Ruling Number: 62030549-120[75-2015/796]-14593 Introduction In a private ruling dated February 22, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of deposit assets held in Turkish banks by a German resident. The taxpayer stated that they reside in Germany, spending only a few summer months on vacation at their summer house in Bodrum (Muğla). In 2013, they sold their properties and closed their tax registration. They have no full liability tax status in Türkiye. All their income is taxed in Germany. However, they keep their deposit assets in Turkish banks. The Turkish banks withhold income tax on these deposits as if the taxpayer were a full liability taxpayer. The German tax office also taxes the same deposit interest income. The taxpayer requested clarification on whether the interest income should be taxed under the double taxation treaty as a limited liability taxpayer. Domestic Law – Income Tax Law (Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye are taxed on their worldwide income. Article 4 – Residence in Türkiye: The following persons are considered resident in Türkiye: Those whose domicile is in Türkiye; Those who stay continuously in Türkiye for more than six months in a calendar year. Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 7 – Income Deemed Derived in Türkiye: For movable capital income (including interest), the income is deemed derived in Türkiye if the capital is invested in Türkiye. Article 86(2) – Declaration Requirement for Limited Liability Taxpayers: Limited liability taxpayers are not required to file an annual return for income subject to final withholding tax. Temporary Article 67 (Geçici 67) – Withholding Tax on Interest and Other Capital Market Income: Paragraph 4: Interest earned on deposit accounts is subject to final withholding tax at a rate of 15% (or rates between 10% and 18% depending on the term and type of account, as determined by the Council of Ministers Decree No. 2012/4116). Key Principle: The withholding tax under Geçici 67 is final (nihai). No further tax return is required for such income. Income Tax General Communiqué No. 210: Turkish citizens who have been living abroad for more than six months with a work or residence permit (except those covered by Article 3(2)) shall be taxed as limited liability taxpayers on their income derived from Türkiye. Those who permanently return to Türkiye or stay in Türkiye for more than six months in a calendar year shall be taxed as full liability taxpayers. Income Tax General Communiqué No. 257 – Section 10 (Application of Double Taxation Treaties): To benefit from treaty provisions (reduced withholding tax rates), a resident of another country must provide a Certificate of Residency issued by the competent authority of that country, along with a certified Turkish translation, to the tax office, bank, or intermediary institution before the withholding tax is applied. If the certificate is not provided before withholding, the standard 15% rate applies. However, the taxpayer may later claim a refund of the excess tax by submitting the certificate. Double Taxation Treaty Provisions Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011) Article 4 – Resident (Paragraphs 1 and 2): 1. “Resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of their home, domicile, place of management, or any other criterion of a similar nature. 2. Where an individual is a resident of both Contracting States, the tie-breaker rules (permanent home → center of vital interests → habitual stay → citizenship) shall apply. Article 11 – Interest (Paragraphs 1 and 2): 1. Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the State in which it arises. But if the beneficial owner is a resident of the other State, the tax charged shall not exceed 10% of the gross amount of the interest. Article 22 – Elimination of Double Taxation: Taxes paid in Türkiye may be credited against German tax on the same income. Ruling Conclusion Step 1 – Determine Residency Status Under Domestic Law Factor Determination Does the taxpayer have a domicile in Türkiye? No (domicile is in Germany) Does the taxpayer stay in Türkiye for more than 6 months per calendar year? No (only a few summer months for vacation) Taxpayer status under Articles 4 and 6 Limited liability taxpayer (dar mükellef) Step 2 – Domestic Tax Treatment of Interest Income Under Geçici 67 of the Income Tax Law, interest earned on deposit accounts is subject to final withholding tax (nihai tevkifat). The Turkish banks apply the standard rates (15% or lower depending on the account type). For a limited liability taxpayer, no annual return is required for such income (Article 86(2)). Step 3 – Treaty Application (If Certificate of Residency is Provided) If the taxpayer provides a German Certificate of Residency to the Turkish banks (or tax office): Factor Determination Taxpayer status under DTT Article 4 German resident (residing in Germany, limited stay in Türkiye) German taxing right under Article 11(1) Yes (Germany may tax) Turkish taxing right under Article 11(2) Yes (source State) – but limited to 10% Applicable Turkish withholding tax rate 10% (instead of the standard 15% or variable rates) Step 4 – Foreign Tax Credit in Germany Under Article 22 of the DTT, taxes paid in Türkiye (at 10% or less) may be credited against German tax on the same interest income, eliminating double taxation. Summary Table Scenario Taxpayer Status Turkish Withholding Tax Rate Annual Return in Türkiye? German Tax Treatment Without Certificate of Residency Limited liability (dar mükellef) Standard Geçici 67 rates (15% or 10-18%) No (final withholding) Germany taxes; potential double taxation With German Certificate of Residency German resident (DTT) 10% (under Article 11(2)) No (final withholding) Foreign tax credit available (Article 22) Required Documentation for Treaty Benefits To benefit from the reduced 10% withholding tax rate under the DTT, the taxpayer must: Obtain a Certificate of Residency from the competent German authorities proving that they are fully liable to tax in Germany on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the relevant bank or tax office before the withholding tax is applied. If the certificate is not provided before withholding: The bank will apply the standard Geçici 67 rates. However, the taxpayer may later claim a refund of the excess tax by submitting the certificate to the tax office. Practical Steps for the Taxpayer Obtain a German Certificate of Residency (if not already obtained). Submit the certificate (with certified Turkish translation) to the Turkish banks where the deposit accounts are held. Request the banks to apply the 10% treaty rate on future interest payments. Claim a refund from the Turkish tax office for any excess tax withheld before the certificate was submitted. Declare the interest income in Germany and claim a foreign tax credit for Turkish taxes paid (10% rate). Important Notes The taxpayer is correctly classified as a limited liability taxpayer (dar mükellef) under domestic law, as they have no domicile in Türkiye and do not stay for more than six months. Under Geçici 67, interest income is subject to final withholding tax – no annual return is required. The DTT provides a reduced 10% rate for interest paid to German residents. Without the Certificate of Residency, the standard withholding rates apply, but the taxpayer may claim a refund. This private ruling is based on Article 413 of the Tax Procedure Law No. 213. The ruling becomes invalid if incorrect information is provided, or if there is ongoing tax audit, litigation, or reconciliation related to this matter. Acting in accordance with this ruling protects the taxpayer from tax penalties and default interest for the related transactions. 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. 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