Double Taxation Avoidance Agreements in Türkiye: Key Updates for Entrepreneurs

Double Taxation Avoidance Agreements (DTAs) are essential international treaties aimed at promoting global trade and investment. These agreements help prevent income from being taxed both in the country where it is earned and in the residence country of the taxpayer. In this article, we explore the importance of these agreements, Türkiye’s existing treaties, and recent developments for 2024-2025.

The Purpose and Significance of DTAs

DTAs aim to eliminate double taxation on income and ensure a fair taxing system for individuals and businesses engaged in international trade. They help:

• Encourage cross-border investments and economic activities.
• Reduce the tax burden on individuals and corporations.
• Establish legal clarity on taxation rights between countries.

By ensuring fair taxation, these agreements enhance economic cooperation between nations and provide clarity to businesses operating in foreign markets.

Türkiye’s Double Taxation Agreements

Türkiye has signed DTAs with numerous countries. The process began in 1970 with Austria and has expanded significantly. Currently, Türkiye has agreements with 60 countries, with 11 additional agreements pending approval. Additionally:

• DTAs with Austria, Bosnia and Herzegovina, the Philippines, South Africa, Canada, and Malta have been initialed and are awaiting signature.
• The agreement with Morocco has been finalized and is awaiting initialing.
• Negotiations are ongoing with 14 other countries.

For a full list of Türkiye’s DTAs and their current status, visit the Turkish Revenue Administration.

Global Minimum Tax and the Second Pillar

Under the 2021 OECD Global Tax Agreement, a 15% global minimum tax for large multinational corporations is being implemented. The “Second Pillar” of this agreement came into effect on January 15, 2025, introducing rules for deferred taxes and transition periods.

While the United States has threatened to withdraw from the agreement, most other nations continue to implement these rules. This initiative aims to prevent tax base erosion by multinational enterprises and ensure fair tax distribution across jurisdictions.

Multilateral Instrument (MLI) and Türkiye

The Multilateral Instrument (MLI) is part of the OECD’s BEPS (Base Erosion and Profit Shifting) Action Plan. The MLI allows countries to efficiently update existing DTAs without renegotiating each agreement separately.

Türkiye is still in the process of ratifying the MLI. Once in force, it will expand the country’s ability to combat tax avoidance and protect its tax base while maintaining favorable agreements for foreign investors.

Implementation and Operation of DTAs

DTAs define taxation rights based on the type of income. Typically:

• Income is taxed in the country where it is earned.
• The taxpayer’s country of residence may also impose taxes, but measures such as tax credits or exemptions prevent double taxation.
• DTAs establish mechanisms to resolve disputes between tax authorities and ensure efficient information exchange.

These agreements play a crucial role in providing tax certainty for foreign businesses and investors in Türkiye.

Latest Developments (2024-2025)

• International Tax Cooperation Framework Agreement: On December 24, 2024, the United Nations approved a resolution to advance a new international tax cooperation framework due to growing dissatisfaction within the Inclusive Framework.
• Türkiye’s Negotiations: Türkiye continues DTA negotiations and updates its existing agreements. The treaty with Morocco has been finalized and is awaiting formal approval.

Conclusion

For entrepreneurs looking to expand into Türkiye, understanding DTAs is essential. These agreements provide tax-saving opportunities, reduce compliance risks, and enhance business operations. Staying updated on global tax developments and Türkiye’s tax treaties will help businesses navigate international taxation more effectively.