KÖKER CPA & AUDITING

INTERNATIONAL CROSSBORDER HOLDING STRUCTURES TURKEY

Tax Aspects of a U.S. Company Operating in Turkey

General View of Turkish Tax System If we look at the taxation system in Turkey in general, we see that the system is not spread to the very bottom of the taxation regime. So we can say Tax System in Turkey is imbalanced. To prevent tax loss the Ministry of Finance deducts tax at source which guarantees the tax receivable of the government. The first thing we will deal here is the Licensing Fee. Licensing Fee will be evaluated according to Tax Treaty Article no. 12, which is signed between the U.S. and Turkey.

About This Case.. First point we need to mention is taxation of Licensing Fee. Licensing Fee will be examined under Royalties. Taxation of royalties is explained in Article no 12 of Tax Treaty. Licensing Fee of 2.000.000 USD will be taken as net amount. The rate to be applied here is 5 % according to Tax Treaty. Profit 7.000.000,00 Licence Fee 2.000.000,00 Withholding Tax Stoppage (%5) 105.263,16 Profit Before Tax 4.894.736,84

That makes Profit Before Tax as 4. 894. 736,84 USD, not 5. 000 That makes Profit Before Tax as 4.894.736,84 USD, not 5.000.000,00 USD. Corporate Income Tax in Turkey is 20 %. According to this; Profit Before Tax 4.894.736,84 Corporate Tax (%20) 978.947,37 Profit After Tax 3.915.789,47

According to Tax Treaty article no According to Tax Treaty article no. 10, dividend payments will be subject to withholding tax (stoppage) at a rate of 20 %. The amount 3.915.789,47 TL will be evaluated as net amount and the tax is calculated accordingly. The tax at the rate of 20 % will be final tax for the company’s foreign partner (or owner) and the remaining balance of 2.936.842,11 USD can be sent to US by Bank. Profit After Tax 3.915.789,47 Withholding Tax Stoppage (%20) 978.947,37 Dividend (transferred to US) 2.936.842,11

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