Republic of Türkiye

Ministry of Finance

Izmir Tax Office

Directorate of Income Laws – Income Tax Group

Date: April 15, 2022

Number: 84098128-120.03.05.06[23-2017/3]-201082

Subject: Whether the salaries paid to personnel employed at a liaison office in Turkey of a company headquartered abroad are exempt from income tax

In your special exemption request form, it is understood that your company, … Ltd., headquartered in England, has been operating as the Izmir Liaison Office since October 20, 2017, with the permission of the Ministry of Economy (No. 102078) for “market research, technical support, communication, and information transfer.” You mentioned that all office expenses and employee salaries are paid by converting foreign currency brought from abroad into Turkish Lira and transferring it to the relevant personnel’s accounts, and you are attaching the receipts related to currency exchange to the payroll. You requested the opinion of our Directorate regarding whether determining salaries in Turkish Lira in the employment contracts of your personnel would prevent benefiting from the exemption stated in Article 23, paragraph 14/a of the Income Tax Law.

According to the provisions of paragraph 14 of Article 23 of the Income Tax Law No. 193, salaries paid in foreign currency to employees working for employers who are subject to limited taxation and do not have a legal or business center in Turkey are exempt from income tax.

In the section titled “Salaries Paid in Foreign Currency by Employers Subject to Limited Taxation Whose Legal and Business Center is Not in Turkey” of the General Communiqué on Income Tax No. 147, it is stated that:

  • The institutions making salary payments as employers must not have any legal or business center in Turkey. The status of these institutions in the country where they are fully liable is not important.
  • The foreign currency salaries paid to individuals providing services in Turkey must be directly separated from the income obtained abroad and must not relate to income obtained in Turkey at any time. Therefore, the tax status (fully liable or limited) of the employee in Turkey is irrelevant. Since the payment will be made from income obtained abroad, these salaries will not be considered as expenses under Article 40 of the Income Tax Law due to activities in Turkey.

Based on this, in order for the salaries paid to employees working for limited tax institutions without a legal or business center in Turkey to be exempt, the following conditions must be met:

  1. The employer must be a limited tax institution that does not engage in activities generating income in Turkey.
  2. The individual employed by the limited tax institution must be a service employee, and the payment must be salary.
  3. Payments to personnel in Turkey must be covered by the foreign income of the limited tax institution.
  4. The salary must be paid in foreign currency.
  5. The salary paid must not be recorded as an expense in the accounts of the limited tax institution in Turkey.

According to these provisions and explanations, salaries paid to personnel at the liaison office will be exempt from income tax if all conditions listed in Article 23, paragraph 14/a of the Income Tax Law are met, and no withholding tax will be applied on these salary payments. In this context, the payments made to employees must be covered by foreign currency from abroad and can be made to employees in foreign currency or converted into Turkish Lira through authorized banks. If the payments are made in Turkish Lira, the documents related to the currency exchange must be attached to the payroll. Therefore, as long as the salary payments are covered by foreign currency brought from abroad, determining the salaries in Turkish Lira in the service contracts with your employees and paying these salaries in Turkish Lira will not prevent benefiting from the aforementioned exemption.

Source: Revenue Administration of Republic of Türkiye
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