Ruling Number: 62030549-125[30-2013/290]-92662 Introduction In a private ruling dated November 9, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made for the right to use a system obtained from abroad and related installation services. The taxpayer stated that they purchased a special software program from a company resident in the United Arab Emirates (UAE), enabling them to monitor all transactions of their branches across Türkiye visually and through software. Review of the contracts attached to the ruling request revealed that the services received include: Installation and configuration of IT hardware, computer networks, telecommunications, email, workplace security (including access control and closed-circuit camera monitoring systems), and related systems at the taxpayer’s offices in Türkiye; Design, construction, domain name acquisition, registration, and hosting services for the taxpayer’s corporate website; Configuration of WWS applications (allowing the taxpayer to operate as an approved Russian visa center for persons applying for visit visas to the Russian Federation) and online access to these applications; A non-exclusive, non-transferable, non-revocable, worldwide license to use the online service. The taxpayer requested clarification on whether withholding tax is required on the software payments made to the UAE resident company. 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 – Withholding Tax for Limited Liability Taxpayers: Paragraph 1(b): Withholding tax applies to payments made for professional service income. Paragraph 2: 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-UAE Double Taxation Treaty (Effective January 1, 1995) 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 domestic laws. But if the beneficial owner is a resident of the other State, 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 know-how, Industrial, commercial, or scientific equipment. However, it does not include royalties or other payments for the operation of mines or quarries or the exploitation of natural resources. 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 to them in the other State for the purpose of 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 23 – Methods for Elimination of Double Taxation: Double taxation may be prevented according to UAE domestic law, taking into account general principles for the elimination of double taxation. Ruling Conclusion The ruling distinguishes between three categories of payments: Category 1 – Payments for Software License, Domain Registration, Hosting, and WWS Applications Factor Determination Nature of payment Right to use software, online access, domain registration, hosting, WWS applications Characterization Royalties (Article 12) Domestic withholding tax rate 20% Treaty reduced rate (Article 12(2)) 10% (maximum) Withholding tax required in Türkiye? Yes Applicable rate (with Certificate of Residency) 10% Conclusion: Payments for software licenses, domain registration, hosting services, and WWS applications are characterized as royalties and are subject to withholding tax at 10% under the DTT. Category 2 – Installation and Configuration Services (If Connected to the Intangible Right) Condition Characterization Tax Treatment Installation/configuration services are connected to the acquired intangible right (software license) Royalties (treated as part of the same transaction) 10% withholding tax (same as Category 1) Installation/configuration services are not connected to the acquired intangible right Professional services (Article 14) Taxable only in UAE (unless the UAE company has a fixed base in Türkiye) Category 3 – Installation and Configuration Services (If Not Connected to the Intangible Right) Factor Determination Characterization Professional services (Article 14) Does the UAE company have a fixed base in Türkiye? If No → Taxable only in UAE (no withholding tax in Türkiye) Does the UAE company have a fixed base in Türkiye? If Yes → Türkiye may tax, but only the amount attributable to the fixed base Summary Table Type of Payment Characterization Treaty Article Withholding Tax in Türkiye? Rate Software license, online access, domain registration, hosting, WWS applications Royalties Article 12 Yes 10% Installation/configuration services (connected to the intangible right) Royalties (ancillary) Article 12 Yes 10% Installation/configuration services (not connected to the intangible right) – no fixed base in Türkiye Professional services Article 14 No (taxable only in UAE) 0% Installation/configuration services (not connected to the intangible right) – fixed base exists in Türkiye Professional services Article 14 Yes (attributable to fixed base) 20% (domestic rate, unless treaty provides otherwise) Required Documentation for Treaty Benefits To benefit from the treaty provisions (including the 10% reduced rate for royalties), 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). Withholding agents must retain these certificates and present them to the authorities when required. If the certificate cannot be provided: Domestic law provisions (20% withholding tax) will apply instead of the treaty provisions. Foreign Tax Credit Double taxation (if it occurs) may be prevented under Article 23 of the DTT according to UAE domestic law, taking into account general principles for the elimination of double taxation. 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. 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