Ruling Number: 62030549-125[30-2014/366]-131 Introduction In a private ruling dated January 27, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made for domain and web hosting rental services received from a company resident in the Turkish Republic of Northern Cyprus (TRNC). The taxpayer stated that their company is engaged in computer sales, servicing, and related businesses. Among the services provided to customers are domain and web hosting rental services. To provide these services to customers, the taxpayer purchases annual domain and web hosting rental services from a company resident in the TRNC. The taxpayer requested clarification on whether withholding tax is required on the payments made for these services. Legal Framework – 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(2) – Withholding Tax for Limited Liability Taxpayers: Withholding tax applies to payments made for the sale, transfer, or assignment of intangible rights such as: Copyrights, Patents, Trademarks, Trade names, And similar intangible rights, regardless of whether they are included in commercial or agricultural income. Council of Ministers Decree No. 2009/14593: The withholding tax rate for such payments is 20%. Double Taxation Treaty Provisions Türkiye-TRNC Double Taxation Treaty (Agreement for the Prevention of Double Taxation and Tax Loss on Income) Article 12 – Royalties: 1. Royalties 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 royalties may also be taxed in the State in which they arise, according to its tax laws. But if the payee is the beneficial owner of the royalties, the tax charged shall not exceed 10% of the gross amount of the royalties. 3. The term “royalties” includes payments of any kind for the use of, or the right to use: Any copyright of literary, artistic, or scientific work (including cinema films, radio and television recordings, films, and tapes), Any patent, trademark, design, plan, secret formula, or manufacturing process, Industrial, commercial, or scientific equipment, Industrial, commercial, or scientific know-how. Ruling Conclusion Key Principle – Characterization of the Payment: Domain registration and web hosting services involve the use of intangible rights (intellectual property, trademarks, and similar rights). The payments made for such services are characterized as royalties under Article 12 of the Türkiye-TRNC DTT. Tax Treatment: Factor Determination Characterization Royalties (Article 12) Domestic withholding tax rate 20% (under domestic law) Treaty reduced rate (Article 12(2)) 10% (maximum) Required withholding tax in Türkiye 10% (treaty rate overrides domestic rate) Conclusion: The payments made to the TRNC resident company for domain and web hosting rental services are subject to withholding tax at a rate not exceeding 10% of the gross amount under the Türkiye-TRNC DTT. Required Documentation for Treaty Benefits To benefit from the reduced treaty rate (10% instead of 20% domestic rate), the TRNC resident company must: Obtain a Certificate of Residency from the competent TRNC authorities proving that it is fully liable to tax in the TRNC on its worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer). If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax) will apply instead of the treaty provisions. Summary Table Question Answer What is the nature of domain and web hosting payments? Royalty (intangible right) Domestic withholding tax rate 20% Treaty rate (Article 12(2)) 10% (maximum) Withholding tax required in Türkiye? Yes Applicable rate (with Certificate of Residency) 10% Applicable rate (without Certificate of Residency) 20% (domestic law) Required document Certificate of Residency from TRNC authorities 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. 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