Whether dividend income obtained from a limited liability company established in Türkiye must be declared via an annual income tax return is determined not only by the “receipt of dividends” but by whether the individual is classified as a full taxpayer or a limited taxpayer in Türkiye. In practice, factors such as residence registration, actual duration of stay, and the Tax Residency Certificate become decisive for partners who hold dual citizenship and spend a significant portion of the year abroad. This article examines the subject through a specific case study presented in an advance tax ruling issued by the Revenue Administration. Case Study: The Fact Pattern Mr. Ahmet, a partner in a limited company established in Istanbul, holds shares together with his spouse. Mr. Ahmet is a dual citizen of both Türkiye and Italy. In 2019, the company distributed profits, and Mr. Ahmet received dividend income. Mr. Ahmet stated that he spent more than 200 days of the year in Italy and wished to learn whether he is required to file an annual income tax return in Türkiye for this dividend income. The administration’s evaluation is based first on the “full liability vs. limited liability” distinction and subsequently on the Türkiye-Italy Double Taxation Agreement (DTA). Why Taxpayer Status Determines Dividend Declaration The ruling states that the concept of “settlement in Türkiye” under the Income Tax Law is tied to two main criteria: residence and duration of stay. By Residence: If the legal residence is in Türkiye, full tax liability arises as a rule, and the individual’s global income (earned both inside and outside Türkiye) is subject to taxation in Türkiye. By Duration of Stay: Staying in Türkiye for more than six months in a calendar year is also sufficient for full tax liability. In this specific case, the administration pointed out that since the individual’s Istanbul address remained registered as their place of settlement, the existence of a residence in Türkiye is a strong determinant of full tax liability. Legal Nature of Dividend Income The ruling explicitly confirms that the profit shares of limited company partners are characterized as income from immovable capital. This classification is vital because the declaration requirement is directly linked to the taxpayer type and whether the dividend was subject to final taxation through withholding. Declaration of Dividend Income Under Full Tax Liability If the individual is considered a full taxpayer because their residence is in Türkiye, the following results occur: Half Exemption: 50% of the gross amount of the profit share obtained from a full taxpayer entity is exempt from income tax. Threshold Check: The remaining 50% is considered taxable income. If this amount exceeds the specific threshold in the Income Tax brackets for the relevant year, the entire dividend must be declared in the annual income tax return. Note: For reference, this threshold was 40,000 TRY for 2019. (Projected as 330,000 TRY for 2025 and 400,000 TRY for 2026). Is There a Declaration Requirement Under Limited Tax Liability? The ruling states that if the individual proves they resided abroad during the period the income was earned, they may be taxed under limited tax liability. Two types of proof are emphasized: A Tax Residency Certificate obtained from the competent authorities of the relevant foreign country. Documentation proving that the individual did not stay in Türkiye for more than six months during the relevant calendar year. If these documents are presented, the individual will be considered a limited taxpayer. In this case, no annual return is required for income from immovable capital that has already been taxed via withholding in Türkiye. The tax deducted by the company distributing the profit becomes the final tax. Framework of the Türkiye-Italy Double Taxation Agreement (DTA) The ruling explains that the Türkiye-Italy DTA contains “residency” criteria. If an individual is considered a resident in both countries, the conflict is resolved using the tie-breaker rules (permanent home, center of vital interests, habitual abode, and nationality). Regarding dividends, the agreement stipulates that if the recipient is a resident of the other country, the country of source (Türkiye) also has a right to tax, but with a maximum cap. In this case, the cap is 15% of the gross dividend amount. A Tax Residency Certificate must be properly obtained, translated, and notarized to benefit from these DTA provisions. Otherwise, domestic legislation applies. 10 Questions 10 Answers Table Question Answer What is dividend income categorized as? It is considered income from immovable capital. Does having a Turkish residence make one a full taxpayer? Yes, per the ruling, those with a residence in Türkiye are generally full taxpayers. Does spending 200 days in Italy ensure limited liability? Not alone; documentation and residency status are required to prove it. Why is a Residency Certificate important? It is mandatory to benefit from Double Taxation Agreement (DTA) provisions. Does a full taxpayer always declare dividends? Only if the remaining 50% (after exemption) exceeds the annual threshold. How does the 50% exemption work? Half of the gross dividend from a Turkish entity is exempt from tax for full taxpayers. Do limited taxpayers file an annual return? No, for dividends already taxed via withholding, the withholding is final. Does Türkiye have taxing rights under the Italy DTA? Yes, but it is generally capped at 15% if the person is an Italian resident. How is dual residency resolved? Via tie-breaker rules: permanent home, vital interests, etc., in sequence. What if no Residency Certificate is provided? Domestic law applies instead of the DTA, affecting the tax rate and declaration. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.