Full taxpayers who carry out self-employment activities by opening an office abroad are mandatory to declare their earnings in Türkiye. While it is not possible for a self-employed professional to open a branch, a liaison office may be opened. Services performed abroad are not subject to VAT, provided that the benefit is not derived in Türkiye. Evaluation in Terms of Income Tax, Tax Procedure Law, and VAT Introduction The professional activities of self-employed individuals abroad—particularly in the case of opening an office—bring about various hesitations regarding income tax, accounting systems, and Value Added Tax. This article, based on the advance tax ruling (özelge) issued by the Revenue Administration on June 12, 2012, examines the subject through a specific case study across the dimensions of Income Tax, Tax Procedure Law (VUK), and VAT. Framework of the Case Study A lawyer operating as a full taxpayer in Türkiye plans to continue professional activities by opening an office abroad (in Germany). The taxpayer requested the administration’s opinion on: Declaration of income tax in Türkiye, Expenses related to the office abroad, Ledger and documentation requirements, Value Added Tax (VAT) implementation. I. Evaluation in Terms of the Income Tax Law According to Article 3 of the Income Tax Law No. 193, real persons settled in Türkiye are taxed on the entirety of their earnings obtained both within and outside of Türkiye. Therefore, the income earned by a self-employed professional abroad is within the scope of taxation in Türkiye. Pursuant to Articles 65 and 67 of the Law, self-employment income is defined as income based on: Personal labor, Professional knowledge and expertise, Activities carried out independently. Within this framework: All earnings from self-employment activities conducted in Germany and Türkiye must be declared in Türkiye. Earnings obtained abroad are considered “earned” in the year they are transferred to accounts in Türkiye and are included in the income tax return for that year. Regarding rent payments for the office abroad, there is no withholding tax (stopaj) obligation from the perspective of Turkish tax law. If a Double Taxation Agreement (DTA) is in effect between Türkiye and the relevant country, taxation shall be carried out considering the provisions of that agreement. II. Evaluation in Terms of the Tax Procedure Law (VUK) Article 159 of the Tax Procedure Law requires that changes in the number of workplaces included in the enterprise be notified to the tax office. However, specific regulations regarding self-employed professionals must be considered. According to Article 210, a self-employed professional maintains a single self-employment earnings ledger. Based on the tax ruling: Since legal practice is a self-employment activity conducted under personal responsibility, it is not possible for the professional to open a branch (şube) in addition to their domestic workplace, whether domestically or abroad. However, opening a liaison office is not prohibited under tax legislation. Self-employed receipts and ledgers used in Türkiye cannot be used for activities conducted abroad. The activity abroad must be evaluated separately within the framework of that country’s legislation and DTAs. III. Evaluation in Terms of the Value Added Tax (VAT) Law According to VAT Law No. 3065, only deliveries and services performed in Türkiye fall under the scope of VAT. A service is considered performed in Türkiye if it is carried out in Türkiye or if the benefit of the service is derived in Türkiye. In this context: Legal services performed abroad through an office opened abroad are not subject to VAT, provided that the benefit is not derived in Türkiye. However, if the benefit of said services is derived in Türkiye, VAT must be calculated on the service fee within the framework of general provisions. Foreign VAT incurred due to expenditures made abroad for the office abroad cannot be used as an input VAT deduction in Türkiye. Q&A Table Regarding the Case Study Question Answer Is a lawyer with an office abroad a full taxpayer? Yes, they are a full taxpayer in Türkiye. Are foreign earnings declared in Türkiye? Yes, they must be declared. When is foreign income considered earned? In the year it is transferred to Türkiye. Is it possible to open a branch abroad? No. Can a liaison office be opened abroad? Yes, it is possible. Is there rent withholding for the office abroad? No. Can Turkish ledgers be used for foreign activities? No. Are services provided abroad subject to VAT? No, provided the benefit is not derived in Türkiye. Does VAT arise if the benefit is in Türkiye? Yes. Can foreign VAT on expenses be deducted? No. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.