04 February 2025Ahmet KAYA

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Taxation of expats in Türkiye

Expat is a term generally used to describe white-collar foreign workers. In recent years, there has been a significant increase in the number of individuals working outside their home country. This increase, as a reflection of global labour mobility, has caused tax and social security practices to become more complex in the case of expatriates.

In this study, we will examine the taxation of expatriates working in Türkiye or providing services to Turkish companies and the regulations in double taxation avoidance agreements.

Note: This study includes explanations on wage income. No assessment has been made in terms of other income items. In our study, the regulations in the double taxation avoidance agreement (DTAA) signed between Türkiye and the Netherlands are taken into consideration. It should be taken into consideration that DTAAs may contain different regulations.

1. What is an expatriate?

An expatriate is a person who works outside his/her own country. In our country, we see that companies with foreign partners commonly employ personnel from abroad. In this way, the wage payment may be made to the person assigned in his/her own country or in the country where he/she works, and the wage payment may be reflected to the other party. In these and similar cases, the taxation of the wage income obtained by the expert in which country comes to the agenda.

2. Determination of tax liability of expats

The tax systems of countries are generally based on criteria such as residence, citizenship and source of income. The tax liability of the expats is shaped according to these criteria.

The legal regulations in the relevant countries should be evaluated in this respect and it should be determined in which country the expat should be taxed. However, local regulations may raise the problem of the expat paying tax in two different countries on the same income. This situation is defined as double taxation.

Double taxation avoidance agreements are signed between states in order to prevent double taxation in terms of both wage income and other income elements.

Since DTAAs are international conventions, they rank above laws in the hierarchy of norms. These agreements, which are put into force, include regulations on which country will have the right to taxation according to the characteristics of the event.

3. Determination of the regulations to be applied

While evaluating the tax status of the payments made to the adjusters, it should first be determined whether there is a DTAA between the two countries. If there is no DTAA, the provisions of the domestic legislation should be taken into consideration.

If there is a DTAA, it should be determined in which country the expatriate should be taxed by taking into account the provisions of the agreement. In order for the provisions of the DTAA to be taken into consideration, the person must obtain a residence certificate from the country of residence. A certificate of residence is a document obtained from the competent authorities of the relevant country showing that the person is a full taxpayer in the country of residence. In the absence of a residence certificate, it is not possible to apply the provisions of the DTAA.

In the following sections, firstly the general regulations in the DTAAs on the taxation of expatriates and then the regulations in our domestic legislation will be discussed.

4. Regulations in Double Taxation Avoidance Agreements

DTAAs are applied to persons resident in one country and earning income in another country. The DTAAs, which are based on the model agreements prepared by the OECD and the UN, are similar in terms of content. According to the general regulations in the DTAAs, the jurisdiction of taxation of wage income is determined by following the following steps

• In which country is the person resident?
• Where is the service rendered?
• If the service was rendered abroad, how long was the person abroad?
• In which country is the payer resident?

4.1. Determining the country of residence of the person (residency)

The first assessment to be made within the scope of the DTAA is to determine the country of residence of the person. According to the regulation generally included in the DTAAs;

• The person is in the country of his/her home/residence,
• If he has a home in each country, in the country where he has a permanent residence,
• If he has a permanent residence in both countries, in the country with which he has closer personal and economic ties,
• If the country with which he/she has closer economic relations cannot be identified, the country where he/she has a habitual residence,
• If he/she has a home in both countries, or if he/she does not have such a home in both countries, he/she shall be deemed to be resident in his/her country of nationality.

4.2. Place of service, duration of stay abroad and paying party

According to the regulation in the DTAAs, wage income is taxed in the country where the person is resident unless the service is provided in the other country. If the service is rendered in another country, the taxation right of the other country arises.

