The Income Tax Law defines taxpayers as real persons who are taxed on the income they earn in Turkey and abroad. Article 8 of the Tax Procedure Law is regulated as “A taxpayer is a natural or legal person who owes tax debts according to the tax Laws.” As discerned from these two definitions, it is evident that the taxation authority of the Republic of Turkey is not confined solely to the territory of Turkey. Taxation on the entirety of earnings obtained within Turkey and abroad may lead to double taxation when income earned abroad is also subject to taxation in the countries where such earnings are generated. In such cases, the prevention of double taxation agreements has a key role.
The Agreement
The Agreement on Preventing Double Taxation and Preventing Tax Evasion in Taxes on Income between the Republic of Turkey and the Republic of Italy was signed in Ankara on 27 July 1990. The Convention introduced criteria to prevent double taxation in many areas, made definitions and provided for solutions in case of disputes.
Resident by convention means a person (a resident of a contracting state) who, under the legislation of that state, is liable to tax by reason of her home, residence, legal headquarters, business center or any other criterion of a similar nature.
A person may appear to be a resident of both contracting states. In this case, it is aimed to prevent double taxation and to determine which state will tax, based on the following conditions in order:
A person is considered a resident of the state in which he has his permanent residence. If he has a residence in both states where he can be a resident, he will be deemed to be a resident of the state in which the residence which is at the center of his vital interests is located.
If the center of a person’s vital interests cannot be determined, she will be deemed to be a resident of the state in which the house in which she habitually stays is located.
If a person has a residence in both states where she habitually stays, or if she does not have a residence in both states, she will be a resident of the state of which she is a citizen. If the person is not a national or resident of either state, the contracting states will resolve the issue through mutual negotiation.
The agreement stipulated that if a resident of a contracting state owns real estate in the other contracting state, the taxpayer may be taxed in the other state. This also applies to income obtained from direct use, renting or any other use of immovable property. In Article 6 of the agreement, the assets that will be considered real estate are listed in detail.
Income arising from international transportation (arising from the operation of ships, aircraft and land vehicles) can only be taxed by the contracting state in which the enterprise is located.
Another issue that needs to be mentioned is who will tax the gain obtained by a resident of a contracting state from the disposal of an immovable property located in the other contracting state and regulated in the agreement. For example, if a person resident in Italy disposes of his real estate in Turkey, the gain will be taxed in Turkey.
Pursuant to Article 23 of the Agreement the amount of tax for the incomes generated in Turkey cannot exceed;
36% for commercial profits
15% for gross amount of the dividends
15% for gross amount of the interest revenue
10% for gross of the royalties
