Ruling Number: B.07.1.GİB.4.35.16.01-176200-363 Introduction In a private ruling dated August 3, 2011, the Izmir Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to wages paid to a researcher or trainee student from India. The taxpayer stated that a professor in the Civil Engineering Department had been awarded financial support from the EU 7th Framework Programme – Marie Curie Reintegration Grants for a scientific project. The project budget included an annual grant of €8,000 to be transferred to potential researchers working on the project, approved by the European Commission. No expenditure had been made from this grant. The professor wished to allocate a portion of the grant to a trainee student coming from India on May 3, 2010, for two months of work at the institute. The taxpayer requested clarification on: Whether withholding tax applies to wages paid to the researcher or trainee student, The applicable withholding tax rate, Whether the foreign nationality of the recipient affects the treatment, What documents are required and who must sign them. Legal Framework Income Tax Law (Law No. 193) Articles 3 and 4 define full liability taxation. Article 6 defines limited liability taxation: real persons not resident in Turkey are taxed only on their income derived from Turkey. Article 5 – Cases Not Considered as Residence: The following foreigners are not considered resident in Turkey, even if they stay for more than six months: “1. Foreigners who come to Turkey 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.” Double Taxation Treaty Provisions Turkey-India Double Taxation Treaty (Signed December 30, 1996 – Official Gazette No. 22863, effective January 1, 1994) Article 20 – Teachers and Students: Paragraphs 1 and 3 state: 1. Payments made to a student or trainee who is a resident of one Contracting State and is present in the other Contracting State solely for the purpose of education or vocational training, to cover living, education, or training expenses, shall not be taxed in that other State, provided such payments are made from sources outside that other State. 3. Remuneration received by a student or trainee who is a resident of one Contracting State and who performs services in the other Contracting State for a period not exceeding 183 days in a calendar year (in Turkey) or a fiscal year (in India) for the purpose of gaining practical experience related to their education or training shall not be taxed in that other State. Ruling Conclusion Case 1 – Wages for Practical Training (Article 20, Paragraph 3): Since the trainee is an Indian national who will come to the institute as a trainee and perform practical work for a period not exceeding 183 days in a calendar year, the income derived from such work shall not be subject to tax in Turkey. Consequently, no withholding tax is required on the wages paid. Case 2 – Payments for Living, Education, or Training Expenses (Article 20, Paragraph 1): Payments made to an Indian national trainee present at the institute for vocational training purposes, to cover living, education, or training expenses, shall also not be taxed in Turkey, provided such payments are made from sources outside Turkey. Summary Table Condition Taxability in Turkey Withholding Tax Required Indian national trainee stays ≤ 183 days in a calendar year for practical training Not taxable No Payments for living/education/training expenses from sources outside Turkey Not taxable No 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.