Ruling Number: 62030549-120[4-2013/516]-589 Introduction In a private ruling dated March 19, 2014, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made to a German resident actor coming to Türkiye to act in a film. The taxpayer stated that they are engaged in advertising and consultancy activities. A German resident cinema actor will come to Türkiye for 5 days to act in a film to be shot in Türkiye. The taxpayer requested clarification on: Whether withholding tax applies to payments made to the actor, and How the actor would be taxed if they continue to work in Türkiye as a series actor. Legal Framework – 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 (temporary absences do not interrupt the period). 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 professional service income, the income is deemed derived in Türkiye if the professional services are performed or utilized in Türkiye. Article 65 – Definition of Professional Service Income: Paragraph 1: Income arising from professional service activities constitutes professional service income. Paragraph 2: Professional service activities are those that rely on personal effort, scientific or professional knowledge, or expertise rather than capital, are non-commercial in nature, and are performed independently without being subordinate to an employer, under personal responsibility, on one’s own behalf and account. Article 94 – Withholding Tax Obligation (Paragraph 1, subparagraph 2(b)): Payments made for professional services are subject to withholding tax at a rate of 20%. Article 86(1)(2): Limited liability taxpayers are not required to file an annual return for professional service income that has been fully subject to withholding tax in Türkiye. Double Taxation Treaty Provisions Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011) Article 4 – Resident: 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 domicile, residence, place of management, or any other criterion of a similar nature. 2. Where an individual is a resident of both Contracting States, their status shall be determined as follows: (a) They shall be deemed a resident only of the State where they have a permanent home available to them; if they have a permanent home in both States, they shall be deemed a resident only of the State with which their personal and economic relations are closer (center of vital interests); (b) If the center of vital interests cannot be determined, or if they have no permanent home in either State, they shall be deemed a resident only of the State where they habitually stay; (c) If they habitually stay in both States or in neither, they shall be deemed a resident only of the State of which they are a citizen; (d) If they are a citizen of both States or of neither, the competent authorities shall resolve the issue by mutual agreement. Article 17 – Artistes and Sportsmen: 1. Notwithstanding the provisions of Articles 7 (Business Profits), 14 (Professional Services), and 15 (Dependent Personal Services), income derived by a resident of one Contracting State as an entertainer (such as a theater, motion picture, radio or television artiste, or a musician) or as a sportsman from their personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. Where income in respect of personal activities exercised by an entertainer or sportsman accrues not to the entertainer or sportsman themselves but to another person, that income may, notwithstanding the provisions of Articles 7, 14, and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised. 3. The provisions of paragraphs 1 and 2 shall not apply if the visit to the other Contracting State is wholly or substantially supported by public funds of the other State or its political subdivisions or local authorities, or by an organization recognized as a charitable organization in that other State. In such case, the income shall be taxable only in the State of which the individual is a resident. Article 22 – Elimination of Double Taxation: Provides for a foreign tax credit in Germany for taxes paid in Türkiye under Article 17. Ruling Conclusion 1. Short-term visit (5 days for filming) Under Article 17(1) and (2) of the Türkiye-Germany DTT: Factor Determination Nature of activity Actor (entertainer) performing personal activities in Türkiye Applicable treaty article Article 17 (Artistes and Sportsmen) – overrides Articles 7, 14, and 15 Taxing right Türkiye has the right to tax Domestic withholding tax rate 20% (under Article 94 of Income Tax Law No. 193) Annual return requirement No (fully subject to withholding tax under Article 86) Conclusion: Payments made to the German resident actor (whether directly to the actor or indirectly through a company, institution, or organizer) are subject to 20% withholding tax in Türkiye. Foreign Tax Credit: The tax paid in Türkiye may be credited against German tax on the same income under Article 22. 2. Continued work as a series actor in Türkiye If the actor continues to work in Türkiye (e.g., as a series actor), their residency status must be determined under Article 4 of the DTT. Scenario Residency Determination Taxing Right Actor becomes a resident of Türkiye under Article 4 Türkiye Türkiye taxes worldwide income; Germany has no taxing right Actor remains a resident of Germany under Article 4 Germany Türkiye may still tax Türkiye-source income (withholding tax) under Article 17 Important: Regardless of residency status, payments for activities performed in Türkiye are subject to withholding tax in Türkiye. However, if the actor is deemed a resident of Türkiye, Germany loses its taxing right on the actor’s worldwide income. Summary Table Situation Withholding Tax Required in Türkiye Rate Annual Return Required? Foreign Tax Credit Available? 5-day filming in Türkiye (German resident) Yes 20% No (fully withheld) Yes (in Germany) Continued as series actor (remains German resident) Yes 20% No (fully withheld) Yes (in Germany) Continued as series actor (becomes Turkish resident) Yes (on Türkiye-source income) 20% May be required on other income Germany has no taxing right Required Documentation for Treaty Benefits To benefit from the treaty provisions (e.g., foreign tax credit in Germany), the German resident actor must provide a Certificate of Residency from the competent German authorities. If the certificate cannot be provided, domestic law provisions (including the 20% withholding tax) will apply. Important Notes 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. 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.