Separation of Tax Paid Abroad in Income Tax
Set-off and Refund of Taxes Paid Abroad The Income Tax Act, which is the basis for filing returns, provides that taxable individuals are taxed on all income and earnings within and outside Turkey. According to the provisions of Article 123 of the same law, “Deduction of tax paid abroad”, the following conditions must be met in order for the tax paid abroad to be credited:
Similar taxes paid domestically by taxpayers who are fully responsible for their income and income earned abroad are deducted from the appropriate portion of the income tax levied in Turkey on their income and income earned abroad.
If the amount to be deducted exceeds the portion of income and income tax corresponding to income earned abroad, the difference shall not be taken into account.
The portion of income tax that corresponds to income earned abroad is calculated using income ratios.
- To deduct taxes, taxes paid abroad, personal income tax and taxes paid abroad, a document approved by the Turkish embassy or consulate must be submitted to the relevant authorities and the same qualified to protect the interests of Turkey. Must be approved by a representative.
- If the required documentation for tax paid abroad is not available by the time the installments are paid, the income and tax portion corresponding to the foreign-generated income will be deferred for one year.
- If the required documents are submitted to the tax office within this period, the tax credit (credit) will occur.
- If income paid abroad and income related to taxes is included by the taxpayer in that year’s income, these taxes are also deducted from the tax on this income.
- In the case of tax deductions, the exchange rate for taxes paid in foreign currency is applied to the relevant income and earnings.
- Taxes based on the calculation of the total tax burden of the foreign subsidiary may be deducted from the income tax levied on the profits of the inspected foreign company taxable in Turkey, if the foreign inspected company regulations apply. increase.
After; Individuals within the scope of resident taxpayers file annual returns in Turkey for seven income items and pay taxes in countries that receive taxes based on their own income and income from abroad for the same income items In this case, this tax can be paid outside the country. Deducted according to established principles. Income taxable abroad must be earned in that country. Income earned in Turkey from taxes paid abroad cannot benefit from the deduction regime. Taxes paid abroad can only be credited to fully taxable individuals and non-resident taxpayers cannot benefit from the provisions of this article. Limited taxpayers are taxed only on their income in Turkey and therefore cannot declare their income abroad, so there are no deductions.
Separation of Taxes Paid Abroad
It is possible for institutions operating in Turkey to operate abroad and earn income in different ways. Accordingly, the companies in question;
- They can become partners in a company established abroad,
- They can establish a company abroad directly,
- They may organize activities abroad as branches,
- They can operate through their workplaces abroad or their permanent representatives,
- They may engage in commercial relations (import or export) directly from their workplaces in Turkey, without opening a business abroad or having a representative, with individuals and organizations abroad.
The taxation of the profits of Turkish institutions from their activities abroad according to different alternatives is made according to different provisions in the Corporate Tax Law No. 5520. In the aforementioned Law, there are regulations on how and under what conditions the earnings from abroad will be taxed and not, and under what conditions the taxes paid abroad due to these activities can be deducted from the taxes to be paid in Turkey.
The conditions for deducting the taxes paid abroad due to the earnings obtained abroad from the tax payable in Turkey, and whether certain foreign earnings exempted from corporate tax in Turkey are exempt in absolute terms or whether they can be declared in certain situations and, if declared, paid abroad for these earnings. Whether the taxes can be deducted from the taxes paid in Turkey is the subject of this report.
Conditions for Set-off and Refund of Taxes Paid in Foreign Countries
Act and General Income Tax Notice Serial No. 1, the conditions for deduction and application can be summarized as follows.
Taxes paid locally and taxable in Turkey on income earned abroad will be deducted from corporate tax calculated in Turkey on this income.
2- Installed Setup
The rate considered is the rate at which the relevant income is transferred to the general income account.
3- Calculation of imputed limits and imputed amounts shall not exceed the amount resulting from Percentage of corporate tax rate on income earned abroad.
The number of foreign income included in the Turkish tax base must be estimated to include these taxes.