Ruling Number: 62030549-120[3-2014/634]-92676 Introduction In a private ruling dated November 9, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of wage income paid from Türkiye when a fully liable company employee takes part in a project in the Netherlands. The taxpayer stated that they have been residing in Türkiye since March 10, 2013, while also maintaining a domicile in Germany and having tax filing obligations there. They work as an employee for a Turkish resident law firm. Additionally, as a freelance journalist, they periodically send articles written in Türkiye to a newspaper in Germany and receive fees in foreign currency based on the number of lines per article. These fees are deposited into their bank account in Germany. The taxpayer requested clarification on how to declare these incomes. Legal Framework – Domestic Law (Income Tax Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye are taxed on their worldwide income (both within and outside Türkiye). 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 61 – Definition of Wages: Wages are cash, benefits in kind, and other advantages provided to employees dependent on an employer and affiliated with a specific workplace in return for services. The nature of wages is not changed by being paid under different names (allowances, compensation, bonuses, premiums, etc.) or as a percentage of profits. Article 62 – Definition of Employer: Employers are real and legal persons who hire employees and direct them within their orders and instructions. Article 65 – Definition of Professional Service Income: Income arising from any kind of professional service activity constitutes professional service income. 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 66 – Professional Persons: Persons who perform professional service activities as a regular profession are considered professionals. Article 86(1)(b) – No Annual Return Required for Certain Wages: An annual return is not required for: Wages received from a single employer that have been subject to withholding tax; Wages from multiple employers, provided the total wages from the second and subsequent employers do not exceed the second income bracket threshold (TL 26,000 for the 2013 calendar year, per General Communiqué No. 284). If a return is filed for other income, such wages are not included in the return. Article 94 – Withholding Tax Obligation (Paragraph 2): Withholding tax at a rate of 20% applies to payments made to persons performing professional services. 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 home, domicile, 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 14 – Professional Services: (Applicable to the freelance journalism income) Article 15 – Dependent Personal Services: (Applicable to the employment income) Article 22 – Elimination of Double Taxation: Provides for a foreign tax credit mechanism. Ruling Conclusion The ruling addresses two types of income separately: Type 1 – Wage Income from the Turkish Resident Law Firm Factor Determination Nature of relationship Employee (dependent on employer, affiliated with a workplace) Characterization Wages (Article 61) Withholding tax applied in Türkiye? Yes (by the employer under Article 94) Annual return required for this income? No (single employer, fully subject to withholding tax – Article 86(1)(b)) Inclusion in return if other income is declared? No (not required to be included) Type 2 – Freelance Journalism Income (Articles sent to German newspaper) Factor Determination Nature of relationship No employer control or sanction; based on professional knowledge and personal effort; performed independently Characterization Professional service income (Article 65 – freelance journalist) Withholding tax applied in Germany? No (foreign payer cannot withhold Turkish tax) Annual return required in Türkiye? Yes (must be declared by the taxpayer) Treaty Residency Determination The taxpayer has a domicile in both Türkiye and Germany and has been residing in Türkiye since 2013. Under Article 4(2) of the Türkiye-Germany DTT: Tie-breaker Rule Application Permanent home Exists in both countries Center of vital interests Likely Türkiye (since residing and working there since 2013) Habitual stay Türkiye (since 2013) Conclusion: The taxpayer is deemed a resident of Türkiye under the DTT. As a full liability taxpayer, they are subject to tax in Türkiye on their worldwide income. Taxation of Freelance Journalism Income Since the taxpayer is a resident of Türkiye, under Article 14(1) of the DTT, Türkiye has the right to tax the professional service income derived from the German newspaper. If any of the following conditions are met, Germany may also have the right to tax (resulting in potential double taxation, which would be relieved by a foreign tax credit under Article 22): The taxpayer has a fixed base regularly available in Germany for performing the activities, OR The taxpayer stays in Germany for 183 days or more in any 12-month period. Foreign Tax Credit If double taxation occurs (i.e., both Türkiye and Germany tax the same income), under Article 22 of the DTT, the tax paid in Germany on the freelance journalism income may be credited against the Turkish tax on the same income. Required Documentation To benefit from treaty provisions in Germany, the taxpayer must obtain a Certificate of Residency from the Turkish competent authorities. Under the Circular on Double Taxation Treaties dated December 20, 2013, such certificate can be issued upon request. Summary Table Income Source Characterization Withholding Tax in Türkiye? Annual Return Required in Türkiye? Wages from Turkish law firm Wages (employee) Yes (20% withheld by employer) No (single employer, fully withheld) Freelance journalism (German newspaper) Professional service income No (foreign payer) Yes (must be declared) Additional Notes: The taxpayer is deemed a resident of Türkiye under the DTT (center of vital interests/habitual stay). Türkiye has the right to tax both types of income. If Germany also taxes the freelance income, a foreign tax credit may be claimed in Türkiye. 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.