February 27, 2023

The wages paid in foreign currency by the employer (liaison office) outside of Türkiye to employees working with employers subject to limited liability, whose legal and business center is not located in Türkiye, are exempt from income tax under subparagraph (14) of Article 23 of the Turkish Income Tax Law.

The following requirements must be met in accordance with this provision in order to qualify for an income tax exemption on wages paid to employees of a foreign company’s liaison office in Türkiye, which is one of the limited liability institutions with its legal and business center outside of Türkiye:

1-The employer (liaison office) of the employee in Türkiye is a non-residential taxpayer institution, and this institution does not operate in Türkiye in a way that will generate income in any way.

2-The person working in the limited taxpayer institution (liaison office) is a service person and the payment is a wage.

3- Covering the payment to be made to the personnel of the limited taxpayer institution in Türkiye from the foreign earnings of this institution,

4-Payment of the fee in foreign currency

5-The fee paid is not recorded as an expense in the accounts of the limited taxpayer institution in Türkiye.

These provisions and explanations state that, as long as all requirements listed in paragraph 23/14 of the Income Tax Law are met, wages paid in foreign currency by a foreign company to employees who will work in a liaison office that will be established in Türkiye of companies with foreign headquarters are exempt from income tax. There will be no exemption for income taxes under Article 94 of the Income Tax Law.

As a liaison office in Türkiye, those who pay wages to the employees employed in Türkiye in the capacity of employer should not have any legal center or business center in Türkiye. On the other hand, the status of non-statutory and non-business centers in Türkiye in the state in which they are fully liable, the existence or absence of any economic enterprises, whether they have legal personality or not, will not matter.

The non-resident taxpayer institution (liaison office) to which the insured person works in the liaison offices in Türkiye under a service contract, as an employer, should separate the fees paid to the person in question in foreign currency directly from the income he/she earns abroad. It shouldn’t be related to the income he earns in .

In this framework, it will not be important for the service person to have the status of full taxpayer or limited taxpayer in Türkiye. Since the payment will be made on the income earned abroad, these fees due to the activities in Türkiye will not be considered as expenses according to the provision of Article 40 of the Income Tax Law.

Moreover, if the wage paid in foreign currency from abroad is provided by the liaison office to your employees in cash under the name of travel, food and accommodation, the said cash benefits will be considered as wages. If the above conditions are also met, these payments will also be exempt from income tax according to subparagraph (14) of Article 23 of the Income Tax Law No. 193. In this case, in order for the exemption to be applied, the said wage must be paid to the employees in the liaison offices in foreign currency or in Turkish currency by having the money received from abroad exchanged in authorized banks, and the documents regarding the exchange of foreign currency must be added to the payrolls.

Payments made in cash or on account at liaison offices, wage payments and other additional payments that do not meet the conditions described above will be subject to income tax.

Social Security and Unemployment insurance premiums will be calculated for the wages of the employees in the liaison offices.

If the liaison office operating in Türkiye to represent the parent company abroad fulfills all the conditions listed in subparagraph 23/14 of the Income Tax Law, papers issued due to the wages paid to the employees (payroll, payroll statement) will be exempt from stamp tax according to the IV/34 clause of the table no (2) of the Stamp Duty Law.

The phrase “The said papers are subject to tax as of this date if they are submitted to official offices or notary publics and are paid by those who submit” in paragraph IV/34 of Table (2) attached to the Stamp Duty Law, provided that they are not related to commercial, agricultural or professional activities. It is related to the papers related to the contracts drawn up between them. Since it does not cover the papers related to the wages specified in Article 23 of the Income Tax Law, submission of the payroll/slips of account of the employees in the liaison offices to the official offices will not constitute an obstacle to the stamp tax exemption.

Ali KARAKUŞ

CPA, Independent Auditor

Karen Audit

Istanbul,

February 27, 2023

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 Karen Audit 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.