THE LEGAL ASPECT OF RECEIVING INCOME ABROAD WHILE RESIDING IN TURKEY

With the advancement of computer technologies and the widespread use of the internet, faster and easier data transfer has made remote work more accessible. In particular, the Covid-19 pandemic marked a significant turning point in the expansion of remote work. Many companies adopted remote working models during the pandemic to continue their business operations, and the efficiency of this model soon became evident. As a result, even after the effects of the pandemic diminished, remote working practices remained a permanent solution in the business world, and the situation of receiving income abroad in Turkey has become increasingly common.

This transformation has opened doors not only for local employers but also for opportunities to work with international employers. Professionals residing in Turkey and specialized in various fields have begun to earn income from abroad by providing remote services to foreign employers. This presents numerous advantages for both individuals and economies.

The taxation status of salaries sent by foreign companies to employees residing in Turkey, as well as their position under the Social Security Institution (SGK), has become an increasingly important issue in recent years. Especially with the rise of remote work during the Covid-19 pandemic, many Turkish citizens started earning income by working remotely for foreign employers. However, as the volume of foreign income increased, several legal issues and complexities arose, particularly concerning the tax on foreign income in Turkey.

In particular, questions remain regarding how foreign income should be taxed in Turkey and how it should be assessed within the scope of social security. If employees residing in Turkey and providing services to foreign companies fail to declare their income properly, they may face substantial tax penalties.

Furthermore, since it is unclear how international social security systems should be integrated, confusion also arises regarding the payment of social security contributions in Turkey. These uncertainties can result in significant financial risks and legal problems for employees. Therefore, clarifying the legal aspects of how foreign income is taxed and how it is treated under social security in Turkey is of great importance. In such cases, seeking professional legal advice in Turkey can help prevent potential loss of rights.

PRACTICES OF TAX ON FOREIGN INCOME IN TURKEY

The taxation of employment income earned by individuals residing in Turkey from foreign employers is a multifaceted issue in terms of both domestic law and international tax treaties. As a rule, the salaries received by individuals residing in Turkey from abroad are subject to taxation in Turkey; however, if the conditions set forth under Article 23/14-a of the Turkish Income Tax Law (GVK) and Communiqué No. 147 are met, an income tax exemption applies.

• Foreign Employment Income Earned in Turkey Under the Income Tax Law

Pursuant to Article 7/3-a of the Turkish Income Tax Law (GVK), the employment income earned by individuals residing in Turkey is deemed as “income derived in Turkey”, even if the employer is located abroad. Therefore, as a rule, the salaries received by individuals residing in Turkey from foreign employers are subject to income tax in Turkey.

Although such salaries are generally not taxed in the country where the employer is located, they may also be exempt from income tax in Turkey if the conditions stipulated under the legislation are met, despite Turkey having the right to tax them. For this exemption to apply, the employee must reside in Turkey, and the employer must not have a workplace or permanent establishment in Turkey.

• Double Taxation Treaties on Foreign Employment Income

Through the double taxation treaties to which Turkey is a party, rules regarding taxation processes with other countries — particularly in the fields of commercial law and employment law — have been established, and these international treaties take precedence over domestic legislation. Under the provisions on “Dependent Personal Services” (generally regulated under Article 15 of the treaties), the fundamental rule for the taxation of foreign employment income is that the country where the employee actually performs the services has the right to tax the income.

Within this framework, even if a person residing in Turkey receives a salary from an employer abroad, as long as the services are physically performed in Turkey, the right to taxation belongs to Turkey. In most cases, no taxation is carried out in the employer’s country, and Turkey obtains the exclusive taxation authority on such income. However, if the statutory exemption conditions are met, the relevant income is not subject to income tax in Turkey.

• Tax Exemptions on Foreign Employment Income Pursuant to Article 23/14-a of the Income Tax Law

Regarding the taxation of salaries received from abroad in Turkey, Article 23/14 of the Income Tax Law (GVK) holds significant importance. According to this article, persons residing in Turkey and receiving salaries from a foreign company may obtain an income tax exemption from such salaries if certain conditions are met.

