What is a Limited Taxpayer? Comprehensive Tax Guide

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In a globalized world, it is becoming increasingly common for individuals and companies to earn income in different countries. This makes it important to know in which country and how tax liabilities arise. One of the frequently encountered concepts in the Turkish tax system is limited tax liability. Limited tax liability is particularly important for Turkish citizens living abroad, foreign investors, and foreign companies operating in Türkiye.

What is a Limited Taxpayer?

A limited taxpayer refers to the tax status of individuals or legal entities who do not reside in Türkiye but earn income from Turkish sources. According to the Income Tax Law, individuals who do not reside in Türkiye are only taxed on their earnings and income obtained in Türkiye. This system is called limited tax liability.

In short:

• Individuals who do not reside in Türkiye can be subject to limited tax liability.

• Only income earned in Türkiye is taxed.

• Income earned abroad is not taxed in Türkiye.

Who is Considered a Limited Taxpayer?

The following individuals generally fall under the category of limited taxpayers:

Foreigners Not Residing in Türkiye

Foreign nationals who do not permanently reside in Türkiye and whose place of residence is outside Turkey are considered limited taxpayers.

Turkish Citizens Living Abroad

Turkish citizens who live abroad for an extended period for work, residence, or business establishment purposes may be considered limited taxpayers under certain conditions.

Foreign Companies

Companies whose legal and business headquarters are outside Turkey are taxed as limited taxpayer corporations for the profits they earn in Türkiye.

What is the Difference Between Full Taxpayer and Limited Taxpayer?

In the tax system, taxpayers are divided into two main groups:

Full Taxpayer

• Taxed on all income earned worldwide.

• Includes individuals and legal entities residing in Türkiye.

• All domestic and foreign earnings are subject to tax.

• Obligated to declare income and earnings in Türkiye.

Limited Taxpayer

• Taxed only on income earned in Türkiye.

• Includes individuals and legal entities not residing in Türkiye.

• Income earned abroad is not taxed in Türkiye.

• Tax liability is limited only to income originating in Turkey.

For example, a Turkish citizen living in Germany will not have their salary in Germany taxed in Türkiye. However, if they earn rental income from real estate they own in Türkiye, this income may be subject to tax in Türkiye.

Taxable Income of Limited Taxpayers

Limited taxpayers are taxed only on income earned in Türkiye.

Business Profits

Profits obtained from commercial activities conducted in Türkiye through a business establishment or permanent representative.

Freelance Income

Income obtained from providing consulting, engineering, software development, or similar services in Türkiye.

Wage Income

Salaries and wages earned for work performed in Türkiye.

Real Estate Capital Income

Income obtained from renting out immovable properties such as houses, land, and business premises located in Türkiye.

Income from Movable Capital

Interest, dividends, and similar investment income.

Capital Gains

Gains arising from the sale of immovable properties or certain rights in Türkiye.

Withholding Tax for Limited Taxpayers

For some income earned by limited taxpayers, the tax is withheld at source before the income owner files a declaration. This system is called withholding tax.

For example;

• Rent payments

• Dividend payments

• Interest income

• Payments from self-employment

Tax withholding can be applied at certain rates. This method ensures faster and more secure tax collection.

Double Taxation Avoidance Agreements

With the increase in international activities, the risk of the same income being taxed in two different countries arises.

Thanks to the Double Taxation Avoidance Agreements that Türkiye has signed with many countries:

• The same income is not taxed twice.

• The tax burden can be reduced.

• International investment and trade are encouraged.

• Taxpayers' tax rights are protected.

For example, some income earned in Türkiye by a person living in Germany may be partially or completely exempt from tax according to the provisions of the agreement.

Are Limited Taxpayers Required to File a Tax Return?

The answer to this question depends on the type of income earned. In some cases, withholding tax constitutes final taxation, eliminating the need for a separate tax return.

However, filing a tax return may be required in the following situations:

• Earning commercial profit

• Real estate rental income exceeding certain limits

• Earning capital gains

• Having income that is legally required to be declared

Therefore, it is important to evaluate each type of income separately.

How are Limited Taxpayer Companies Taxed?

Companies whose legal and business headquarters are located outside Turkey are taxed on their corporate income earned in Türkiye.

For example;

• Foreign companies with branches in Türkiye

• Foreign firms carrying out projects in Türkiye

• Foreign institutions earning real estate income in Türkiye

can be considered as limited taxpayer companies. The tax liabilities of these companies may vary depending on their field of activity and the types of income they earn.

Advantages of Limited Taxpayer Status

Limited taxpayer status can provide significant advantages in some cases.

The main advantages are:

• Non-taxation of foreign income in Türkiye

• Prevention of double taxation

• Providing a more predictable tax system for international investors

• Easier taxation through withholding tax on some incomes

However, to benefit from these advantages, the tax legislation and international agreements must be correctly evaluated.

Conclusion

Limited tax liability is an important tax practice regulating the taxation of individuals and institutions that are not resident in Türkiye but earn income originating from Turkey. Limited taxpayers are taxed only on income earned in Türkiye, while income earned abroad generally remains outside the Turkish tax system.

A correct understanding of the provisions of limited tax liability is of great importance, especially for Turkish citizens living abroad, foreign investors, and international companies. Obtaining professional financial consultancy support will be beneficial in ensuring the complete fulfillment of tax obligations and preventing potential risks.