Tax treaties in Turkey stop the same income being taxed twice, once where it arises and once where the recipient is resident. The difficulty is rarely whether a treaty exists; it is picking the right article and proving entitlement to the rate at the moment of payment. This article follows that chain, from the residence test to the mutual agreement procedure.
A treaty never creates a tax. It allocates and limits taxing rights, and the charge itself has to exist in domestic law first. To apply the treaty rate, the payer must hold the recipient’s certificate of residence before payment; without it, domestic withholding applies and any refund has to be claimed within the correction period. Turkey signed the Multilateral Instrument but has never ratified it, so Turkish treaties still operate in their bilateral form.
What tax treaties in Turkey do and do not do
The most common misreading is to treat a treaty as the source of a taxing right. Treaties allocate and restrict; the charge comes from domestic law.
What a treaty does
- Allocates taxing rights between the two states
- Caps the source country’s withholding rate
- Supplies an ordered test for dual residence
- Sets the credit or the exemption method
- Opens the mutual agreement route for disputes
What a treaty does not do
- Create a charge that domestic law does not impose
- Produce a heavier charge than the domestic rate
- Remove the withholding duty by itself
- Apply without documentary proof
- Determine residence on its own
Under article 90 of the Constitution, international agreements brought into force in the proper manner have the force of law, and as specific rules treaties take precedence over the general tax codes. In an audit the first question is which treaty applies, the second which article the payment falls under.
Residence and the dual residence test
A treaty applies only to a resident of one of the two states, and residence is settled first under each country’s own law. Where an individual qualifies in both, the ordered test in article 4 decides; once a step produces an answer, the later steps are not reached.
- Permanent home available — if one exists in both states, move to the next step
- Centre of vital interests — where personal and economic ties are closer
- Habitual abode — where the person ordinarily stays
- Nationality
- Agreement between the competent authorities — the last resort
For companies the test is whatever the bilateral text says, usually the place of effective management or a direct referral to the competent authorities. Turkey’s own corporate tests are the registered office and the place of business management, and the latter is not the same concept as a treaty’s place of effective management; the two can point in different directions.
Domestic rates against treaty caps
A treaty sets a ceiling for withholding, and where the domestic rate sits below it the domestic rate applies, because a treaty can never produce a heavier charge. Below, domestic rates on payments abroad are set against the Turkey to Poland treaty as an example.
On professional services the domestic rate is 20 percent, and on the treaty side what governs is not a rate but a fixed base or a time test. On business profits no taxing right arises at all without a permanent establishment in Turkey. Rates differ between treaties and, within one treaty, by holding percentage and type of payment, so the rate has to be read out of the treaty text rather than off a general list.
The certificate of residence and the forms
To apply a treaty rate, the recipient must produce a certificate of residence. It is issued by the competent authority of the recipient’s own state, and the original together with a Turkish translation certified by a notary or a Turkish consulate goes to the payer. A certificate obtained for a calendar year remains valid until the fourth month of the following year.
Professional service payments use three further forms. Where the duration or the taxing right is uncertain, withholding is compulsory.
| Form | Filed by | When |
|---|---|---|
| Form no. 1 | The service provider | Within thirty days of starting work, to the payer |
| Form no. 2 | The payer | Before payment, to the tax office with form no. 1 and the contract |
| Form no. 3 | The claimant | On a refund of tax withheld, with the certificate of residence |
The 183-day rule for professional services
For consulting, engineering, audit and similar services bought from abroad, most treaties tie the taxing right to time spent. A general communique of 2017 sets out how that time is counted, and this is where errors cluster.
| Who | How the time is counted | Common error |
|---|---|---|
| Companies | Days on which the service is performed in Turkey | Multiplying the days by headcount |
| Individuals | Every day of physical presence, holidays included | Leaving out days when no work was done |
| Projects | Time on the same or connected projects is added together | Splitting connected projects to stay under the threshold |
Three people working for sixty days is sixty days, not one hundred and eighty. A day of less than twenty-four hours counts in full. In some treaties no time test applies to companies at all, and what matters is the permanent establishment condition in article 5.
The permanent establishment threshold
For business profits the rule is clean: a foreign enterprise cannot be taxed in Turkey without a permanent establishment there. Crossing the threshold means a retrospective assessment, so the day count should be kept from the outset on long installation work.
Creates a permanent establishment
- A place of management, branch, office, factory or workshop
- A building site lasting longer than the treaty allows, usually twelve months in Turkish treaties
- A dependent agent who habitually concludes contracts for the enterprise
Does not create one
- Holding stock purely for storage or display
- Activity of a preparatory or auxiliary character
- A short building site below the treaty threshold
Credit for tax paid abroad
Turkey relieves double taxation mainly by the credit method. Tax paid locally on a resident company’s foreign income is set against the Turkish corporate tax, capped at the Turkish tax attributable to that income; the excess is not refunded but carries forward three accounting periods. Individuals have a comparable credit.
