RPEUBLIC OF TÜRKİYE
REVENUE ADMINISTRATION DIRECTORATE
Istanbul Tax Office Directorate
Revenue Laws Income and Corporate Taxes Group Directorate
Number: E-62030549-125[3/2023]-
Date: 21.05.2024
Subject: Taxation of the Sale of Fixed Assets of the Liaison Office
From the review of your special letter request form, it is understood that the company … has started operations as a liaison office …, and that you need to close the liaison office due to the end of the term. You requested the opinion of our Presidency regarding the taxation of the liaison office, which is not a taxpayer, if you transfer the fixed assets recorded in your inventory to the newly established limited company at the market value.
Article 3 of the Corporate Tax Law No. 5520 states that institutions whose legal and business centers are not both located within Turkey are only taxed on the corporate income earned within Turkey. The existence of income earned in Turkey is determined according to the provisions of Articles 3 of the Corporate Tax Law and Articles 7 and 8 of the Income Tax Law.
According to the third paragraph (a) of Article 3 of the Corporate Tax Law, the profits earned by foreign institutions with a workplace or permanent representative in Turkey from business done at these places or through these representatives are subject to commercial income tax. However, if institutions that do not have a legal and business center in Turkey only establish a workplace or permanent representative in Turkey for the supply of goods and these goods are sent to foreign countries without being offered to the Turkish domestic market, there is technically no income earned in Turkey, and no tax liability arises. The concept of workplace in this article is defined in Article 156 of the Tax Procedure Law, and the concept of permanent representative is defined in Article 8 of the Income Tax Law. In this context, a workplace is defined in the Tax Procedure Law as a place where commercial activities are conducted or used, and a permanent representative is defined in the Income Tax Law as a person authorized to carry out commercial transactions.
Article 26 of the same Law states that if the taxable income of foreign institutions subject to limited tax liability consists of other types of income and revenues listed in the Income Tax Law (excluding royalties, concessions, patents, business names, trademarks, and similar intangible rights and the fees received for their sale, transfer, and assignment), the foreign institution or its representative in Turkey must declare these earnings to the tax office specified in Article 27 of the Law within fifteen days from the date of earning the income. Article 27 of the Law also specifies that corporate tax returns for income derived from the disposal of immovable assets should be submitted to the tax office where the immovable asset is located, and for other assets and rights, to the tax office where the movable assets and rights are disposed of in Turkey.
On the other hand, liaison offices are established and operate according to the regulations set out in the Direct Foreign Investments Law No. 4875 and the Direct Foreign Investments Law Implementation Regulation based on this Law. According to the current legal regulations, liaison offices cannot engage in commercial or other income-generating activities beyond their permitted activities in Turkey, cannot earn and transfer profits, and must cover all their expenses with foreign currency brought from abroad.
In this regard, if a liaison office established in Turkey, operating in accordance with the Direct Foreign Investments Law No. 4875 and the related implementation regulation, does not engage in commercial or other income-generating activities beyond its permitted activities, there is no need to establish a corporate tax liability.
Therefore, if fixed assets purchased to carry out the activities of your liaison office in Turkey, with all purchase and other expenses covered by your head office abroad, are sold at market value, and the proceeds from the sale are directly reflected in the accounts of the head office abroad without being linked to the liaison office’s accounts, there is no need to establish a corporate tax liability for your liaison office. However, since the profit derived from the sale of these fixed and movable assets by the head office abroad is considered as other income and revenues from incidental commercial activities in Turkey, the profit must be declared to the tax office specified in Article 27 of the Corporate Tax Law within fifteen days from the date of acquisition, as per Article 26 of the Law.
Source: Revenue Administration
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