Paragraph 14/a of Article 23 of the Income Tax Law is as follows:

“(14/a) Salaries paid in foreign currency to employees working for employers subject to limited tax liability whose legal and business headquarters are not located in Turkey, provided that such salaries are paid out of the earnings obtained by the employer abroad;”

Accordingly, in cases where the salary of personnel in Turkey is paid in foreign currency by a foreign company, and provided that the salary is paid out of the earnings obtained abroad by the employer, such foreign employment income is exempt from income tax in Turkey.

• Exemption Conditions Pursuant to Income Tax Communiqué No. 147

In section (c) of Income Tax Communiqué No. 147, the conditions for income tax exemptions on foreign employment income in Turkey are explained as follows:

a) The Foreign Employer Must Not Have a Headquarters in Turkey

The fundamental condition for the application of the exemption is that the employer must not have any legal headquarters or branch of a foreign company in Turkey. This requirement is explicitly stated under Article 23/14-a of the Income Tax Law. Therefore, if the employer has a company incorporation in Turkey, branch, representation office, permanent representative, acquires real estate in Turkey as a foreign company, or maintains a presence through any legal structure in Turkey, the salary in question cannot be considered within the scope of the exemption.

Here, the important point is that the legal status of the employer abroad is irrelevant. In other words, the employer may be a company, foundation, association, cooperative, or any other type of organization. Even the lack of legal personality does not prevent the application of this condition. Similarly, it does not matter whether the employer operates as a commercial enterprise in the foreign country. The critical factor is that the employer must not have any entity in Turkey that could be defined as a “legal headquarters” or “place of management.”

However, under the legislation, an exceptional arrangement has been introduced: liaison offices established by foreign companies in Turkey are excluded from this rule. The salaries paid to employees working in a liaison office of a foreign company in Turkey are exempt from income tax, provided that the other conditions are also met. This is because liaison offices, by their nature, are not engaged in commercial activities and serve only for representation purposes. This regulation is consistent with the fact that liaison office activities do not generate taxable income in Turkey, and it grants a special status for the taxation of employees’ salaries.

b) Payment of Salaries in Foreign Currency in Turkey

Another condition for benefiting from the exemption is that the employee’s salary must be paid in foreign currency in Turkey. In cases of receiving income abroad in Turkey, this requirement means that salaries paid in Turkish Lira are excluded from the scope of the exemption. This reflects that foreign-sourced salaries are considered income derived from earnings abroad and not directly connected with the Turkish economy.

The purpose of requiring payment in foreign currency is both to confirm the foreign source of the income and to ensure that it is not associated with income generated in Turkey. Therefore, payments made in Turkish Lira from income derived from an employer’s activities in Turkey cannot benefit from this provision. In practice, this rule mostly applies where international companies without offices in Turkey pay salaries in foreign currency to their employees residing in Turkey.

c) Payment of Salaries Out of Earnings Obtained Abroad

For salary payments made to employees residing in Turkey to be exempt from income tax, such payments must be financed from the employer’s earnings obtained abroad. In other words, if the salary is paid out of income generated from any economic activity carried out in Turkey, the exemption provisions will not apply.

At this point, what matters is the source of the payment. If the payment is made from income derived from an employer’s activities in Turkey, such salaries become connected with Turkey and thus fall outside the scope of the exemption. Therefore, the fact that the payment originates from earnings obtained abroad constitutes one of the most critical elements of the exemption.

In this context, the condition of “not engaging in business activities in Turkey” should be interpreted broadly — not only as the absence of a physical workplace, but also as the absence of any income-generating activity. Indeed, a foreign company’s economic presence in Turkey is not limited to having a physical branch or liaison office; any form of commercial activity that generates income in Turkey also falls within this scope.

Accordingly, situations such as selling products or services in Turkey, conducting consultancy activities, registering trademarks under intellectual property rights, or generating royalty, license, know-how, or franchise income are all considered income-generating activities in Turkey. In the presence of such economic activities, the foreign company is deemed to be engaged in business in Turkey, and therefore salary payments to employees cannot benefit from the exemption under Article 23/14-a of the Income Tax Law.

d) Tax Consequences of Receiving Foreign Income from Abroad in Turkey

If all of the conditions listed above are fulfilled, the salaries received from abroad by an employee residing in Turkey are exempt from income tax. This applies regardless of whether the employee is considered a full taxpayer (resident) or a limited taxpayer (non-resident) in Turkey. Therefore, even if the individual is a Turkish citizen residing in Turkey, as long as the conditions are satisfied, foreign-sourced salaries paid in foreign currency will not be subject to income tax in Turkey.

