Individual Tax Residence & Full vs. Limited Taxpayer Status

1) The Core Rule

Full taxpayers (residents): taxed on worldwide income.
Limited taxpayers (non-residents): taxed only on income derived from Turkish sources.

2) Determining Residence for Individuals

Key factors commonly considered under Turkish law and practice:

Habitual abode / center of life in Turkey: Where do you live as a matter of fact? Housing lease/ownership, family location, personal belongings, bank accounts, social ties.
Presence test (>6 months): An individual who is present in Turkey for more than six months within a calendar year is generally considered resident.
Temporary stay exceptions: Long stay does not automatically create residence when the presence is clearly temporary (e.g., students, patients, tourists, or detention). Documentary proof of purpose and temporariness is vital.
Treaty tie-breakers: If a person appears resident in two countries, DTAs use tie-breaker criteria:
1. Permanent home;
2. Center of vital interests;
3. Habitual abode;
4. Nationality;
5. Mutual agreement by authorities if still unresolved.

3) Typical Individual Income Categories (GVK Framework)

Business (commercial) profits
Agricultural income
Professional/self-employment income
Employment income (wages/salaries)
Income from immovable property (rental)
Income from movable property (dividends, interest, royalties)
Other income (capital gains, etc.)

Residents declare worldwide income subject to domestic exemptions, allowances, and progressive rates. Non-residents declare only Turkish-source amounts—often collected via withholding at source, or via return filings if required (e.g., business profits via a PE).

Corporate Residence: Legal Seat vs. Effective Management

1) Dual Tests in Practice

A company is typically resident in Turkey if either:

Its legal seat (registered office) is in Turkey; or
Its place of effective management (central management and control of day-to-day strategic decisions) is in Turkey.

Resident companies pay corporate income tax on worldwide profits. Non-resident companies pay corporate income tax only on Turkish-source profits, often channelled through a permanent establishment (branch, site, office, dependent agent, etc.) or via withholding on passive income.

2) Branch vs. Subsidiary

Branch: Non-resident remains the same legal entity; taxable on branch profits in Turkey; profit repatriation may trigger branch remittance tax depending on rules.
Subsidiary: Separate Turkish resident company taxed on worldwide income; dividends repatriated to the foreign parent may face withholding, typically reduced by treaty.

What Is Turkish-Source Income?

Below is a practical mapping (not exhaustive). Always confirm the exact source rule and treaty article:

Income Type	Turkish-Source Indicators (Illustrative)
Employment Income	Employment exercised in Turkey; wage cost borne by a Turkish employer or PE; days worked physically in Turkey.
Self-Employment / Professional	Services performed in Turkey; presence of a fixed base (e.g., office) or PE under treaty rules.
Business Profits	Profits attributable to a PE in Turkey (fixed place of business or dependent agent) or situs of activity in Turkey.
Immovable Property Income	Rent from Turkish real estate is Turkish-source by nature (lex rei sitae).
Dividends	Dividends paid by Turkish companies; withholding may apply and can be reduced by treaty.
Interest	Interest paid by Turkish residents or relating to funds used in Turkey; withholding typically applies subject to instrument type and treaty.
Royalties	Considered Turkish-source when used in Turkey or paid by Turkish residents; withholding typically applies, often treaty-reduced.
Capital Gains	Gains from Turkish immovables or from assets effectively connected with a Turkish PE often taxable; share disposals may be taxed depending on participation percentage, holding period, and treaty rules.

Permanent Establishment (PE) & Business Profits

1) What Counts as a PE?

Under treaties aligned with the OECD Model (and MLI updates), a PE is generally:

A fixed place of business (office, branch, workshop, factory, mine) through which the enterprise’s business is wholly or partly carried on; or
A dependent agent PE (a person habitually concluding contracts in Turkey on behalf of the enterprise).

Construction/installation sites often become a PE if they exceed a threshold period (commonly 6, 9, or 12 months, depending on the treaty).