The tax paid abroad has to be evidenced by a document from that country’s competent authority, certified by the Turkish consulate there. If it is not ready by the filing deadline, the credit is taken provisionally and the document supplied afterwards. Some treaties apply the exemption method to particular income, which is then not taxed in Turkey at all.
Where the Multilateral Instrument stands in Turkey
The Multilateral Instrument is designed to amend a country’s existing bilateral treaties in a single step. For Turkey the position is as follows.
Turkish treaties operate in their bilateral form. On dual residence the rule that applies is the treaty’s own, not the convention’s automatic solution, and Turkey reserved on that article anyway. The option of filing a mutual agreement request with the other state’s authority is conditioned on the convention applying in Turkey, so requests go to the Revenue Administration. Foreign advice reasoning from the current model text can be misleading here.
The mutual agreement procedure
Where taxation contrary to a treaty has occurred, or is strongly likely to, the taxpayer can ask for a mutual agreement. The procedure was written into the tax procedure legislation in 2021 and applies to requests made from the beginning of 2022.
- RequestFiled with the administration within three years
Three years from the first notification of the measure: service of an assessment notice, an accrual on a return filed under reservation, or a withholding. A different period in the treaty governs instead. There is no fee.
- SuspensionThe period for going to court stops
The litigation period for the taxes and penalties covered is suspended. If no agreement is reached, the taxpayer may sue within the remaining period, extended to fifteen days where fewer remain. Filing does not stop collection.
- OutcomeAcceptance is notified within thirty days
An agreement is served on the taxpayer, who must notify acceptance within thirty days. Silence counts as non-acceptance and the litigation period resumes.
- FinalityAn accepted outcome cannot be litigated
Taxes and penalties are corrected. The agreed matters cannot be litigated, no complaint can be made, and the penalty reduction and settlement provisions are unavailable. Amounts are paid within one month; paying the whole tax and half the penalty in that month halves the penalty.
The mistakes made most often
Problems with tax treaties in Turkey almost always surface under one of these headings.
- Treating the treaty as the source of the charge. A treaty giving Turkey the right to tax is not enough on its own; domestic law must also tax the payment.
- Asking for the certificate after paying. The certificate has to be in hand at the moment of payment. Obtaining it later means a refund claim and cash tied up.
- Multiplying the 183 days by headcount. For companies the period is the number of days the service is performed in Turkey; the number of people sent is not a multiplier.
- Reading from the model convention. Because the Multilateral Instrument is not in force for Turkey, current model provisions do not flow into Turkish treaties by themselves.
- Overlooking the credit documentation. Tax paid abroad cannot be credited without a competent authority document certified by the Turkish consulate.
Frequently asked questions
If a treaty applies, is no tax withheld on a payment abroad?
Usually it still is. Tax treaties in Turkey leave the source country a limited right to tax and set a ceiling rate. Only in certain categories, such as business profits with no permanent establishment, does the right pass entirely to the other state.
Can the treaty rate be used without a certificate of residence?
No. The payer withholds at the domestic rate, and the excess is reclaimed within the correction period once the certificate arrives.
How long is a certificate of residence valid?
Until the fourth month of the year after the calendar year it was taken for. Suppliers used continuously need a fresh certificate every year.
How are the 183 days counted?
For companies, the days the service is performed in Turkey, with no multiplier for headcount. For individuals, every day of physical presence, a stay under twenty-four hours counting as a full day.
Has the Multilateral Instrument changed Turkish treaties?
No. Turkey signed it in 2017 but never deposited an instrument of ratification, so the treaties apply in their bilateral form.
Is tax paid abroad always creditable?
Only up to the Turkish tax on that income. The excess is not refunded but carries forward three accounting periods, and a competent authority document with consular certification is required.
Does a mutual agreement request stop collection?
No. It suspends the litigation period and the statute of limitations, but accrued taxes and penalties are still collected.
If we accept the outcome, can we still go to court?
No. Accepted matters cannot be litigated, and the penalty reduction and settlement provisions become unavailable.
Ozbek CPA advises on payments abroad: identifying the treaty article, the certificate and form process, permanent establishment and time thresholds, foreign tax credits and mutual agreement requests. A related subject is transfer pricing. For a view on a specific payment, get in touch.
- Constitution of the Republic of Turkey, article 90
- Corporate Tax Law no. 5520, articles 3, 30 and 33; Income Tax Law no. 193, article 123
- Tax Procedure Law no. 213, additional articles 14 to 18 (added by Law no. 7338)
- General Communique no. 4 on Double Taxation Agreements (Official Gazette of 26 September 2017, no. 30192)
- Turkey to Poland double taxation agreement (signed 3 November 1993; Official Gazette of 30 December 1996, no. 22863)
- Revenue Administration — the current list of treaties in force
- Signatories and parties to the Multilateral Instrument — Turkey’s ratification status