However

• the person stays in the other country where the service is provided for a period not exceeding 183 days in total in a calendar year, and
• payment is made by or on behalf of an employer who is not resident in the country in which the service is provided, and
• the payment is not made from a place of business or fixed location owned by the employer in the country where the service is rendered

The income is taxed in the country where the person is resident. Otherwise, the taxation will be carried out in the other country and the taxes paid can be deducted/set-off from the tax calculated in the country where the person is resident.

5. Internal legislative arrangements

5.1. Regulations in the Income Tax Law

The Income Tax Law  regulates the taxation of wages earned by real persons. In the Income Tax Law, taxpayers are divided into two categories as full and limited taxpayers.

Full taxpayers: Full taxpayers are taxed on all of their earnings and revenues in and out of Türkiye.

Limited taxpayers: Taxpayers are taxed only on the income and profits generated in Türkiye.

The Income Tax Law basically regulates that persons resident in Türkiye have full taxpayer status, while persons who are not resident in Türkiye are limited taxpayers. Of course, the conditions under which individuals are/are not deemed to be resident in Türkiye are also explained in the Law. On the other hand, the conditions under which limited taxpayers who earn wage income will be deemed to have earned such income in Türkiye are also regulated in the Income Tax Law. These regulations are briefly explained in the table below.

Withholding Pursuant to Article 94 of the Income Tax Law, employers are required to withhold income tax on wage payments made to employees.

Exception: There is an exemption regulation in Article 23/14 of the Income Tax Law that is relevant to our subject. The wages exempted from income tax with the said regulation are as follows:

“a) Wages paid in foreign currency to the service personnel employed by limited taxpayer employers whose legal and business headquarters are not located in Türkiye, over the earnings of the employer outside Türkiye;

1. b) Wages paid in foreign currency to the service personnel employed exclusively within the scope of the activity permit of the centre in the regional management centres established in accordance with the permission obtained from the Ministry of Economy by employers subject to limited taxpayers whose legal and business headquarters are not located in Türkiye, over the earnings obtained outside Türkiye.”

In the rulings given by the Revenue Administration, it is stated that the service must be rendered in Türkiye in relation to the exemption in subparagraph (a) of the Article. Therefore, the opinion of the Administration is that the wage income derived from services rendered abroad is not within the scope of this exemption.

5.2. Regulations in the Corporate Tax Law

Article 3 of the Corporate Tax Law No. 5520 (KVK) defines non-resident corporations as limited taxpayers if both their legal and business headquarters are not located in Türkiye, and regulates that the self-employment earnings of these corporations in Türkiye are subject to tax. The provisions regarding the realisation of the income in Türkiye are included in the Income Tax Law and these regulations are explained in the previous section.

Article 22 of the KVK stipulates that the provisions of the Income Tax Law regarding the determination of these earnings shall be applied to the self-employment earnings of limited taxpayer corporations, and Article 30 stipulates that corporate tax withholding at the rate of 15% (5% or 20% with the Decree of the Council of Ministers dated 03/02/2009 and numbered 2009/14593) should be made on self-employment payments made to limited taxpayer corporations.

6. Taxation of expats working in Türkiye

In line with the above-mentioned regulations, we can evaluate the situation of surveyors working in Türkiye.

6.1. Taxation in the absence of a DTTA

In the absence of a DTAA between our country and the expatriate country, we need to evaluate the issue directly within the scope of the provisions of the Income Tax Law and the KVK.

According to these regulations;

• If the expat is resident in Türkiye according to the provisions of the Income Tax Law, his/her wage income should be taxed in Türkiye on a full taxpayer basis.
• If the expat is not resident in Türkiye according to the provisions of the Income Tax Law, if the service is provided in Türkiye or the payment is made in Türkiye or if the payment made abroad is reflected to persons or institutions in Türkiye, the expat's wage income should be taxed in our country on a limited liability basis.
• Except for these two cases, the expat will not be taxed in Türkiye.

