Turkey’s Double Taxation Treaty Network
Turkey has signed double taxation avoidance agreements (DTAAs) with over 90 countries, making it one of the more extensive treaty networks among emerging market economies. These treaties prevent the same income from being taxed twice — once in Turkey and once in the investor’s home country.
Key treaty partners include:
- All major EU member states (Germany, France, Netherlands, Italy, UK, etc.)
- United States, Canada
- Japan, South Korea, China
- UAE, Saudi Arabia, Qatar, Kuwait
- Russia, Ukraine, Azerbaijan, Georgia
- India, Pakistan, Indonesia
- Morocco, Egypt, South Africa
What Double Taxation Treaties Cover
Turkish DTAAs typically cover:
- Dividends — reduced withholding tax rates on dividends paid to foreign shareholders
- Interest — reduced withholding on interest paid to foreign lenders
- Royalties — reduced withholding on royalties paid for intellectual property
- Capital gains — rules on which country taxes gains from share/asset sales
- Business profits — rules on whether Turkey can tax a foreign company’s profits
- Permanent establishment — definition of what creates a taxable presence in Turkey
- Employment income — rules on taxing salaries of cross-border workers
- Directors’ fees, pensions, student income, and other categories
Key Withholding Tax Rates Under Selected Treaties
| Country | Dividends (min. %) | Interest (%) | Royalties (%) |
|---|---|---|---|
| Germany | 5% / 15% | 10% | 10% |
| United Kingdom | 5% / 15% | 15% | 10% |
| Netherlands | 5% / 15% | 10% | 10% |
| United States | 5% / 20% | 15% | 5%/10% |
| France | 15% / 20% | 15% | 10% |
| UAE | 10% | 10% | 10% |
| Russia | 10% | 10% | 10% |
| China | 10% | 10% | 10% |
| Japan | 10% / 15% | 10% | 10% |
| South Korea | 15% / 20% | 15% | 10% |
Lower dividend rates typically apply when the beneficial owner holds a minimum percentage (usually 10% or 25%) of the distributing company. The exact rates in each treaty should be verified at gib.gov.tr.
Domestic law rates (without treaty): Dividends 15%, Interest 10%, Royalties 20%.
What Is a Permanent Establishment?
A permanent establishment (PE) (işyeri) is a fixed place of business through which a foreign company’s business is wholly or partly conducted in Turkey. If a foreign company has a PE in Turkey, Turkey can tax the profits attributable to that PE.
Under most Turkish treaties, a PE includes:
- A place of management, branch, or office
- A factory, workshop, or mine
- A building site or construction project lasting more than a specified period (typically 6–12 months)
- A dependent agent who habitually concludes contracts on behalf of the foreign company
Importance for foreign investors: If your foreign company has employees or representatives working in Turkey who regularly conclude contracts on your behalf, you may inadvertently create a PE — triggering Turkish corporate income tax and VAT obligations even without a formally registered entity.
Beneficial Ownership Requirement
To claim treaty benefits on withholding taxes, the foreign recipient must be the beneficial owner of the income. Anti-avoidance provisions prevent “treaty shopping” (routing income through a treaty country just to access reduced rates).
Turkish tax authorities increasingly scrutinize:
- Substance of the recipient entity in its home country
- Whether the entity has genuine business activities
- The purpose of the corporate structure
How to Claim Treaty Benefits
Withholding Tax Reduction
When a Turkish company pays dividends, interest, or royalties to a foreign recipient:
- The foreign recipient provides a tax residency certificate (mukimlik belgesi) from their home country tax authority
- The Turkish company applies the treaty-reduced withholding rate (instead of the domestic law rate) at the time of payment
- The Turkish company files its withholding tax declaration reflecting the reduced rate
- The tax residency certificate must be apostilled or consularly legalized
Refund of Over-Withheld Tax
If withholding tax was deducted at the domestic law rate but a lower treaty rate applies, the foreign recipient can apply to the Turkish tax office for a refund of the excess withheld. Applications must be supported by the tax residency certificate and documentation of the payment.
Refund applications can take 6–18 months to process.
The Multilateral Instrument (MLI)
Turkey signed the OECD Multilateral Instrument (MLI) in 2017, which automatically modifies many of Turkey’s tax treaties to include:
- Principal Purpose Test (PPT): A general anti-avoidance rule — treaty benefits are denied if obtaining the benefit was one of the principal purposes of an arrangement
- Tie-breaker rules for dual-resident companies
- Permanent establishment definition modifications
The MLI is now in force for many Turkey treaties, adding complexity to treaty benefit claims. Legal advice is recommended for complex treaty benefit analyses.
Turkey-EU Withholding Tax
Although Turkey is not an EU member, companies must note that:
- Turkey does not benefit from the EU Parent-Subsidiary Directive or EU Interest and Royalties Directive
- Payments between Turkish companies and EU companies are subject to the relevant bilateral treaty rates (not EU directive rates)
- This means dividends from a Turkish subsidiary to a German parent are subject to treaty withholding (e.g., 5% under the Germany-Turkey treaty), not the 0% EU directive rate that would apply intra-EU
Interaction with Turkish Tax
Dividends from Turkey
A foreign company receiving dividends from its Turkish subsidiary pays:
- Turkish withholding tax at the treaty rate (5%–15% depending on treaty)
- May receive a foreign tax credit in the home country for the Turkish withholding tax paid
Dividends from Abroad to Turkey
A Turkish company receiving dividends from a foreign subsidiary may qualify for the Turkish foreign dividend exemption if conditions are met (10% ownership, 1 year holding, ≥15% foreign tax on the subsidiary’s profits).
Frequently Asked Questions
Does Turkey have a tax treaty with the United States? Yes. The Turkey-US tax treaty is in force. Dividends are subject to 5% withholding (if the US company owns ≥10% of the Turkish company) or 20% withholding otherwise. Royalties are subject to 5%/10% depending on the type of IP.
How do I get a tax residency certificate for my home country? A tax residency certificate (mukimlik belgesi) is issued by the tax authority of your home country confirming that you are a tax resident there. In the US, the IRS issues Form 6166. In the UK, HMRC issues a letter of confirmation. Most countries have a standard procedure.
What happens if there is no treaty between my country and Turkey? Without a treaty, Turkish domestic law rates apply: 15% withholding on dividends, 10% on interest, and 20% on royalties. You may still obtain a credit in your home country for Turkish taxes paid, depending on your home country’s foreign tax credit rules.
Does Turkey exchange tax information with other countries? Yes. Turkey participates in the OECD’s Common Reporting Standard (CRS) for automatic exchange of financial account information and has bilateral exchange agreements with many countries. Foreign tax authorities may receive information about Turkish bank accounts and income held by their residents.