2) Consequence of a PE

Once a PE exists, the non-resident’s business profits attributable to that PE are subject to Turkish corporate income tax (and related filings). Attribution relies on arm’s-length principles and robust transfer pricing documentation.

Withholding Tax on Cross-Border Payments

Certain outbound payments to non-residents can be taxed via withholding at source under Turkish domestic law, frequently at reduced rates if a DTA applies and the payee furnishes a certificate of residence and satisfies beneficial ownership and limitation-on-benefits (if any) conditions.

Typical payments where WHT may arise:

Dividends to foreign shareholders
Interest on loans, bonds, or deposits
Royalties (IP, know-how, licenses)
Independent services (in limited cases under domestic rules; often treaties reallocate to business profits/PE)

Practice tip: Before making cross-border payments, obtain the foreign recipient’s tax residence certificate, confirm treaty applicability, and document beneficial ownership and the substance of the arrangement. If in doubt, consider withholding at the domestic rate and advise the payee on refund procedures if a treaty reduction is later substantiated.

Double Taxation: How It Arises & How to Eliminate It

1) How Double Taxation Happens

Jurisdictional overlap (e.g., Country A taxes by residence, Country B taxes by source).
Dual residence (individuals or entities meeting residency criteria in two states).
PE attribution conflicts (disagreement on whether a PE exists or how profits are attributed).
Characterization mismatches (e.g., one state treats a payment as royalty, the other as business profit).

2) Treaty Solutions (OECD Model–Aligned)

Exclusive or shared taxing rights assigned by income category (immovable property, dividends, interest, royalties, business profits, employment, directors’ fees, pensions, etc.).
Elimination of double taxation via exemption or credit method (Turkey typically operates credit rules in domestic law: foreign tax paid on the same income can be credited against Turkish tax up to the Turkish tax limit, subject to documentation).

3) Mutual Agreement Procedure (MAP)

If double taxation persists despite treaty application, taxpayers can request MAP—competent authorities of both states attempt to resolve the dispute. Good documentation and early submission are critical.

Treaty Mechanics: Tie-Breakers, 183-Day Rule, and Special Articles

1) Individual Tie-Breakers

Permanent home → center of vital interests → habitual abode → nationality → mutual agreement.

2) The 183-Day Rule (Employment Income)

Employment income is generally taxable where the work is physically performed.
A short-stay exemption may apply if (i) the employee is present in the work state ≤183 days in a 12-month or calendar period (varies by treaty), (ii) the remuneration is paid by an employer not resident in the work state, and (iii) the cost is not borne by a PE or fixed base in that state.
Falling short on any prong often renders wage income taxable in the work state.

3) Artists & Sportspeople; Students; Pensions

Artists/athletes: often taxable in the performance state, even without a PE.
Students/trainees: limited exemptions for maintenance and education grants.
Pensions: public vs. private pensions may be taxed differently; the paying state or residence state may have priority depending on the treaty.

MLI (Multilateral Instrument) Impacts

The MLI overlays many bilateral treaties with modern anti-abuse and interpretive norms, notably:

Principal Purpose Test (PPT): Treaty benefits can be denied if obtaining that benefit was one of the principal purposes of an arrangement, absent alignment with the object and purpose of the treaty.
PE expansions: Anti-fragmentation rules and tightened dependent agent definitions can broaden PE exposure.
Entity tie-breaker: For dual-resident entities, many treaties (post-MLI) replace the old place of effective management default with a competent authority mutual agreement approach—raising uncertainty if dual residence is possible.

Action point: Re-review historic structures for PPT risk and PE exposure after the MLI.

Common Scenarios & Case Studies

Scenario A: Remote Employee in Turkey for a Foreign Employer

Facts: An EU resident moves to Istanbul and works remotely for an EU company.
Risks:
- Individual may become Turkish resident (>6 months) → worldwide income taxable in Turkey (subject to foreign tax credit/treaty).
- If individual habitually concludes contracts or performs key managerial functions in Turkey, the foreign employer may risk a dependent agent PE.
Mitigation: Track days; structure duties to avoid contract-concluding authority in Turkey; confirm treaty; evaluate payroll/WHT obligations.

