12.08.2021
- Income and revenues subject to tax withholding
In Article 30 of the Corporate Tax Law, the incomes and revenues obtained by limited taxpayers are counted one by one. Accordingly, the following incomes and revenues to be obtained by limited taxpayers companies will be subject to tax deductions according to the aforementioned article.
- Progress payments made to institutions dealing with construction and repair works for more than one calendar year.
- Self-employment earnings,
- Real property incomes,
- Securities revenues, excluding those listed in subparagraphs (1), (2), (3) and (4) of the second paragraph of Article 75 of the Income Tax Law,
- Regardless of whether they are included in commercial or agricultural income, the amounts paid or accrued in cash or on account in return for the sale, transfer and assignment of copyright, privilege, passion, business, trade name, brand and similar intangible rights,
- Dividends (except those who receive dividends through a workplace or permanent representative in Turkey) distributed by full taxpayer corporations to limited taxpayer corporations or limited taxpayers exempted from corporate tax and listed in subparagraphs (1), (2) and (3) of the second paragraph of Article 75 of the Income Tax Law
- Profits exempted from corporate tax as specified in subparagraph (c) of the first paragraph of Article 5 of the Corporate Tax Law and dividends distributed to limited taxpayer corporations in the nature of joint stock or limited liability companies from the profits of the companies specified in subparagraph (c) meeting the conditions in subparagraph (b).
- Income of limited taxpayers who do not have a workplace or permanent representative in Turkey, from their commercial activities at exhibitions and fairs opened with the permission of the competent authorities,
- Amounts transferred to the head office by limited taxpayers, which submit annual or special declarations, from the corporate income before deduction of discounts and exceptions, after deducting the calculated corporate tax,
- Whether the tax system of the country where the income is obtained provides a taxation opportunity at the same level as the taxation capacity created by the Turkish tax system and considering the information exchange, all kinds of payments made or accrued in cash or on account to institutions residing or operating in countries (including the workplaces of full taxpayer corporations in such countries) declared by the Council of Ministers
1.1. Progress payments made to limited taxpayer companies dealing with construction and repair works for more than one calendar year
In subparagraph (a) of the first paragraph of Article 30 of the Corporate Tax Law, tax deductions are made on the progress payments made to limited taxpayer companies dealing with construction and repair works for more than one calendar year, in accordance with the principles specified in the Income Tax Law, and in the same article, the Council of Ministers has been authorized regarding the deduction rate for tax deductions to be made pursuant to this article.
Accordingly, pursuant to the Council of Ministers Decision No. 2009/14593(***)(phrase amended with Article 21 of the Corporate Tax General Communiqué Serial No. 6), over the progress payments made for the construction and repair works spread over more than one calendar year, as of (phrase amended with Article 21 of the Corporate Tax General Communiqué Serial No. 6) 3/2/2009(****), 3% tax deduction will be made.
1.2. Self-employment earnings
In subparagraph (b) of the first paragraph of Article 30 of the Corporate Tax Law, it is foreseen that tax deductions will be made over the self-employment earnings of limited taxpayer companies, and as of 1/1/2007 in accordance with the Council of Ministers Decision No. 2006/11447:
- A tax deduction of 5% will be made from the earnings to be derived from oil exploration activities.
- A tax deduction of 20% will be made from other self-employment earnings.
1.3. Real property incomes
In subparagraph (c) of the first paragraph of Article 30 of the Corporate Tax Law, it is foreseen that tax deductions will be made over the real property incomes of limited taxpayer companies, and as of 1/1/2007 in accordance with the Council of Ministers Decision No. 2006/11447:
- A tax deduction of 1% will be made from real property incomes to be obtained from activities within the scope of the Financial Leasing Law.
- A tax deduction of 20% will be made from other real property incomes.
1.4. Security incomes
In subparagraph (ç) of the first paragraph of Article 30 of the Corporate Tax Law, it is foreseen that tax deductions will be made on other security incomes, excluding the dividends to be obtained by limited taxpayer companies.
