As you know, globalization has expanded the movement of capital exceptionally and the transition of goods and capital to borders has accelerated increasingly over the years. The circulation of labor among countries has become widespread. It is quite common now for international companies to appoint managers in the countries where they invest. The term "expat" here is used to refer to the managers of these companies working outside their homeland.
Well, how does the expat taxation process work in Turkey?
To answer this question, we must first look at issues such as tax rate, double taxation, and the country in which taxation occurs. In general, countries make agreements such as the prevention of double taxation to prevent such situations or they bring exceptions to their own legislation.
Foreign workers, because they come to perform certain jobs and temporary assignments are usually covered by foreign companies in Turkey and therefore, not counted as settled. Receiving a residence permit does not mean settlement in Turkey.
With regard to Article 8 Paragraph 1 of the Tax Procedure Law (TPL), a taxpayer is described as "real or legal person who is liable for the tax debts itself as per Tax Laws." In other words, a taxpayer is a real or legal person who is supposed to pay a certain amount of tax to the public creditor.
The two different groups
There is no distinction in terms of numerous tax types, which are collected through withholding; however, there is a distinction between the taxpayers in terms of taxation based on the declaration. The most significant distinction exists in income tax. In income tax, there are two types of liabilities: limited taxpayer and full-fledged taxpayer. The taxation system of such two groups is different from each other.
Full-fledged taxpayer: There are two criteria on the issue of who shall be deemed a full-fledged taxpayer. First is residency and second is citizenship. The residency criterion is taken as base principal. The residency principle is valid only in the situations stipulated in the second paragraph of Article 3 of the Income Tax Law.
As per the residency principle, the persons who are settled in Turkey are deemed as a full-fledged taxpayer and the issue of who is deemed to be settled in Turkey is explained in Article 4: The persons whose domicile is in Turkey and the persons who permanently reside in Turkey more than six months in one calendar year.
As stated in Article 4 of the TPL, it requires residence in Turkey for a calendar year. Temporary departures for more than six months (more than 183 days) are similarly regarded as settled in Turkey. According to Article 5 of the TPL, businesses that come to Turkey for specific and temporary tasks, scholars and scientists, experts, officials, media and press correspondents, and educators are considered settled in Turkey. Recreation or travel detention, conviction, illnesses and those in similar circumstances are also considered settled in Turkey. Anyone considered settled in Turkey must pay taxes on all income.
As per the citizenship principle, Turkish citizens who are connected to institutions and enterprises located in Turkey while residing in a foreign country due to the business of such are deemed as a full-fledged taxpayer.
Limited taxpayer: As per Article 6 of the ITL, the real persons who are not settled in Turkey are subjected to income tax as a limited taxpayer. Despite the fact that such persons are not settled in Turkey, they acquire income. Limited taxpayers are generally foreign nationals. However, a foreign national can be a full-fledged taxpayer if the right conditions are met.
Full-fledged taxpayers are levied due to the income they acquire either in or outside of Turkey. Limited taxpayers are levied due to income only they acquire in Turkey. The most significant distinction between a limited and full-fledged taxpayer is income tax and corporate tax.
Accordingly, if expatriates living in Turkey can be deemed as full-fledged taxpayer pursuant to above-mentioned conditions, they will be liable to pay tax upon their worldwide income. If they can be deemed as a limited taxpayer, then they will be liable to pay tax on the earnings they acquire in Turkey.
However, another point must be noted when determining the taxation regime of the relevant limited taxpayer and this is whether a double taxation treaty exists between Turkey and the country which such person resides in or not. If there is a treaty, such a treaty will be applied. Turkey has negotiated tax treaties with over 70 countries around the world.
Categories in detail
After determining the kind of taxpayer, expatriates should know the amount of tax they need to pay. The taxation structure in Turkey can be separated into three categories.
The first category is "taxes levied on income." Income taxes are direct taxes. In such category, there exists the Income Tax and Corporate Income Tax. The second category is "expenditure taxes." Such taxes are deemed as indirect taxes. Indirect taxes are taken on consumption or in return certain services the state provides. The share of indirect taxes in total tax incomes is approximately 70 percent. We can divide such taxes into seven sub-categories: Value Added Tax, Special Consumption Tax, Customs Duty, Banking and Insurance Transaction Tax, Stamp Tax, Valuable Papers Tax and Fees.
The third category is "wealth taxes." These are direct taxes. These taxes are Motor Vehicle Tax, Real Estate Tax, Inheritance and Transfer Tax.
The abovementioned taxes mainly constitute the Turkish Taxation System. In Tax Procedural Law, the duties of the taxpayer are regulated in certain articles such as bookkeeping, submitting a declaration, drawing up the deed, safekeeping documents, refraining from incomplete declaration etc. The Tax Administration controls whether taxpayers fulfill such duties or not. Furthermore, it is provided certain tax misdemeanors and penalties in the Tax Procedural Law such as tax loss and smuggling.
Therefore expatriates living in Turkey should be aware of what kind of taxpayer are they, which taxes they need to pay and what are the duties and consequences of being a limited or full-fledged taxpayer.
* Lawyer based in Istanbul