In addition, this situation also has an important tax consequence for the employer. Payments made by an employer that does not conduct business activities in Turkey and does not generate income in Turkey cannot be considered as deductible expenses under Article 40 of the Turkish Income Tax Law (GVK). This is because such payments are not connected with any commercial income in Turkey. In other words, salaries that are not linked to income earned in Turkey by the foreign employer cannot be deducted from the tax base in Turkey in terms of the employer’s tax liability.

As a result, even if the employee is a full taxpayer in Turkey, the salaries earned from a foreign employer abroad will not be subject to income tax, provided that the conditions are met.

Thus, the tax status of income earned abroad by individuals residing in Turkey depends on whether:

1. The employer has no headquarters or permanent establishment in Turkey,
2. The salary is paid in foreign currency, and
3. The salary is financed from the employer’s earnings obtained abroad.

These regulations reduce the tax uncertainties of international labor mobility and provide a significant advantage for employees.

ADVANCE RULINGS ON THE TAX OBLIGATIONS OF RECEIVING A SALARY FROM ABROAD IN TURKEY

The following examples provide clear rules on the tax obligations and exemptions related to receiving income abroad in Turkey.

• Advance Ruling 1: Conditions for Exempting Salaries Received from Abroad from Income Tax in Turkey

A private ruling outlines the conditions under which a salary received from abroad can be considered exempt from income tax:

1. Condition of Being a Limited Taxpayer Institution: The employer of the individual providing services in Turkey must be a limited taxpayer institution, and this institution must not engage in any activities in Turkey that generate income.
2. Nature of the Employee and Salary: For a person employed by a limited taxpayer entity, the individual must be considered a dependent employee, and the payment must be of a salary/wage nature. Special statuses regulated under specific legal frameworks, such as foreign football player earnings or seafarers’ wages, cannot be considered within the scope of this provision.
3. Payment from Foreign Earnings: The payment to the employee in Turkey must be made from the foreign earnings of the limited taxpayer institution.
4. Payment in Foreign Currency: The salary must be paid in foreign currency.
5. Non-deductibility of Expenses: The salary paid must not be recorded as an expense in the Turkish accounts of the limited taxpayer institution.

Based on these provisions and explanations, the salaries paid directly from the foreign headquarters to personnel working at the Turkish representative offices opened by a foreign institution in Ankara and Hatay, and paid in foreign currency, will be exempt from income tax under Article 23, paragraph 14 of the Income Tax Law, provided that the above conditions are met.

• Advance Ruling 2: Exemption Not Applied in Consultancy Services

Another private ruling is as follows:

“According to these provisions and explanations, the fee paid directly to you from abroad in foreign currency for the project consultancy services provided via the internet to a company domiciled abroad is not exempt from income tax under Article 23/14 of the Income Tax Law. This is because the conditions specified in the 147th Income Tax General Communiqué are violated, as the income was earned by providing consultancy services that contribute to the employer firm’s profit. Therefore, it is necessary to declare this income through an annual tax return according to Article 95 of the Income Tax Law.”

As seen, if the person providing services from Turkey is a consultant (not in a personnel position), in other words, acting as a freelancer, the exemption under Article 23/14-a of the Income Tax Law does not apply. Consultancy income earned from abroad must be taxed in Turkey.

For the exemption to apply to foreign income in Turkey, there must be an employer-employee relationship between the parties. The most important document proving this relationship is the employment contract made between the parties, defining them as employer and employee.

If such an employment contract exists and the other exemption conditions are met, the tax exemption for receiving income abroad in Turkey can be applied even if the employer-employee relationship is limited to or lasts for a specific project.

RECEIVING SALARIES FROM ABROAD IN TURKEY FROM A SOCIAL SECURITY PERSPECTIVE

Law No. 5510 on Social Insurances and General Health Insurance establishes that salary payments made within the framework of an employer-employee relationship give rise to social security contribution obligations. However, the scope of the law is essentially limited to employers resident in Turkey and the insured employees they employ. Therefore, in cases where the employer is resident abroad and the salary payments are made from abroad, the provisions of Law No. 5510 do not apply to such salaries.