In the second paragraph of the provisional article 1 of the aforementioned Law, in accordance with the temporary article 672 of the Income Tax Law, it is stipulated that no further deduction will be made on the income and revenues subject to tax deductions pursuant to this Law.
(Paragraph changed with Article 22 of Corporate Tax General Communiqué Serial No. 67) With securities revenues written in the provisional article 67 of the Income Tax Law, paragraph (5) of the second paragraph of article 75 of the same Law, (except those obtained from securities issued before 1/1/2006) it has been decreed that a 15% deduction will be made on the securities capital revenues in subparagraphs (7), (12) and (14). (*****)
Accordingly, over all kinds of bonds and Treasury bill interests and securities issued by the Housing Development Administration, Public Partnership Administration and (The phrase amended with Article 22 of the Corporate Tax General Communiqué Serial No. 6) Privatization Administration, and revenues from lease certificates issued by asset leasing companies, deposit interests, interest-free dividends paid to lenders, dividends paid in return for profit and loss sharing certificates (6), and repo income, tax withholding will be made, in accordance with the provision of temporary article 67 of the Income Tax Law.
(Paragraphs added with Article 22 of Corporate Tax General Communiqué Serial No. 6) The explanations made in the General Communiqué on Income Tax with serial number 279 must be taken into consideration in the taxation of the interests obtained from bonds issued abroad by full taxpayer corporations.
As of 29/6/2011, pursuant to the Council of Ministers Decision No. 2009/14593 amended by the Council of Ministers Decision No. 2011/1854, revenues from lease certificates issued abroad by full taxpayer asset leasing companies;
- A tax deduction of 10% will be made from the incomes provided to those whose maturity is up to 1 year.
- A tax deduction of 7% will be made from the incomes provided to those whose maturities are between 1 year and 3 years.
- A tax deduction of 3% will be made from the incomes provided to those whose maturity is between 3 years and 5 years.
- A tax deduction of 0% will be deducted from the incomes provided to those with a maturity of 5 years or longer.
On the other hand, as of 3/2/2009 in accordance with the Council of Ministers Decision No. 2009/14593, from all kinds of receivables interest,
- It is authorized to give loans from foreign states, international institutions or foreign banks or in the country where it is customarily located, and 0% tax deduction will be made from the interest to be paid (including dividends paid by participation banks for funds and similar resources obtained from abroad according to their own procedures) for all kinds of loans received from institutions that give credit not only to the institutions they are related to but also to all real and legal persons.
- A tax deduction of 1% will be made on the interest to be paid for eligible secondary subordinated loans and loans obtained by banks and other institutions through securitization abroad based on a current or asset portfolio, in accordance with the Banking Law No. 5411 of the Banks.
- Except for the dividends paid by the participation banks, a tax deduction of 5% will be made on the maturity differences arising from the supply of goods.
- A 10% tax deduction will be made from others.
Moreover, in the application of tax withholding to be made on the interest to be paid for eligible secondary subordinated loans and loans obtained by banks and other institutions through securitization abroad based on a current or asset portfolio, in accordance with the Banking Law No. 5411 of banks, interest amounts to be paid must be subject to tax withholding in accordance with the Council of Ministers Decision No. 2006/11447, in case the contracts for the loan supply transactions in question were drawn up before the effective date of the Decree, 3/2/2009.
(Paragraph abolished with Article 22 of Corporate Tax General Communiqué Serial No.6)(7)
In accordance with the aforementioned Decision, a 10% tax deduction will be made from the securities capital gains written in the sub-paragraph (10) of the second paragraph of Article 75 of the Income Tax Law.
1.5. Sale, transfer and assignment of intangible rights
In the second paragraph of Article 30 of the Corporate Tax Law, regardless of whether they are included in commercial or agricultural income, for the amounts paid or accrued in cash or on account in return for the sale, transfer and assignment of copyright, concession, passion, business, trade name, brand and similar intangible rights of non-resident companies, it is stipulated that those who pay or accrue in cash or on account will be subject to withholding tax.
In accordance with the Council of Ministers Decision numbered (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 2009/14593(***), 20% tax deduction will be made on the said amounts as of (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 3/2/2009(****).