As can be seen, according to the Income Tax Law, if a non-resident expat provides services in Türkiye, his/her income should be taxed in Türkiye without any other conditions. On the other hand, according to the DTAAs, the fact that a non-resident expat provides services in Türkiye does not, by itself, lead to the conclusion that he/she should be taxed in Türkiye.

The manner in which payments are made to foreigners working in Türkiye is important in terms of tax applications. Let's analyze in headings.

6.1.1. Domestic wage payment (employees on payroll in Türkiye)

Withholding tax is levied by the employer on wage payments. The general provisions regarding the taxation of wage income are applied for expatriates who are taxed on a full taxpayer basis. Withholding tax is not a final taxation and a declaration must be submitted if the declaration limit is exceeded.

Withholding tax is final taxation for expats who are taxed on a limited taxpayer basis. In other words, they do not need to submit a declaration.

6.1.2. Payment of wages from abroad (Employees who are on payroll abroad but working in Türkiye)

The company abroad is not obliged to make withholding tax. In this case, the expert must declare his/her income by submitting a declaration in Türkiye.

6.1.3. Wage payment made from abroad and reflected to the company in Türkiye (Those who are on payroll abroad and working in Türkiye, whose wage payments are reflected to the company in Türkiye)

It is a common situation that foreigners employed in companies with foreign partners are paid from abroad and the payment is reflected to the company in Türkiye (with a reflection invoice). In such a case, the Revenue Administration's opinion is that withholding tax should be applied on the wage payment. In addition, the Administration is of the opinion that the gross wage amount calculated by including withholding tax to the net wage should be considered as self-employment payment made to the company abroad and should also be subject to withholding tax. In other words, according to this opinion, the payment should be subject to withholding tax twice.

On the other hand, according to the opinion of the Revenue Administration, since the payment made is considered to be in return for the self-employment service received from abroad, VAT should also be calculated over the gross amount and the calculated VAT should be declared and paid by the company in Türkiye subject to withholding tax.

Contrary to the administrative opinion, there are opinions that the wage payment cannot be subject to withholding tax, in addition, the payment made to the company abroad is in the nature of personnel recruitment service, therefore, it cannot be considered as self-employment income and therefore should not be subject to withholding tax. According to another opinion, it is argued that VAT should not be calculated since there is no service provided by the company abroad.

6.2. Taxation in case of a DTAA

If there is a DTAA in force between the expatriate country and Türkiye, the taxation right of the expatriate country is determined according to the DTAA regulations. In the assessments we make in this section, we will take into account the general regulations in the DTAAs mentioned above.

If the expatriate is deemed to be resident in Türkiye according to the provisions of the DTAA, taxation will be carried out according to the provisions of our domestic legislation.

If the expatriate is deemed to be resident in his/her own country according to the provisions of the DTAA, the country in which the right to taxation will be determined according to the duration of his/her stay in Türkiye and the form of payment. As mentioned in section 4.2 of our article, if the duration of the foreign employee's stay in Türkiye does not exceed 183 days in total within a calendar year and the payment is not associated with the company in Türkiye, the right of taxation will be in the country of the expatriate. Otherwise, Türkiye will be entitled to taxation.

If the right of taxation is in Türkiye, wage income will be taxed in accordance with the explanations in section 6.1 of this article. However, there is a difference if the wage is paid by the company abroad and reflected to the company in Türkiye.

In section 6.1.3. of our article, we have given an administrative opinion on how the taxation will be carried out in case the wage is paid by the company abroad and reflected to the company in Türkiye. This opinion was that the gross wage amount calculated by including withholding tax to the net wage should be considered as self-employment payment made to the company abroad and should be subject to withholding tax. There are regulations regarding self-employment activities in the DTAAs and these regulations should also be taken into consideration in the assessments to be made.