Scenario B: Non-Resident Renting an Apartment in Istanbul

Facts: A non-resident owns an Istanbul flat and rents it to a Turkish tenant.
Tax: Turkish-source rental income → taxable in Turkey; domestic filing or withholding depending on payer (e.g., if tenant is a company, rent may be subject to stopaj/WHT). Treaties usually allocate immovable property income to the situs state, i.e., Turkey.

Scenario C: IP Royalty to a Foreign Group Company

Facts: A Turkish company pays royalties to its parent in a treaty country.
Tax: Domestic WHT unless reduced by treaty. Must check beneficial ownership, PPT/LOB, transfer pricing, and substance. Keep license, invoices, benchmarking, and residence certificate on file.

Scenario D: Construction Project in Turkey by a Foreign Contractor

Facts: Foreign contractor operates in Turkey for a 10-month building project.
Tax: Many treaties deem a construction PE if the site exceeds a threshold (e.g., 12 months). If below threshold, limited taxpayer treatment may apply; above threshold, Turkey may tax attributed profits. Contract splitting to stay under the threshold can fail under anti-fragmentation (MLI).

Scenario E: Dividends from Turkey to a Foreign Shareholder

Facts: A Turkish subsidiary distributes dividends to a parent in a treaty jurisdiction.
Tax: Domestic WHT applies but is often reduced by treaty based on ownership thresholds and beneficial ownership. Obtain a residence certificate before payment; retain documents for audits.

Scenario F: Cross-Border Consulting Without a Fixed Base

Facts: A non-resident consultant provides advice to a Turkish client remotely and visits Turkey occasionally.
Tax: If no fixed base in Turkey and no PE, many treaties allocate profits to the residence state; however, domestic WHT may still be asserted absent clear treaty application. Contract terms, place of performance, and day counts matter.

Registration, Documentation & Compliance Roadmap

Individuals (Residents/Non-Residents)

TCKN or YKN (ID number) and tax office registration where necessary.
Keep day counts, visas, residence permits, rental contracts, utility bills—prove residency status.
File annual returns for worldwide income if resident; for Turkish-source income if non-resident, where not fully taxed by withholding.
Foreign tax credits: retain foreign tax assessment/receipt and certified translations for credit claims.
Employment: ensure the correct state is operating payroll/WHT/social security; check totalization agreements.

Companies & PEs

Determine residence (legal seat / effective management).
Evaluate PE risk (offices, personnel authority, construction sites, agents).
Register a branch/PE with the tax office if required; obtain VAT and withholding registrations.
Accounting & e-compliance: e-Invoice, e-Archive, e-Ledger thresholds; VUK documentation.
Withholding: operate WHT on outbound payments where applicable; treaty relief with robust paperwork.
Transfer Pricing (TP): contemporaneous local file, master file (if required), and country-by-country (where applicable).
Annual filings: corporate tax return, advance tax, VAT, withholding returns, stamp tax where relevant.

Risk Areas: Audits, Anti-Avoidance, TP & Thin Cap

PPT / GAAR-like scrutiny post-MLI: arrangements lacking commercial substance can be denied treaty benefits.
Treaty shopping via conduit companies without people/functions/substance is high-risk.
Dependent agent PE through senior personnel negotiating core terms in Turkey—even if contracts are formally concluded abroad.
Construction PE anti-fragmentation: splitting contracts/phases among related parties to stay below time thresholds may fail.
Transfer Pricing: services, IP, financing—ensure arm’s-length pricing, intercompany agreements, and benchmarks.
Thin Capitalization: debt-equity ratios and interest deductibility constraints must be monitored.
Beneficial Ownership: particularly for dividends, interest, royalties; letterbox structures invite denial of treaty rates.
Documentation: absence of residence certificates, invoices, substance evidence often leads to withholding disputes and penalties.