1.6. Dividends distributed to limited taxpayer corporations or limited taxpayers exempt from corporate tax
By full taxpayer corporations, limited taxpayer corporations or in the status of an institution, based on the profit shares listed in subparagraphs (1), (2) and (3) of the second paragraph of Article 75 of the Income Tax Law distributed to foreign corporations exempted from corporate tax by this Law or special laws, tax withholding will be made in accordance with the third paragraph of Article 30 of the Law. No deduction will be made on the dividends distributed to limited taxpayer companies operating in Turkey through a workplace or permanent representative.
On the other hand, adding the profit to the capital by the institutions will not be considered as profit distribution.
With the decision (8) dated (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 12/1/2009 and numbered 2009/14593 published pursuant to the authority granted to the Council of Ministers, the tax withholding rate regarding profit distribution was determined as 15%. Therefore, a tax deduction of 15% is required on dividends distributed to limited taxpayer corporations or foreign corporations exempted from corporate tax by this Law or special laws.
In accordance with Article 30, no additional tax deduction will be made from the earnings written in subparagraph (d) of the first paragraph of Article 5 of the Law, which is subject to tax deduction in accordance with the third paragraph of Article 15 of the Corporate Tax Law.
The explanations in the section (15.6) of the Communiqué are also valid for the dividends distributed to limited taxpayer companies or to limited taxpayers exempt from corporate tax.
1.7. Dividends distributed to limited taxpayer companies over foreign subsidiary incomes
In subparagraph (c) of the first paragraph of Article 5 of the Corporate Tax Law, as of the date of earning, corporate incomes arising from the disposal of foreign participation shares joint stock or limited liability companies of which 75% or more of the total assets excluding cash assets for a continuous period of at least one year, whose legal or business center is not located in Turkey, and subject to full liability consisting of at least 10% participation in the capital of each, that have been in its assets for at least two full years are exempt from corporate tax.
Moreover, the participation earnings of joint stock companies that are subject to full liability specified in the aforementioned paragraph, which meet the conditions in subparagraph (b) of the first paragraph of Article 5 of the Law, are also exempt from corporate tax.
Pursuant to the fourth paragraph of Article 30 of the Corporate Tax Law, tax deductions will be made from the profit shares that are exempted from the above mentioned corporate tax, and from the profit shares distributed to the limited taxpayer institutions in the nature of joint stock companies or limited liability companies, and the said deduction rate will not exceed half of the rate to be applied in accordance with the third paragraph of the aforementioned article.
The tax withholding rate to be made from the aforementioned dividends will be applied as half (7.5%) of the rate determined in the Council of Ministers Decision No. (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 2009/14593(9), in accordance with the fourth paragraph of Article 30 of the Law.
1.8. Exhibition and fair profits
In the fifth paragraph of Article 30 of the Corporate Tax Law, it has been decreed that tax deductions will be made within the corporation over the profits of limited taxpayers who do not have a workplace or permanent representative in Turkey, from their commercial activities at exhibitions and fairs opened with the permission of the competent authorities.
In accordance with the Council of Ministers Decision No. (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 2009/14593(***), 0% tax deduction will be made from the said earnings as of (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 3/2/2009(****).
1.9. Amounts transferred to the headquarters from the earnings considered as securities capital income of limited taxpayer companies that submit annual or special declarations
In the sixth paragraph of Article 30 of the Corporate Tax Law, it has been decreed that corporate tax deductions will be made within the corporation, over the amount transferred to the headquarters by the limited taxpayer corporations, which submit annual or special declarations, from the corporate income before the deductions and exceptions are deducted, after the calculated corporate tax is deducted.
Accordingly, in accordance with the Corporate Tax Law, during the transfer of the remaining part of the corporate income before deduction of discounts and exemptions, after deducting the calculated corporate tax, to the headquarters of the non-resident taxpayer institutions that submit annual or special declarations, they are required to withhold tax on these amounts they transfer. The deduction rate was determined as 15% with the Council of Ministers Decision No. (The phrase amended with Article 23 of the Corporate Tax General Communiqué Serial No. 6) 2009/14593(9).
