Turkey

Withholding tax on dividends

Dividends paid to a resident or non-resident individual, or a non-resident company, are subject to withholding tax at the rate of 10%. There are DTTs signed by Turkey that provide withholding tax rates less than 10% on dividends under certain conditions. Treaty benefits are applicable subject to the fulfilment of the treaty eligibility conditions. Please note that dividend distributions to resident companies are not subject to withholding tax. 

The following table provides a summary of dividend withholding tax rates applicable under the respective DTTs entered into by Turkey: 

Notes

1. The local rate is 10% for dividends. Unless a lower rate is stated in the Agreement, the local rate is applied.
2. As per the provisions of the protocol amending the agreement, the rate may be (partially or wholly) reduced:
   • For the Netherlands: To 10%, as long as, under the provisions of the Netherlands Company Tax Act and to the future amendments thereto, a company that is a resident of the Netherlands is not charged tax with respect to dividends the company receives from a company that is a resident of Turkey.
   • For Belgium: To 10%, as long as, under the provisions of the Belgian laws and of the future amendments thereto, a company that is a resident of Belgium is not charged tax with respect to dividends the company receives from a company that is a resident of Turkey.
   • For Austria: To 5%, if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends, provided that such dividends are exempt from tax in Austria.
   • For Ireland: To 5%, where the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the voting power of the company paying the dividends. 15% in all other cases.
3. Subject to 5% of the gross amount of the dividends if the recipient is the government, or a public institution that is wholly owned by the government or its political subdivisions, or local authorities of the United Arab Emirates.
4. The tax rate shall be 15% where the amount of the Turkish tax imposed on the income of the company paying dividends is less than 40% of such income derived in the accounting period ending immediately before the date when such dividends become payable.
5. The income should be subject to full corporate taxation in the hands of the Turkish tax-resident subsidiary.
6. If the beneficial owner of the dividends is a resident of Saudi Arabia, the tax so charged shall not exceed 5% of the gross amount of the dividends provided: (i) the beneficial owner is a company (other than a partnership) that directly holds at least 20% of the capital of the Turkish company paying the dividends or (ii) the beneficial owner is a central bank or an entity that is wholly owned by the government.
7. In case of Turkey, the tax rate shall not exceed 5%, to the extent that they are paid out of profits that have been subject to full rate of CIT in Turkey (i.e. without benefiting from tax exemption).
8. The rate of the income tax shall not exceed 5% if it is derived by the Government Pension Fund (Statens Pensjonsfond) or by the Government Social Security Fund (Sosyal Guvenlik Fonu), provided that such dividends are exempt from tax in the contracting state where the beneficial owner is a resident.
9. The treaty-reduced rate of 5% shall apply if such dividends are exempt from tax in the contracting state of which the beneficial owner is a resident.
10. As per the provisions of the agreement, the rate may be reduced to 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that directly holds at least 20% of the capital of the company paying the dividends, provided that a relief from Swiss tax is granted for such dividends by way of an abatement of the profits tax in proportion corresponding to the ratio between the earnings from participations and the total profits or by way of an equivalent relief.
11. As per the provisions of the agreement, 5% of the gross amount of dividends that are subject to Turkish Corporate Income Tax at the full rate if the Australian company (other than a partnership) holds at least 25% of the capital of the Turkish company. Regardless of these, if the dividends are taxed in Australia, Turkey could tax the dividends at a rate not exceeding 15%.
12. The WHT shall be lowered to 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 50% of the capital of the company paying the dividends or has invested more than 10 million United States dollars (USD), or the equivalent in Turkish or Vietnamese currency, in the capital of the company paying the dividends.

Withholding tax on interest and royalties

In case of royalty payments to non-residents, 20% withholding tax has to be deducted by the Turkish entity making the payment. The withholding rate may be reduced by the application of double tax treaty provisions - generally to 10%.  

Interest paid to non-residents is subject to 10% withholding tax under local legislation. The withholding tax rates set out in the double tax treaties that Turkey has signed are mostly equal to (or higher than) the local rate.  A reduction in the withholding tax rate further to a double tax treaty is possible only in very limited situations.  

