Ruling Number: 62030549-125[30-2015/460]-191791 Introduction In a private ruling dated November 2, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of wages paid from abroad to personnel assigned to the Turkish branch of a South Korean company. The taxpayer stated that the South Korean head office pays the salaries of foreign personnel working at the Istanbul representative office of a South Korean company (with assignment orders and permission from the Ministry of Labor). The salaries are transferred from the head office abroad to the personnel’s bank accounts in Türkiye. Social security premiums are paid in Korea under a reciprocal agreement and are deemed paid in Türkiye. The taxpayer requested clarification on whether the representative office has any liability regarding the taxation of the wages earned by the personnel. Part I – Domestic Law Analysis 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 5 – Cases Not Considered as Residence: The following foreigners are not considered resident in Türkiye, even if they stay for more than six months: Those who come to Türkiye for a specific and temporary duty or work, including scientists, scholars, experts, officials, press correspondents, and other similar persons, as well as those coming for education, treatment, rest, or travel purposes. Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. 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. Article 86 – No Annual Return Required (Paragraph 1(b) and Paragraph 2): Taxpayer Status Condition Full liability No annual return required for wages from a single employer that have been subject to withholding tax (subject to certain thresholds). Limited liability No annual return required for income fully subject to withholding tax in Türkiye (wages, professional service income, movable and immovable capital income, etc.). Article 94 – Withholding Tax Obligation (Paragraph 1(1)): Withholding tax applies to wages paid to employees. Article 95 – Wages Not Subject to Withholding Tax (Paragraph 1): Employees who receive their wages directly from an employer in a foreign country are not subject to withholding tax. Such persons must declare their income through an annual income tax return. Part II – Double Taxation Treaty Analysis Türkiye-South Korea Double Taxation Treaty 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 15 – Dependent Personal Services (Paragraphs 1 and 2): 1. Salaries, wages, and other similar income derived by a resident of one Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is exercised in the other State, such income may be taxed in that other State. 2. Notwithstanding paragraph 1, income derived from employment exercised in the other State shall be taxable only in the first-mentioned State if: (a) The recipient stays in the other State for a period or periods not exceeding 183 days in any fiscal year; (b) The payment is made by or on behalf of an employer who is not a resident of the other State; and (c) The payment is not borne by a permanent establishment or fixed base that the employer has in the other State. Part III – Ruling Conclusion Step 1 – Determine Residency Status of the Foreign Personnel The taxpayer should determine whether each foreign employee is a resident of Türkiye under domestic law (considering domicile and 6-month stay) and under the treaty tie-breaker rules (Article 4). Scenario A – Employee is a Resident of Türkiye: Factor Determination Residency Türkiye (under domestic law or treaty tie-breaker) Taxing right under Article 15(1) Türkiye Who pays the salary? South Korean head office (foreign employer) Is the salary subject to withholding in Türkiye? No (foreign employer – Article 95) Annual return required? Yes (employee must file annual income tax return) Representative office’s liability? No (no payments made by the office) Scenario B – Employee is a Resident of South Korea: Condition (Article 15(2)) Met? Taxing Right (a) Stay in Türkiye ≤183 days in a fiscal year To be determined If all three conditions met → Only South Korea (b) Employer is not a resident of Türkiye Yes (employer is South Korean) (c) Payment not borne by a PE in Türkiye Yes (no PE in Türkiye) If any condition is breached (e.g., stay >183 days) Türkiye may tax Step 2 – Representative Office’s Obligations Factor Determination Does the representative office pay the salaries? No (salaries are paid by the South Korean head office) Does the representative office have a withholding obligation? No (no payments made by the office) Does the representative office have any tax liability? No (the employees are responsible for their own tax compliance) Step 3 – Annual Return Requirement If the employees are resident in Türkiye or subject to tax in Türkiye under the treaty (e.g., stay >183 days): Factor Determination Is the salary subject to withholding in Türkiye? No (paid by foreign employer) Annual return required? Yes – the employee must file an annual income tax return with the tax office where their domicile is located What must be declared? The full salary amount (converted to TL) Summary Table Scenario Employee’s Residency Stay in Türkiye Taxing Right Withholding in Türkiye? Annual Return in Türkiye? 1 Türkiye Any Türkiye No (foreign employer) Yes (employee files) 2 South Korea ≤183 days Only South Korea No No 3 South Korea >183 days Türkiye (may tax) No (foreign employer) Yes (employee files, if taxable) Important Notes The representative office is not the employer and does not make salary payments. Therefore, it has no withholding obligation. The employees themselves are responsible for determining their tax residency and filing annual returns if required. Social security premiums paid in South Korea are deemed paid in Türkiye under the reciprocal agreement, but this does not affect income tax liability. If the employees are residents of South Korea and stay in Türkiye for ≤183 days, the wages are taxable only in South Korea under Article 15(2) of the DTT (provided all three conditions are met). If the employees are residents of South Korea and stay in Türkiye for >183 days, Türkiye may tax the wages. 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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