6.2.1. Evaluation of payments made abroad within the scope of self-employment activity

In the event that the remuneration is paid from abroad and reflected to the company in Türkiye in return for the work in Türkiye of foreigners on the payroll of companies resident abroad, the payment made to the company abroad is considered by the Administration as a payment made in return for ‘the self-employment activity carried out in Türkiye by the foreign enterprise through its personnel’.

In DTAAs, the country in which the right to tax self-employment income is located is generally regulated as follows.

“2. Income derived by an undertaking of a State from self-employment or other activities of a similar nature shall be taxable only in that State. However, if those activities are carried on in Türkiye and if:

(a) the undertaking has a place of business in that other State for the purpose of carrying on those activities; or

(b) the period or periods during which the activities are carried out exceed a total of 183 days in any uninterrupted 12-month period,

such income may also be taxable in that other State.

In such a case, as the case may be, either income attributable solely to the establishment in question or income attributable solely to activities carried on in that other State may be taxable in that other State. In either case, the Republic of Türkiye may levy tax by way of withholding tax on such income. However, the recipient of such income may, after being so taxed, elect to be taxed on such income on a net basis in accordance with the provisions of Article 7 of this Agreement, i.e. as if such income were attributable to a permanent establishment in Türkiye.”

In the specific case, assuming that the foreign company does not have a workplace in Türkiye, if the duration of the activity is more than 183 days in total in any uninterrupted 12-month period, the income obtained will be taxed in Türkiye. As can be seen, in terms of duration, the condition of ‘exceeding 183 days in a 12-month period’ is required for self-employment payments and ‘exceeding 183 days in total within a calendar year’ is required for wage payments.

In the event that Türkiye's right to tax arises, taxation will be made through withholding tax in accordance with Article 30 of the KVK. The foreign company is not required to file a declaration in Türkiye.

The duration cannot be determined at the time of payment: The Revenue Administration is of the opinion that withholding tax should be withheld on such payments if it is not known at the time of payment whether the foreign employee will stay in Türkiye for a period exceeding 183 days in total in any uninterrupted 12-month period. In case this condition is not fulfilled, the company to which the payment is made may apply to the tax office for the refund of the withholding tax.

Payments to a foreign company due to more than one employee: The Revenue Administration is of the opinion that if self-employment activities are provided to more than one enterprise in Türkiye, the total length of stay of the personnel in Türkiye will be taken into consideration in cases where all of these activities or services are performed by more than one personnel sent to Türkiye.

Offset: The withholding tax on the payment made to the foreign company can be offset in the relevant country.

VAT: Since the payments made are accepted as self-employment payments by the Administration, it is concluded that VAT withholding is required regardless of whether Türkiye has the right to tax or not in terms of corporate tax. However, in case of corporate tax withholding, the said withholding will be included in the VAT base and will have an effect on the VAT base.

6.3. Employees working in liaison offices

The above regulations also apply to foreigners working in liaison offices in Türkiye. However, if the payments made to these persons meet the exemption conditions set out in Article 23/14 of the Income Tax Law, they will not be taxed in Türkiye.

7. Taxation of foreigners working remotely for companies in Türkiye

The nature of the income of persons who earn income by providing services to those outside the country where they work remotely is important in terms of taxation. If the relationship between the two parties is in the nature of an employee-employer relationship and the employee provides services in accordance with the orders and instructions of the employer, then the income obtained in this case is considered as wages. In such a case, since the payment is made in Türkiye, the wage payment should be subject to withholding tax. Since the foreign person will be in the limited taxpayer status, he/she is not obliged to submit a declaration.

If the service provider does not work under the orders and instructions of the employer, his/her activity is independent and he/she receives payment in return for the work completed, his/her income is considered as self-employment income. In such a case, there is no need to withhold withholding tax on the payments made, provided that the service provider's residency certificate is provided. However, VAT should be withheld on the self-employment payment.

8. Special occupational groups

Special provisions may be included for some professional groups (e.g. board members, academics and teachers). The situation of these persons should be assessed by taking into account the special provisions.