HOW TO DO BUSINESS IN TURKEY: INVESTOR'S GUIDE


10. Withholding taxes and double tax relief


10.1. Major Withholding Tax Rates


Withholding tax rates vary depending on the type of income. The Council of Ministers is authorized to amend the rates. Major rates currently in effect are shown in Table 10.01.

Table 10.01 Major withholding tax rates on payements to resident and non-resident corporations


Type of Income For residents (%) For non-residents
Income from professional services 20 20
Income from construction and repair work extending to more than one year: 3 3
Dividends: 15(1) 15
Interest:    
- On foreign loans from foreign states, foreign banks and financial institutions 0 0(2)
- On Treasury Bills and Government Bonds 0 0
- On Turkish Lira and foreign currency deposit accounts (regardless of the length of maturity period) 15 15
Repo income 15 15
Capital gains on share certificates (provided that they are traded in the Istanbul Stock Exchange and held for more
than one year) 		0 0
Royalties and immovable property:    
- on payments for the right to use (copyrights, patents, know-how etc.) - (3) 20
- on payments for the transfer of ownership of copyrights, patents and trademarks - (3) 20

(1) Dividends distributed by a Turkish company to another Turkish company are exempt from dividend withholding tax, however, dividends distributed by a Turkish company to real persons are subject to 15% dividend withholding tax.
(2) Interest on foreign loans obtained from those financial entities that grant loans exclusively to the group companies are still subject to 10% withholding tax. In order to eliminate 10% withholding tax, the lenders must qualify as a financial institution in their country of residence and additionally they must be providing loans to the public, not only to the companies in a specific group.
(3) Payment of royalties by a Turkish company to another resident Turkish company is not subject to income withholding tax. 20% withholding tax applies on royalty payments made by resident Turkish companies to nonresidents.

10.2. Double Tax Treaty Relief


Turkey has Double Tax Treaties with 70 countries which provide relief from double taxation. Withholding tax rates are applied at the lower of local tax rate and treaty tax rate. Table 10.02 shows the countries included in Turkey’s tax treaty network as well as the reduced withholding taxes applied on dividend and royalty payments based on the relevant provisions of the Double Tax Treaties concerned.

Table 10.02 Countries with which Turkey has Tax Treaties and Principal Treaty Withholding Tax (WHT) Rates


      WHT Rates on dividends paid from Turkey     WHT on
  Country of Recipient Date of Entry into force Major Ownership Major Rate
(%)		 Minor Rate
(%)		 Royalty
(%)
1 Albania 1 January 1997 25% 5 15 10
2 Algeria 1 January 1997 - 12 12 10
3 Austria 1 January 1974 25% 15 15 10
4 Azerbaijan 1 January 1998 - 12 12 10
5 Bahrain 1 January 2008 25% 10 15 10
6 Bangladesh 1 January 2004 - 10 10 10
7 Belarus 1 January 1999 25% 10 15 10
8 Belgium2 1 January 1992 10% 15 15 10
9 Bosnia and Herzegovina 1 January 2009 25% 5 15 10
10 Bulgaria 1 January 1998 25% 10 15 10
11 Croatia 1 January 2001 - 10 10 10
12 Czech Republic 1 January 2004 - 10 10 10
13 Denmark 1 January 1991 25% 15 15 10
14 Egypt 1 January 1997 25% 5 15 10
15 Estonia 1 January 2006 - 10 10 5, 10
16 Ethiopia 1 January 2008 - 10 10 10
17 Finland 1 January 1989 25% 15 15 10
18 France 1 January 1990 10% 15 15 10
19 Germany 1 January 1990 10% 15 15 10
20 Greece 1 January 2005 - 10 15 10
21 Hungary 1 January 1993 25% 10 15 10
22 India 1 January 1994 - 15 15 15
23 Indonesia 1 January 2001 25% 10 15 10
24 Iran 1 January 2006 25% 15 15 10
25 Israel 1 January 1999 - 10 10 10
26 Italy 1 January 1994 - 15 15 10
27 Japan3 1 January 1995 25% 10 15 10
28 Jordan 1 January 1987 25% 10 15 12
29 Kazakhstan 1 January 1997 - 10 10 10
30 Kuwait 1 January 1997 - 10 10 10
31 Kyrgyzstan 1 January 2002 - 10 10 10
32 Latvia 1 January 2004 - 10 10 5, 10
33 Lebanon 1 January 2007 15% 10 15 10
34 Lithuania 1 January 2001 - 10 10 5, 10
35 Luxembourg 1 January 2006 25% 10 15 10
36 Macedonia (FYROM) 1 January 1997 25% 5 10 10
37 Malaysia 1 January 1997 25% 10 15 10
38 Moldova 1 January 2001 25% 10 15 10
39 Mongolia 1 January 1997 - 10 10 10
40 Morocco 1 January 2007 25% 7 10 10
41 Netherlands4 1 January 1989 25% 10 15 10
42 Norway 1 January 1977 25% 15 15 10
43 Pakistan5 1 January 1989 - 10 15 10
44 People’s Republic of China 1 January 1998 - 10 10 10
45 Poland 1 January 1998 25% 10 15 10
46 Portugal 1 January 2007 25% 5 15 10
47 Qatar 1 January 2009 25% 10 15 10
48 Romania 1 January 1989 - 15 15 10
49 Russia 1 January 2000 - 10 10 10
50 Serbia and Montenegro 1 January 2008 25% 5 15 10
51 Singapore 1 January 2002 25% 10 15 10
52 Slovakia 1 January 2000 25% 5 10 10
53 Slovenia 1 January 2004 - 10 10 10
54 South Africa 1 January 2007 25% 10 15 10
55 Saudi Arabia Expected to enter
into force soon		 20% 5 10 10
56 South Korea 1 January 1987 25% 15 15 10
57 Spain6 1 January 2004 25% 5 15 10
58 Sudan 1 January 2006 - 10 10 10
59 Sweden 1 January 1991 25% 15 15 10
60 Syria 1 January 2005 - 10 10 10, 15
61 Tajikistan 1 January 2002 - 10 10 10
62 Thailand 1 January 2006 25% 10 15 15
63 Tunisia 1 January 1988 25% 12 15 10
64 Turkish Republic of Northern Cyprus 1 January 1989 25% 15 15 10
65 Turkmenistan 1 January 1998 - 10 10 10
66 Ukraine 1 January 1999 25% 10 15 10
67 United Arab Emirates 1 January 1995 25% 10 12 10
68 United Kingdom 1 January 1989 25% 15 15 10
69 United States of America 1 January 1998 10% 15 15 5, 10
70 Uzbekistan 1 January 1997 - 10 10 10

