Taxation of Foreign Companies in Turkey
1)Introduction
In this article; “Taxation of Foreign Companies in Turkey” topic examined under tax liability and tax liability of corporates, full liability and limited liability for foreign companies and international agreements to avoid double taxation titles.
2)Tax Liability and Tax Liability of Corporates
Tax is the money which received from citizens and corporations by states for supply public expenses. Main reason of taxation is the state’s sovereignty over its country. This situation explained at Article 73 in our Constitution: VI. Duty to pay taxes ARTICLE 73- Everyone is under obligation to pay taxes according to his financial resources, in order to meet public expenditure. An equitable and balanced distribution of the tax burden is the social objective of fiscal policy. Taxes, fees, duties, and other such financial obligations shall be imposed, amended, or revoked by law.(As amended on April 16, 2017; Act No. 6771) The President of the Republic may be empowered to amend the percentages of exemption, exceptions and reductions in taxes, fees, duties and other such financial obligations, within the minimum and maximum limits prescribed by law.
Taxpayer is defined in Law no. 213 Tax Procedural Law and it’s a person or corporation, which have to pay tax. In accordance with the law, states collect taxes not only from people but also from corporates. With developing economic and commercial relations, international trade and activities have gone beyond national borders. In our country, there are so many foreign corporates like national corporates. As a result of economic and commercial activities of foreign corporates, tax liability has been regulated for them. Full liability and limited liability difference is important in this topic.
3)Full Liability and Limited Liability For Foreign Companies
Corporates, which earnings are subject to corporation tax, are capital companies, cooperatives, economic public institutions, economic enterprises and business partnerships of associations and foundations. Full liability and limited liability difference explained at Article 3 in Law no. 5520 Corporate Tax Law, for this corporations.
Full and narrow liability
ARTICLE 3 (1) Full liability: the legal institutions of the Law Article 1 of the few or the business center located in Turkey, they are taxed on all the income they need to get out of Turkey and Turkey. (2) Limited liability: Turkey included in both the legal and business centers of the few institutions in Article 1 of the Law, are taxed only on the income that you obtained in Turkey. (3) Corporate income in limited liability consists of the following gains and returns: a) 04/01/1961 213 dated Tax Law according to which work in Turkey or permanent representative possession of these places by foreign institutions or commercial profits derived from the work done by these representatives (These conditions cause any are to be exported, even institutions they take goods purchased in Turkey, earnings arising from referring to without selling the foreign countries in Turkey, does not count obtained in Turkey. in order to sell in Turkey, the buyer or seller or both, or if the contract of sale in Turkey are made in Turkey.). b) gains derived from agricultural businesses in Turkey. c) the self-employment income obtained in Turkey. d) The rights to movable and immovable property derived from the rental revenues in Turkey. d) The capital gains obtained in Turkey. e) Other income and revenues obtained in Turkey. (4) To achieve profits or income specified in this clause in Turkey with revenues elements and issues to be considered permanent representative in Turkey, No. 193, dated 31/12/1960 and the relevant provisions of the Income Tax Act applies. (5) Legal center: It is the center indicated in the establishment laws of taxable institutions, Presidential decrees, statutes, main statutes or contracts. (6) Business center: It is the center where the transactions are actually collected and managed. In accordance with the law, both of local and foreign companies which have legal center or business center in Turkey, will be taxed according to the full liability regulations. On the other hand, companies which have not legal or business centre in Turkey, will be taxed according to the limited liability regulations.
The difference of full and limited liability, full liable companies have to pay taxes for earnings both inside Turkey or foreign countries. But limited liable companies only have to pay taxes about earnings in Turkey.
4)Taxation Procedure for Limited Liable Foreign Companies
a)For Corporation Tax
All the earnings of companies are generally considered as commercial earnings and taxed. For be able to obtain earnings, the company have to have an office which is specified in Tax Procedure Law or have a permanent representative in Turkey. At the same time, this earnings have to originate with the office or representative. In the determination and taxation of the company earnings obtained by the limited liable foreign companies through the workplace or permanent representative, the provisions applicable to full taxpayer institutions shall be applied, unless stated otherwise.
Therefore limited liable foreign companies will be taxed by giving annual bill, like full liable companies. In accordance with Article 25 in Corporate Tax Law, limited liable companies which submit annual bills, like institutions subject to full tax obligations, must submit bills from the first day of the April to the twenty-fifth day of the month following the month in which their accounting period is closed. This annual corporate tax bill will be given to the establishment or place where the tax office’s permanent representative in Turkey.
b)For Value Added Tax
In accordance with Article 1 in Law no. 3065 Value Added Tax Law; in Turkey, commercial, industrial, and agricultural activities delivered in the framework of self-employed activities and services are subject to value added tax. In cases where there is no clarity in the Income Tax Law, it is stated that it will be determined and determined according to the provisions of the Turkish Commercial Law and other relevant legislation.
Foreign companies, which have limited liability, are also obliged to submit a related value added tax bill to their earnings as a result of delivery or service. There is no important if the company’s office is in Turkey or not. This bill will be held on a monthly basis and will be given to foreign companies where the tax office found the establishment or permanent representative in Turkey.
5) International Agreements to Avoid Double Taxation
A taxpayer is in connection with the same tax subject to the same taxation period of two or more states at the same or a similar condition is called double taxation to pay taxes on international law. To eliminate this problem, governments have made agreements to prevent double taxation. Differences in the tax systems of countries cause difficulties in solving the problem through multilateral agreements. For this reason, it is more common to solve the problem mostly through bilateral agreements. Turkey has also signed a double taxation prevention agreement with 87 countries.
Signed between the non-resident company’s registered office in Turkey or in the state where the business center and if an international tax treaty entered into force, in line with foreign companies treaty provisions as a priority of the work place in Turkey or should be whether there is a permanent representative. If there is an agreement in accordance with the conditions specified in the work place or permanent representative in Turkey, the state of the taxation authority will be determined by looking at the provisions of the agreement on commercial earnings. In this case the right to tax income to be in Turkey, the type of taxation and tax rate will be determined by determining which income element the relevant income enters under local legislation. Regarding the applicable tax rate, if an upper limit has been determined in the tax agreement, this limit will be taken into consideration.
Result
The taxation authority derives its source from the state’s sovereign right. The state provides taxation by deducting from the earnings obtained as a result of the commercial, economic and social activities carried out in its country in accordance with the law and the law. As a result of developing technology and science, the commercial, economic and social activities we have counted have now gained a universal dimension from nationality. For this reason, the legislation on taxation has been regulated with this in mind. Limited liability, but in terms of our earnings in the country without legal or business center in Turkey and foreign companies and institutions have found a place in our legislation. It should be stated that; National legislation alone is not sufficient to tax a foreign limited liable company or institution. However, international agreements that have been duly put into effect must also be taken into consideration and action must be taken accordingly.
Yalçın TORUN Attorney at Law
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