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Taxation of liaison offices opened by limited taxpayers in Turkey

02.06.2021

Liaison offices are established and operated in accordance with the regulations contained in the Foreign Capital Framework Decision and the Communiqués on the Foreign Capital Framework Decision based on this Decision. According to the current legal regulations, liaison offices cannot carry out commercial activities in Turkey, cannot transfer profits and have to cover all their expenses with the foreign currency they will bring from abroad.

Since it is legally forbidden for liaison offices to do business in Turkey, within the framework of the above definitions, it is not possible to accept the workplace of the liaison office and the persons assigned to carry out the business of this office as permanent representatives.

Within the framework of these explanations, if the liaison office operates within the framework of the relevant legislation, in other words, if it does not engage in commercial or other income generating activities, the following are not required:

– Corporate tax liability establishment,

– Notification of starting work,

– Submitting corporate tax returns,

– Keeping a book in accordance with the provisions of the Tax Procedure Law

It is explicit that all these obligations will be fulfilled if commercial activities are carried out.

On the other hand, since the liaison offices are responsible for withholding on the wages of workers and workplace rent payments, these offices are liable in terms of withholding.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Are the interests paid to companies abroad and the amounts paid to the group company in return for loan guarantees subject to tax deduction?

02.06.2021 

Interest payments made to companies abroad and expenses such as commissions paid in return for guarantor service are considered as receivable interest within the framework of financing services, in accordance with the subparagraph (ç) of the first paragraph of Article 30 of the Corporate Tax Law No. 5520, a 10% tax deduction is made pursuant to the Council of Ministers Decision No. 2009/14593.

In addition, the financial services between group companies can be criticized in terms of hidden income or they can be the subject of concealed capital.

Pursuant to the Council of Ministers Decision No. 2009/14593, 0% tax is deducted from the interest paid in return for the loans used from foreign banks and financial institutions.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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What is the status of the payments made in return for the purchase of services such as finding customers and marketing from limited taxpayer institutions regarding the goods and services exported abroad?

02.06.2021

If the activity of the company abroad, which provides services in relation to the goods and services exported abroad, consists of finding customers and receiving a commission on the price of the goods sold, this business will be evaluated within the framework of commercial activity and no tax deduction will be made pursuant to Article 30 of the Corporate Tax Law No. 5520.

However, if the activity in question is foreign market research, advertising the products, services such as marketing and management services and exceeds the mere brokerage service, they will be considered as self-employment services and in accordance with Article 30/1-b of the Corporate Tax Law, a 20% corporate tax deduction will be required in accordance with the Council of Ministers Decision No. 2009/14593.

On the other hand, the provisions of the double taxation agreements regarding self-employment activities will be primarily considered.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Are the earnings of limited taxpayer institutions obtained from the congresses that they organize in Turkey, subject to taxation?

02.06.2021 

For limited taxpayer institutions that do not have a workplace or permanent representative in Turkey and do not earn their income through this workplace or permanent representative, the earnings to be obtained due to the international congress held in Turkey is evaluated not as commercial income, but as incidental commercial income in Turkey and must be taxed.

Accordingly, if the taxable income of foreign institutions subject to limited liability is found to consist of incidental commercial income, these institutions must declare these earnings with a special declaration within fifteen days from the date of acquisition.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Will there be a tax deduction for payments made to purchase a “domain name” from a company abroad?

02.06.2021 

“Domain name” purchased online from companies abroad is considered as an intangible right, and a 20% corporate tax deduction is required from the payments made, pursuant to the second paragraph of Article 30 of the Corporate Tax Law No. 5520, in accordance with the Council of Ministers Decisions No. 2009/14593.

However, if there is a double taxation agreement between the country of residence of the company and Turkey and a lower rate is foreseen in these agreements, this rate will be taken into account.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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What will be the taxation of payments made from Turkey to limited taxpayers due to oil exploration activities?

02.06.2021 

The services to be provided by the foreign limited taxpayer institution abroad in relation to oil exploration activities are within the scope of self-employment activities, and the payments made, including expenses, will be considered as self-employment payments made to the foreign limited taxpayer institution.

In this context, regarding the self-employment activity in question:

– In case it is carried out within the scope of commercial activity by having a workplace or permanent representative in Turkey, no corporate tax deduction will be made from the payments made, and the income will be taxed in accordance with our domestic legislation within the framework of the commercial income provisions.