* Double Tax Treaties with Ireland, Switzerland, Oman, Yemen and Philippines are still pending to be signed.
1. If the Treaty WHT rate is greater than the local dividend WHT rate of 15%, the local rate which is lower shall be applicable.
2. Where the dividend is not subject to corporate income tax in Belgium, both the major and minor rates shall be applied at 10%.
3. The major rate applies if the recipient shareholder in Japan is a company that holds, during the six month period immediately preceding the closing date of the accounting period (for which dividends are distributed) at least 25% of the Turkish company paying the dividends. Otherwise, the dividend WHT rate is 15%.
However, considering that the local Turkish dividend WHT rate is 15%, the major and minor rate shall be applied at 15% if the amount of the Turkish tax charged on the income of the company paying the dividends in Turkey is less than 40% of the income of the accounting period that ended immediately before the dividend became payable.
4. Where the Netherlands company which receives the dividend is not subject to Netherlands company tax with respect to the dividend (i.e. in case Dutch participation exemption conditions are satisfied), a major rate of 10% applies.
5. The additional condition required to apply the major rate of 10% is that the Turkish company paying the dividends must be engaged in industrial activities, otherwise the rate is applied at 15%.
6. The additional condition required to apply the major rate of 5% is that the dividends must be distributed from the profits which have been made subject to Turkish corporate income tax at the general rate of 20%. Otherwise, the rate is to be applied at 15%.

Under Turkey’s Double Tax Treaties, income derived from foreign countries is either excluded from consideration in Turkish tax computation or double taxation is eliminated through tax credit mechanism. Accordingly, tax paid in treaty countries is deductible from tax assessments in Turkey. For detailed information, applicable tax treaties should be referred to.

Among the benefits offered by the tax treaties are relief from Turkish withholding taxes on dividends and royalties. Treaty rates are shown in Table 10.02. Table 10.03 below compares some nontreaty rates with the rates generally offered under double tax treaties.

Table 10.03 Comparison of Non-treaty (Local) Rates With the Rates Generally Available Under Double Tax Treaties(*)


Type of Payment Non-treaty Rate (%) Treaty Rate (%)
Commercial (such as banking or insurance charges, commissions, storage or transportation payments, production payments or cross charges) 0 0
Professional (such as engineering, consulting or tuition payments, technical or assembly work):    
If the period of presence in Turkey is shorter than 183 days per year 20 0
If the period of presence in Turkey is 183 or more days per year 20 20
If work is carried out outside Turkey 20 0
Royalties (such as payments for licenses, know-how and intangible rights):    
For contracts in the form of rents (entitling to the right of use) 20 10
For contracts in the form of transfers or assignments of rights 20 10

(*) The specific provisions of the relevant Double Tax Treaty must always be checked and professional advice must be sought prior to the application.

10.3. Unilateral Relief


In the case of countries that do not have a tax treaty with Turkey, tax paid in foreign countries on income derived by fully-liable taxpayers can be deducted from the annual individual income tax or corporate income tax to be paid. The amount of foreign tax credit can not exceed Turkish income tax or corporate income tax amount calculated on earnings derived from the foreign country.

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