Notes

1. The local rate of 10% will be applied in the event a higher rate is stipulated in the agreement.
2. For the interest income derived by the government of Turkey or to the Central Bank of Turkey, no WHT will be applied.
3. A rate of 10% if the loan or other debt claim is for a period exceeding two years; 15% in all other cases.
4. A rate of 10% if the loan is taken for a period exceeding two years; 15% in all other cases.
5. A rate of 10% if the loan/credit is taken from a financial institution; 15% in all other cases.
6. A rate of 10% if the loan is taken from a bank or a financial institution; 15% in all other cases.
7. A rate of 10% if the credit/loan is taken from a bank, financial or savings institution, insurance company; 15% in all other cases.
8. A rate of 7.5% if the loan is taken from a financial institution; 10% in all other cases.
9. A rate of 10% if the interest is the result of a loan provided/given by a bank or if the interest is paid in return for an article of merchandise, or equipment given to the contracting state on credit; 15% in all other cases.
10. A rate of 10% if the loan is taken from a financial institution, including insurance companies; 15% in all other cases.
11. A rate of 10% for the use of, the right to use, or the sale (contingent on the productivity, use, or disposition) of any copyright of literary, artistic, or scientific work, including royalties in respect of motion pictures and works on film, tape, or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula, or process, or for information concerning, industrial, commercial, or scientific experience; 5% for the use of or the right to use industrial, commercial, or scientific equipment.
12. A rate of 5% for the use of industrial, commercial, or scientific equipment; 10% in all other cases.
13. A rate of 15% for patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience; 10% for the use of or the right to use any copyright of literary, artistic, or scientific work including cinematographic films and recordings for radio and television.
14. A rate of 5% in respect of a loan or credit made, guaranteed, or insured for the purposes of promoting export by the Oesterreichische Kontrollbank AG or a similar Turkish public entity the objective of which is to promote the export; 10% if the interest is derived by a bank; 15% in all other cases.
15. If the beneficial owner of the 'income from debt claims' is a resident of Saudi Arabia, the tax so charged shall not exceed 10% of the gross amount of income.
16. A rate of 10% in respect of a loan or other debt claim for a period exceeding two years or if the interest is received by a financial institution; 15% in all other cases.
17. Interest arising in one of the contracting states and paid to the government of Turkey or the Central Bank of Turkey shall be exempt from income taxes in the contracting state. Similarly, interest arising in the Republic of Turkey and paid to the government or the Central Bank of the other contracting state shall be exempt from income taxes in Turkey.
18. Interest arising in Turkey and paid to the government of Canada or to the Bank of Canada shall be exempt from Turkish tax. Similarly, interest arising in Canada and paid to the government of Turkey or to the Central Bank of Turkey (Türkiye Cumhuriyet Merkez Bankasi) shall be exempt from Canadian Tax.
19. The rate of the income tax shall not exceed (i) 10% if the interest is paid to a bank (also note that in the case of Turkey, a lower rate of 0% may apply for eligible financial institutions' and banks' loans under the domestic regulation) or (ii) 5% if the interest is paid to the Norwegian Government Pension Fund (Statens Pensjonsfond), the Norwegian Guarantee Institute for Export Credits (Garantiinstituttet for Eksportkreditt), the Turkish Social Security Fund (Sosyal Guvenlik Fonu) and the Eximbank of Turkey (Turkiye Ihracat Kredi Bankasi); 15% in all other cases.
20. The rate of the income tax shall not exceed 10% if the interest is paid to a bank (also note that in the case of Turkey, under the domestic regulation, a lower rate of 0% may apply for the loans provided by eligible financial institutions and banks); 15% in all other cases. The interest shall be exempt from income taxes in the contracting state where it arises, if the payment is made to the government of Turkey, to the Central Bank of Turkey (Turkiye Cumhuriyeti Merkez Bankasi), to the government of New Zealand, or to the Reserve Bank of New Zealand.
21. A rate of 5% of the gross amount of the interest paid in respect of a loan or credit made, guaranteed, or insured for the purposes of promoting export by an Eximbank or similar institution, the objective of which is to promote the export; 10% if the interest is derived by a bank; 10% in all other cases.
22. A rate of 15% from the use of, or the right to use, trademarks; 10% in all other cases.
23. A rate of 5% in respect of loans or credits that are guaranteed, insured, and provided for the purposes of promoting export by the Finnish Export Credit or FINNVERA and the Turkish public institutions the objective of which is to promote exports; 10% if the interest is derived by a bank; 15% in all other cases.
24. A rate of 10% if the payment is made to a bank; no taxation arises if the payment is made to the Central Bank of Mexico; no taxation arises if the payment is made to Banco Nacional de Comercio Exterior, S.N.C., Nacional Financiera, S.N.C., or Banco Nacional de Obras y Servicios Publicos S.N.C where the maturity of loan is more than three years; 15% in all other cases.
25. For the interest income derived by governments or central banks of the contracting states, no WHT applies.
26. The 15% rate applies to royalties paid for the use of, or the right to use, cinematographic films and films or tapes for radio or television broadcasting.
27. For the interest income derived by the government of Gambia or Central Bank of Gambia, no WHT will be applied. For the interest income derived by the government of Turkey, Central Bank of Turkey, or Türk Eximbank, no WHT will be applied.

Anti-tax haven provisions

According to the law, all sorts of payments made to corporations (including branches of resident corporations) that are established or operational in countries that are regarded by the Turkish Council of Ministers to undermine fair tax competition (through taxation or other practices) may be subject to taxation in Turkey through withholding at a rate of 30%.

In the meantime, the Turkish Council of Ministers has not yet determined which countries receiving payments are considered 'tax havens'.