– In case it is carried out without a workplace or permanent representative in Turkey, or even if there is a workplace or permanent representative in Turkey, not in connection with the commercial activities they carry out in these workplaces, a 5% corporate tax deduction is required on all payments made in accordance with the Council of Ministers Decisions numbered 2009/14593, pursuant to Article 30/1-b of the Corporate Tax Law.

On the other hand, if there is a double taxation avoidance agreement between Turkey and the country where the limited taxpayer institution performing the self-employment service is a resident, it is natural that the provisions of this agreement will also be taken into account.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Will tax deductions be made from payments made to public institutions for consultancy and training services provided by institutions abroad?

02.06.2021 

Payments made for the procurement of consultancy and training services to companies abroad must be considered as self-employment payments and a corporate tax deduction of 20% must be made from the payments made.

In double taxation agreements, if the self-employment activity is usually carried out in Turkey through a workplace or a permanent representative or the personnel of the non-resident taxpayer institution stays in Turkey for more than 6 months, taxation right will be in Turkey. Otherwise, there is no question of withholding tax in Turkey.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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If a company is promoted abroad through advertising companies abroad, will tax deductions be made on the payments to be made to the advertising company?

02.06.2021 

Announcement and advertisement services received for the purpose of promoting a company abroad, rather than having direct announcement and advertisements published, in case of self-employment activities such as advertisement design, implementation, strategic planning, media planning and media strategy, corporate tax withholding must be made on the payments made to organizations abroad in return for these services.

If there is a double taxation avoidance agreement between the country of payment and the Republic of Turkey, the issue must be evaluated separately in terms of the provisions of the aforementioned agreement.

Moreover, if a commercial film is prepared to be used in Turkey by a company abroad, a tax deduction will be made on the payments to be made within the same framework.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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What is the status of the application licenses for the programs imported by a company providing services in the field of telecommunication to ensure the safe use of the e-mail service and for services such as family protection code, and will withholding be made on the payments made?

02.06.2021

It is stipulated that corporate tax deductions will be made on the amounts paid or accrued in cash or on account in return for the sale, transfer and assignment of copyrights, privileges, invention, businesses, trade names, brands and similar intangible rights, regardless of whether it is included in commercial or agricultural income, in the second paragraph of Article 30 of the Corporate Tax Law No. 5520, which regulates the tax deduction for non-residents.

Within the framework of this regulation, tax deductions must be made from the said royalty payments to be made to the company abroad for the licenses for the services that ensure the safe use of the e-mail service.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Will withholding be made in accordance with Article 30 of the Corporate Tax Law No. 5520, regarding payments to be made for computer programs purchased from companies abroad?

31.05.2021

– In case the computer programs purchased from companies abroad are sold to final consumers without making any changes and/or duplications or used in the business in the same way, the income obtained is in the nature of commercial income and no tax deduction will be made on such payments.

– In the event that the rights of a computer program such as reproduction, modification, distribution to the public, display, etc. are purchased within the scope of “Copyright”, an intangible right will be obtained for the purchaser and a tax deduction of 20% will be made from the said intangible rights payments to be made to the company abroad, as per the Council of Ministers Decision No. 2009/14593.

– If a computer program is specially prepared for companies abroad to be used in the business, since the income earned by the company residing abroad is self-employed, a 20% tax deduction is required in accordance with the Council of Ministers Decision No. 2009/14593.

– If there is a double taxation agreement between Turkey and the country of residence of the limited taxpayer institution, and a lower rate is determined in this agreement (usually this rate is determined as 10% in agreements), this rate will be taken into account.

Does the acquisition of the computer program by downloading it directly from the Internet with a password lead to a different practice regarding tax deduction?

The case of acquiring computer software products by activating them with a password downloaded from the internet after they are imported from customs in a CD, floppy disk, or carrier media product, or the acquisition of the computer program by downloading the computer program directly from the internet with a password, does not cause any difference in the taxation of payments to be made abroad.

In the payments made to the countries that have a double taxation agreement with Turkey, if there are provisions in the relevant agreement, they will be taken into account first.


Source: Revenue Administration of Turkey – Translated by: Karen Audit
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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