Actionable Checklists

A) Residency & Exposure Triage (Individuals)

Do you spend >6 months in Turkey? If yes, you likely are resident.
Is your stay temporary (student/patient/tourist)? Keep proof.
Dual residence risk? Apply tie-breaker criteria and document.
Foreign income? Secure foreign tax assessments for credit.
Employment: who is the economic employer and where is the cost borne?

B) PE & Withholding (Companies)

Any fixed place or dependent agent in Turkey?
Construction/installation duration aligned with treaty threshold?
Outbound payments: collect residence certificate, confirm beneficial ownership, and check treaty.
TP: maintain local file/benchmarking; check service charge markups.
Thin cap: monitor debt-equity and interest limitations.

Frequently Asked Questions

Q1: I am a foreigner who stayed in Turkey for 8 months working remotely. Am I resident?
Likely yes, unless your stay qualifies as temporary (e.g., student/patient) supported by documents. If resident, worldwide income is within the Turkish tax net (subject to foreign tax credits and treaties).

Q2: Does my foreign employer become taxable in Turkey because I worked from Istanbul?
Maybe. If you habitually conclude contracts or play a decisive role in negotiations, your presence can create a dependent agent PE. Even absent formal authority, substance matters.

Q3: As a non-resident landlord of a flat in Izmir, how am I taxed?
Rental income from Turkish real estate is Turkish-source and taxable in Turkey. Depending on the tenant and payment flow, withholding may apply; otherwise, annual filing is needed.

Q4: What documents do I need to get a treaty-reduced rate on dividends?
Obtain a tax residence certificate from the payee’s country, verify beneficial ownership and any ownership thresholds under the treaty, and keep everything on file before payment.

Q5: How does Turkey provide relief from double taxation?
Typically through the foreign tax credit method: taxes paid abroad on the same income can be credited up to the corresponding Turkish tax (no windfalls). Proper documentation is essential.

Q6: What changed with the MLI?
The PPT can deny treaty benefits where one of the principal purposes is tax benefit. PE rules are tightened, and entity tie-breakers may require competent authority agreement rather than a simple place-of-management test.

Q7: I’m a consultant visiting Turkey for 40 days while invoicing from abroad. Taxable?
If you have no fixed base and no PE, many treaties allocate profits to your residence state. But check domestic withholding expectations and the treaty text for your specific country pair.

Q8: Can I avoid a construction PE by splitting the contract?
Risky. Anti-fragmentation rules (MLI) may aggregate related activities; authorities can treat split phases as one project for the time threshold.

Glossary

Full taxpayer (resident): Taxed in Turkey on worldwide income.
Limited taxpayer (non-resident): Taxed in Turkey only on Turkish-source income.
Permanent Establishment (PE): A fixed place or dependent agent through which business is carried on; creates taxing rights over business profits.
Withholding Tax (WHT): Tax collected at source on certain payments to non-residents (e.g., dividends, interest, royalties).
Beneficial Owner: The person/entity that enjoys the benefit of income; key to treaty reductions.
PPT (Principal Purpose Test): Anti-abuse rule under the MLI limiting treaty benefits where one of the principal purposes is obtaining a tax advantage.
Tie-Breaker: Treaty mechanism resolving dual residence conflicts.
Foreign Tax Credit: Method to eliminate double taxation by crediting foreign taxes against domestic tax on the same income.

Final Practical Notes (Compliance & Strategy)

Document Everything: Residence certificates, day counts, lease agreements, corporate governance minutes (for place of effective management), intercompany agreements, TP benchmarks, and invoices.
Substance Over Form: Consistency between contracts, functions, personnel authority, and financials is critical to withstand audits.
Treaty First, Then Domestic: When cross-border elements exist, read the treaty article by article, then layer applicable domestic rules (rates, credits, procedural steps).
Plan Ahead: For projects near PE thresholds or staffing changes that might shift effective management, pre-transaction structuring prevents headaches.
Use MAP When Needed: If you face genuine double taxation, engage early with professionals to open a Mutual Agreement Procedure.

Categories:

Genel