The fundamental nature of work is changing thanks to the automation, digital platforms and other innovations that technology brings. Physical barriers have been eliminated and more and more people have been working remotely not only for firms in their country of residence but for firms worldwide. Turkey with a young, dynamic population is one of the countries that has many professionals who work for companies outside of their country of residence.
While this type of employment is growing and being highly appreciated the tax issues should not be disregarded. People who work remotely in Turkey tend to think that they have no tax obligations due to the fact that the firms which they are providing work for, do not provide any services in Turkey, and have neither branch nor a legal entity inside the country. However recently, these remote workers in Turkey started receiving letters from the Turkish tax authorities, inviting them to explain about the income that they have been receiving from outside of the country. Misinterpreting the law has been causing problems amongst those who receive these letters, as the law lists the criteria where one can be exempt from income tax in a different way than it is thought.
Article 23, paragraph 14 of the Income Tax Law regulates non taxable, ‘’exempt income’’. Any foreign currency income that an individual acquires or earns from a foreign employer falls under this article if:
· Your employer is located outside of Turkey,
· Your employer is subjected to limited tax liability,
· Your employer is operating outside of Turkey,
· Your employer’s earning are obtained outside of Turkey.
These criteria are explained in detail in Income Tax General Communiqué (Serial No. 147). In the scope of this Communique the above mentioned criteria were detailed, however the most important part is that the Communique strongly emphasizes the existence of the employment relationship. Therefore if you are not an employee but an independent contractor, you will not be exempt from paying taxes in Turkey. The burden to prove employer-employee relationship lies with the tax resident. While this link can be proven easily by an employer-employee contract, the tax authority might ask for further documents proving this relationship.
However when the tax authority knocks on your door for an explanation about your undeclared income, there are ways to secure yourself from paying high amounts of tax penalty such as benefiting from Asset Peace Regulation. In order to avoid tax controversy and be enlightened about the solutions it is highly recommended to consult a tax lawyer in Turkey.
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