On the other hand, if limited taxpayer companies do not transfer the profits obtained in Turkey to their headquarters, no tax withholding will be made.
1.10. Tax withholding in derivative transactions made by limited taxpayer companies
1.10.1. Forward transactions
The nature of the income obtained from forward transactions by limited taxpayer companies that do not have a workplace and permanent representatives in Turkey is commercial income and no tax deduction will be made on these earnings in accordance with Article 30 of the Corporate Tax Law.
1.10.2. Swap transactions
1.10.2.1. Money swap
The nature of the income obtained from money swap transactions by limited taxpayer companies that do not have a workplace and permanent representatives in Turkey is commercial income and no tax deduction will be made on these earnings pursuant to Article 30 of the Corporate Tax Law.
1.10.2.2. Interest swap
For limited taxpayer companies that do not have a workplace or permanent representative in Turkey, the income from interest swap transactions will be considered as receivable interest, and in accordance with subparagraph (ç) of the first paragraph of Article 30 of the Corporate Tax Law No. 5520, it will be taxed in Turkey through tax deduction.
Pursuant to the Council of Ministers Decision No. 2009/14593 published pursuant to the authority given by the aforementioned article to the Council of Ministers, in this context, it is authorized to give loans from foreign states, international institutions or foreign banks or in the country where it is located, and it will be necessary to withhold a tax of 0% on interest payments to be made to institutions that give loans not only to the institutions they are related to, but also to all real and legal persons, at the rate of 10% on interest payments to be made to other institutions.
Accordingly, Tax withholding is required in accordance with sub-paragraph (ç) of the first paragraph of Article 30 of the Corporate Tax Law and the aforementioned Council of Ministers Decision, over the income of banks and financial institutions subject to limited liability that do not operate in Turkey through a workplace or permanent representative, arising from these transactions.
On the other hand, pursuant to paragraph (14) of the temporary article 67 of the Income Tax Law, in case the profits obtained from interest swap transactions by limited taxpayer companies, other than foreign banks and financial institutions and do not have a workplace or permanent representative in Turkey, are subject to tax deduction in accordance with the aforementioned article, no tax deduction will be made for these transactions, in accordance with Article 30 of the Corporate Tax Law.
1.10.3. Options contracts and option premium
In option contracts executed in over-the-counter markets, the incomes obtained from both the option contract and the option premium will be considered as commercial income by a limited taxpayer corporation and no tax deduction will be made on these earnings pursuant to Article 30 of the Corporate Tax Law.
It will be necessary to take into account the explanations in the following section regarding the option contracts executed in the organized exchanges established in Turkey.
1.10.4. Futures and options exchange transactions
Income from futures and options contracts executed on the Futures and Options Exchange is subject to tax withholding, within the scope of paragraph (1) of the temporary article 67 of the Income Tax Law, and in accordance with Article 30 of the Corporate Tax Law, no additional tax deduction will be made on these incomes, and the incomes obtained by limited taxpayer companies due to these transactions will not be declared with a special declaration.
1.10.5. Covered warrant
Profits from intermediary company warrants (covered warrants) will be considered as commercial gains by limited taxpayer companies that do not have a workplace or permanent representative in Turkey, and no tax deduction will be made on these earnings pursuant to Article 30 of the Corporate Tax Law.
(Added with the Corporate Tax General Communiqué Serial No. 17. Additional section: Official Gazette-15/02/2019-30687)
1.11. Tax deductions in payments within the scope of the seventh paragraph of Article 11 of the Tax Procedure Law
Pursuant to subparagraph (d) of the first paragraph of Article 30 of the Corporate Tax Law, tax deductions must be made from the payments within the scope of the seventh paragraph of Article 11 of the Tax Procedure Law.
1.11.1. Payments covered by the deduction
As explained in the section (15.3.11.) of the Communiqué, with the President’s Decision No. 476, the advertisement services provided on the internet to those listed in the first paragraph of the 94th article of the Income Tax Law and the first paragraph of the 15th article of the Corporate Tax Law are included in the scope of the tax deduction, and with regard to these services, a regulation has been made that tax deductions must be made from the payments made to those who provide the service or to those who mediate the provision of advertising services on the internet, regardless of whether the payees are taxpayers or not.
