The Double Taxation Avoidance Agreements (DTAs) signed by Turkey provide tax advantages to individuals and entities earning international income. However, in order to benefit from these advantages, certain legal and administrative requirements must be met. This article explains how taxpayers in Turkey can benefit from tax treaties, what documents are required, and what points should be considered in practice.
1. Who Can Benefit from Tax Treaties in Turkey?
The following individuals and entities in Turkey may benefit from tax treaties:
- Residents (full taxpayers) who are natural persons
- Resident legal entities (e.g., joint stock companies, limited liability companies, cooperatives)
- Non-residents who earn income from Turkey and meet treaty conditions
- Funds, foundations, and associations (depending on circumstances)
- Partnerships and transparent entities (depending on the treaty)
Full taxpayer status is determined under the Corporate Tax Law or Income Tax Law in Turkey. Such taxpayers may benefit from tax treaties regarding income earned in Turkey.
2. Certificate of Residence
Turkish taxpayers wishing to benefit from a tax treaty must obtain a Certificate of Residence from the Turkish Revenue Administration. This document certifies that the person or entity is a resident of Turkey and is taxed on worldwide income in Turkey.
Application Process:
- Applications can be made via e-Government or the Interactive Tax Office
- The certificate is issued by the Revenue Administration and submitted to the foreign tax authority
- Typically valid for 1 year
3. Conditions for Benefiting from a Treaty
In order to benefit from the provisions of a tax treaty, the following conditions must be met:
a. Being the Beneficial Owner
For passive income types such as interest, dividends, and royalties, the applicant must be the beneficial owner of the income. Agents or intermediary companies are not considered beneficial owners.
b. Engagement in Genuine Economic Activity
Tax benefits may not be granted to shell companies. Only those conducting real economic activity in Turkey can benefit from treaties. This is especially relevant for holding structures and group companies.
c. Principal Purpose Test (PPT)
If the main purpose of a transaction is to obtain a tax advantage, treaty benefits may be denied. Turkey has adopted the PPT provision through its participation in the Multilateral Instrument (MLI).
4. Implementation Process in Turkey
A resident taxpayer in Turkey who wishes to benefit from a tax treaty should follow these steps:
- Obtain a Certificate of Residence
- Review the relevant tax treaty provisions with the foreign country
- If withholding tax relief is sought abroad, submit the certificate to the foreign tax authority
- When filing a tax return in Turkey, claim a foreign tax credit if taxes were paid abroad
- In complex cases, an advance ruling (private ruling) may be requested
5. Points to Consider
- The Certificate of Residence must be renewed annually
- The beneficial owner must be clearly identified
- Some treaties contain Limitation on Benefits (LOB) clauses
- The Turkish Revenue Administration’s Tax Treaty Application Guides should be monitored regularly
6. Resolving Disputes in Turkey: MAP
If excessive tax is withheld in the source country despite treaty provisions, taxpayers can apply for relief under the Mutual Agreement Procedure (MAP). Applications are handled through the Turkish Revenue Administration in coordination with the relevant foreign authority.
Treaty Benefits Require Clear Eligibility
In Turkey, accessing the advantages of tax treaties requires full compliance with both legal and administrative standards. To benefit from tax relief, individuals and entities must:
- Be full taxpayers in Turkey
- Obtain and submit a Certificate of Residence
- Prove they are the beneficial owner of the income
- Engage in genuine economic activity
Artificial arrangements aimed solely at tax benefits are prevented under both Turkish domestic law and international treaty standards.
At ÖzbekCPA, we provide professional guidance on all aspects of tax treaties and international taxation. Contact us today to learn how we can help you benefit from treaty advantages and ensure full compliance.
