Ruling Number: B.07.1.GİB.4.34.16.01-125-87068 Introduction In a private ruling dated March 29, 2017, the Ankara Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made for consultancy services to a company resident in the United Arab Emirates (UAE). The taxpayer stated that they received fire consultancy services from a company operating in the Ras Al Khaimah free zone in the UAE, and the services are benefited from in Türkiye. The taxpayer requested clarification on whether withholding tax is required on the payments made for these services. Domestic Law – Corporate Tax Law (Law No. 5520) Article 3(2) – Limited Liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Article 30 – Withholding Tax for Limited Liability Taxpayers: Type of Payment Withholding Tax Rate Professional service income (petroleum exploration) 5% Other professional service income 20% Intangible rights (royalties) 20% Double Taxation Treaty Provisions Türkiye-UAE Double Taxation Treaty (Effective January 1, 1995) Article 14 – Professional Services: 1. Income derived by a resident of one Contracting State from professional services or other independent activities shall be taxable only in that State unless the person has a fixed base regularly available in the other State for performing their activities. If the person has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base. 2. The term “professional services” includes independent scientific, literary, artistic, educational, and teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists, and accountants. Article 5 – Permanent Establishment: Defines when a permanent establishment exists in the other State. Ruling Conclusion Step 1 – Determine Whether the UAE Company Has a Fixed Base/PE in Türkiye Factor Determination Does the UAE company have a fixed base in Türkiye? Yes – based on available information, the UAE company has an office in Istanbul and carries out many projects in Türkiye Step 2 – Apply Article 14 (Professional Services) Scenario Taxing Right Withholding Tax in Türkiye? Scenario A: UAE company has a fixed base/PE in Türkiye (as appears to be the case) Türkiye may tax (limited to fixed base-attributable income) Yes – 20% (domestic rate) Scenario B: UAE company has no fixed base/PE in Türkiye Only UAE No Conclusion: Based on the available information, the UAE company has an office in Istanbul and carries out many projects in Türkiye. Therefore, it has a fixed base/PE in Türkiye. As a result, Türkiye has the right to tax the income derived from the consultancy services, and withholding tax at 20% should be applied to the payments made to the UAE company. Important: If the UAE company does not have a fixed base/PE in Türkiye (contrary to the information available to the tax office), then no withholding tax would be required, and the income would be taxable only in the UAE. Required Documentation for Treaty Benefits To benefit from the treaty provisions (exemption from Turkish withholding tax), the UAE resident company must: Obtain a Certificate of Residency from the competent UAE authorities proving that it is fully liable to tax in the UAE on its worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer) or the relevant tax office. If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax) will apply. Summary Table Factor Determination Nature of service Fire consultancy (professional services) UAE company’s presence in Türkiye Has an office in Istanbul (fixed base/PE) Taxing right under DTT Article 14 Türkiye (limited to fixed base-attributable income) Withholding tax required in Türkiye? Yes Applicable rate 20% Required document Certificate of Residency from UAE authorities (for treaty benefits) Important Notes The key factor is whether the UAE company has a fixed base (or permanent establishment) in Türkiye. The ruling indicates that, based on available information, the UAE company has an office in Istanbul, which constitutes a fixed base. If the UAE company were to have no fixed base/PE in Türkiye, the income would be taxable only in the UAE, and no withholding tax would be required. The taxpayer should confirm the actual presence of the UAE company in Türkiye (office, personnel, etc.) and apply the appropriate withholding tax accordingly. 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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