With the third article of the aforementioned Decision, subparagraph (15) has been added to the first paragraph of the 1st article of the Council of Ministers Decision no. 2009/14593 on the tax withholding rates to be made from the income and revenues subject to the tax deductions of the corporations subject to limited liability in Article 30 of the Corporate Tax Law and regarding the advertisement services provided on the Internet, the tax withholding rate to be made over the payments made to those who provide this service or to those who mediate the provision of advertisement services on the Internet has been determined as 15%.
1.11.1.1. Tax withholding on payments for advertising services provided on the Internet
Pursuant to the amendment made in the Presidential Decision No. 476 and the Decree of the Council of Ministers No. 2009/14593, regarding the advertisement services provided on the Internet, a tax deduction of 15% is required on the payments made to limited taxpayer companies that provide this service or mediate the provision of advertisement services on the Internet.
Accordingly, those responsible for withholding tax listed in the section (15.1) of the Communiqué are liable to withhold 15% of tax on the payments they will make to a limited liability institution in return for the advertisement service it provides on the internet. Those other than those responsible for withholding tax listed in the section (15.1.) of the Communiqué are not obliged to withhold tax on the payments they make to this institution in return for the advertisement services they receive from a limited taxpayer corporation.
In case the payments for the advertisement services provided on the internet by a limited taxpayer corporation, which is the main service provider, are made to a full taxpayer institution that mediates these services, the explanations made in the section (15.3.11.) of the Communiqué must be taken into account.
However, in the payment of the fees collected for the advertisement services provided on the internet by the resident taxpayer institution intermediating the service to the limited taxpayer corporation, which is the main service provider, which provides advertisement services on the internet, a 15% tax deduction must be made by the full taxpayer corporation mediating the service over these payments.
Furthermore, a 15% tax withholding rate will be applied to payments made to limited taxpayer real persons who provide advertisement services on the internet or mediate the provision of these services.
Tax deductions must be made from the payments related to these services, regardless of whether those who provide advertising services on the Internet or mediate the provision of these services are taxpayers.
The Presidential Decision No. 476 entered into force on the date of its publication to be applied to the payments to be made as of 1/1/2019, and even if the service is provided before this date, tax deduction will be made on the payments made from the mentioned date (including this date).
In terms of the implementation of the said tax deduction, if payment is made in cash or on account before the effective date of the aforementioned Decision, to those who provide advertising services on the internet or mediate the provision of these services, no tax deduction will be made from payments to be made after 1/1/2019 regarding the services that constitute the subject of these payments.
For example, (C) A.Ş. received online advertisement services from (L) Ltd, whose legal and business center is located in Ireland, in November 2018 through Mr. (E), who is dealing with advertising. (C) A.Ş. paid 25% of the service fee, which is USD 100.000 to Mr. (E) as an advance in November 2018 as per the agreement.
(L) Ltd. issued the invoice for this advertising service on behalf of Mr. (E) in December 2018 and Mr. (E) recorded the invoice in his legal books during this period. Mr. (E) also issued an invoice on behalf of (C) A.Ş. in December 2018 regarding the advertising service fee and (C) A.Ş. booked the said invoice in its legal books in the same period.
(C) A.Ş. paid the remaining portion of the service fee to Mr. (E) on 20 January 2019, and Mr. (E) transferred the entire service fee to (L) Ltd.’s account on 31 January 2019.
With the advance payment made in November 2018, some of it in cash and in December 2018, the invoice is recorded in the books of (C) A.Ş. for the service paid on account, no tax withholding will be made on the payments made to Mr. (E) on January 20, 2019.
There is no need for Mr (E) to withhold tax on the cash payment made on 31 January 2019, since the invoice for advertising service issued by (L) Ltd., whose legal and business center is located in Ireland, was recorded in Mr. (E)’s legal books in December 2018, the payment was made on account.
Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
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