Within this framework, individuals residing in Turkey who receive salaries as employees from employers abroad are not required to pay social security contributions to the Social Security Institution (SGK). In other words, foreign-sourced salary income does not generate any contribution obligation under Turkish social security law. Moreover, there is no requirement to submit SGK registration or termination notifications for such individuals.

The social security status of foreign nationals residing in Turkey is further regulated under Article 6 of Law No. 5510. According to this provision, foreigners residing in Turkey and working for Turkish employers are generally considered insured and subject to SGK contributions. However, if a foreign individual residing in Turkey receives a salary solely from an employer abroad and is not employed by any employer in Turkey, there is no social security contribution obligation. Similarly, registration and termination notifications are not required in this case. Foreign nationals residing in Turkey are advised to consult an English-speaking lawyer in Turkey to ensure proper understanding of the tax and legal implications of income earned from abroad and to maintain compliance with Turkish law.

In addition, bilateral social security agreements signed between Turkey and many countries should also be considered. These agreements aim to protect employees’ social security rights, prevent double contributions, and allow for the aggregation of service periods. Therefore, the social security obligations for salaries received from foreign employers by persons residing in Turkey must be evaluated in light of both Law No. 5510 and, if applicable, the relevant bilateral social security agreements.

This framework is also highly relevant for understanding the tax on foreign income in Turkey, as social security obligations and income tax considerations may interact for individuals receiving income from abroad in Turkey.

RECEIVING SALARIES FROM ABROAD IN TURKEY FROM A LABOR LAW PERSPECTIVE

Law No. 4857 on Labor is the primary legislation regulating the employment relationship between employers and employees in Turkey. The provisions of the law define the mutual rights and obligations of the parties to the employment contract and cover topics such as job security, wages, overtime, annual leave, and worker compensation.

However, for Law No. 4857 to be applicable, the employer must either be resident in Turkey or the employment contract must be established through a workplace operating in Turkey. If the employer is located abroad and has not established any legal headquarters or workplace in Turkey, the applicability of Turkish labor law ceases. According to principles of international private law, the law governing the employment relationship is generally determined by the legislation of the country where the employer is located. Since each country’s labor law differs, the rules of the employer’s country will govern the employment contract.

When the employer is resident abroad and does not have any workplace in Turkey, the protective provisions of Turkish labor law cannot be directly applied. Accordingly, the following labor rights cannot be claimed under Law No. 4857:

• Severance pay
• Notice pay
• Overtime wages
• Annual leave rights
• Compensation payable in the event of unfair termination or dismissal

The existence and scope of such labor claims will be determined according to the labor law of the country where the employer is located.

In conclusion, when the employer is located abroad and has no workplace in Turkey, neither Law No. 4857 nor Law No. 5510 on Social Insurances and General Health Insurance can be applied. In such cases, the employee’s labor claims will be evaluated under the employment law of the foreign country applicable to the contract.

TAX CONSEQUENCES OF RECEIVING FOREIGN INCOME FROM ABROAD IN TURKEY

The taxation of receiving salary from abroad in Turkey is of significant importance. Individuals residing in Turkey who earn salary income from employers resident abroad are exempt from value-added tax and, under certain conditions specified in Article 23/14-a of the Income Tax Law (GVK) and Income Tax Communiqué No. 147, their income may also be exempt from income tax. However, independent professional income is not covered under this exemption and is taxed separately as a distinct type of income.

If this exemption is applied incorrectly or misinterpreted, the employee may face tax loss. A tax loss occurs when the taxpayer fails to pay the tax on time or does not pay it at all. Under the Tax Procedure Law, in addition to the unpaid tax, a penalty for tax loss is applied. If aggravating factors such as intentional misconduct or the use of fraudulent documents are present, the penalty can be up to three times the amount and may result in enforcement actions in Turkey. Moreover, under certain conditions, if a tax loss occurs, criminal prosecution for tax evasion may be initiated, and custodial sentences can be imposed.

Therefore, it is critical that the taxation of payments made by foreign employers to employees in Turkey is carefully reviewed by a tax law attorney in Turkey to ensure compliance and avoid potential penalties. Proper legal guidance is essential for both tax on foreign income in Turkey and receiving salary from abroad in Turkey situations.