Tax Deductions for Services Provided to Foreign-Domiciled Individuals and Entities
Tax Deduction for Services Provided from Turkey to Foreign-Domiciled Individuals and Entities
Under the amendment to Article 10 of the Corporate Tax Law, added by Law No. 6322, starting from June 15, 2012, services provided in Turkey to individuals or entities not residing in Turkey, and whose benefits are exclusively realized abroad, in areas such as architecture, engineering, design, software, medical reporting, accounting, call centers, product testing, certification, data storage, data processing, data analysis, and other professional training services as determined by the Ministry of Finance with the opinion of relevant ministries, can have 50% of the income from these services deducted from taxable corporate income.
- Services Covered by the DeductionTo qualify for the deduction, the income must be derived from the following activities:
- Architecture, engineering, design, software, medical reporting, accounting, call centers, product testing, certification, data storage, data processing, data analysis.
- Professional training services as specified by the Ministry of Finance, with input from relevant ministries.
- Educational and health services provided under the permission and supervision of the relevant ministries.
The scope of professional training services, as determined by the Ministry of Finance, includes:
- Planning, promotion, sales, post-sales services, brand management, financial management, technical support, R&D, design, external procurement, testing of newly developed products, laboratory, research, and analysis.
- Industries such as manufacturing, tourism, construction, agriculture, defense, advertising, internet and e-commerce, environment, health, press, culture-art, insurance, energy, sports and maritime, domestic and foreign trade, logistics, and transportation.
- Conditions for Benefiting from the Deduction2.1. Principal Activity of the Company The principal activities stated in the company’s articles of association must include the services listed above. The company may provide one or more of these services.
The deduction applies if the company provides these services to foreign-domiciled individuals or entities, even if it also provides services to Turkish residents. Health and education service providers must operate within the scope of licenses from the Ministry of Health or the Ministry of National Education.
2.2. Services Provided Exclusively to Foreign-Domiciled Individuals/Entities The services must be provided exclusively to individuals or entities not residing in Turkey.
2.3. Invoice Must Be in the Name of the Foreign-Domiciled Individual/Entity Invoices for the services must be issued in the name of the foreign-domiciled person or entity.
2.4. Services Benefiting Foreign-Domiciled Individuals/Entities The services must be used abroad, with no connection to the activities of the foreign-domiciled individuals/entities in Turkey.
2.5. Education and Health Services Provided to Foreign-Domiciled Individuals Education and health services provided in Turkey must be utilized by individuals who are not residents of Turkey.
- Determining, Tracking, and Reporting Income from Services Provided to Foreign-Domiciled Entities3.1. Determination of the Deduction Amount The income derived from qualifying activities, after deducting relevant costs, can be deducted up to 50% in the corporate tax return. Unused deductions cannot be carried forward to future periods.
3.2. Tracking of Income Income from qualifying activities must be separately tracked, and general expenses must be allocated based on the ratio of income from qualifying activities.
3.3. Documentation and Notifications Companies must submit forms detailing information about the foreign-domiciled beneficiaries and provide copies of relevant licenses or permits from the Ministries of Health and National Education to the tax office.
3.4. Income Outside the Main Activity Income from activities outside the main business activities or extraordinary income is not eligible for the deduction.
Source: Corporate Tax Law
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