25.01.2023/22
Change in Salary Payments Made to Service Personnel Working in Foreign Construction, Repair, Assembly Jobs, and Technical Services
The provisions related to the exemption from income tax on salary payments made to service personnel working in foreign construction, repair, assembly jobs, and technical services, under the Law No. 7420 dated 03.11.2022, were regulated with the publication of the Income Tax General Communique No. 322 in the Official Gazette No. 32059 (2nd Repetition) dated 30.12.2022.
Explanations regarding the regulations in the Communique are provided below:
a) With the Law No. 7420 dated 03.11.2022, salary payments made to service personnel working in foreign construction, repair, assembly jobs, and technical services, as of 01.12.2022 (inclusive), and funded from the employer’s foreign earnings, are exempt from income tax.
In order for salary payments to be exempt from income tax, the following conditions must be met:
- The service personnel must work in foreign construction, repair, assembly jobs, and technical services,
- The service must be physically performed abroad by the service personnel,
- The payment to the service personnel must be funded from foreign earnings.
b) Employees working in management, administration, accounting, and similar services are eligible for this exemption, provided they work in foreign construction, repair, assembly jobs, and technical services and physically perform services abroad.
c) Salary payments made by a foreign branch to service personnel working in foreign construction, repair, assembly jobs, and technical services are exempt from income tax, and no annual income tax return will be filed by the service personnel for these earnings.
Example: Company (D), headquartered in Turkey, has undertaken a construction job abroad and sent 40 service personnel from Turkey to work on this project. The salary payments for these service personnel are made by the company’s foreign branch.
In this case, the salary payments made by the foreign branch for the service personnel’s work abroad are exempt from income tax, and no annual income tax return will be filed by the service personnel.
d) Salary payments made by the Turkish company (head office) on behalf of a foreign branch do not prevent the application of the exemption. In this case, the Turkish company (head office) will not withhold income tax, and the service personnel will not be required to file an annual income tax return for the salary payments.
Example: Company (E), headquartered in Turkey, has undertaken a construction job abroad and sent 50 service personnel from Turkey to work at its foreign branch. The salary payments for the service personnel working at the foreign branch are made by the head office using the foreign branch’s earnings.
In this case, income tax will not be withheld from the salary payments made by the head office, and the service personnel will not be required to file an annual income tax return for these salary earnings.
Example: Company (F), headquartered in Turkey, has undertaken a repair job abroad and sent 30 service personnel from Turkey to work on this project. Five service personnel from the Turkish head office were also sent abroad for certain periods to work on specific parts of the job.
In this case, salary payments made to the 30 service personnel working abroad on the repair job will be exempt from income tax. The salary payments for the five service personnel working both in Turkey and abroad will be exempt only for the days they worked abroad, while the payments for their work in Turkey will be subject to tax.
e) If a service personnel works abroad on such projects while simultaneously working at the Turkish company (head office), only the salary payments made for the days worked abroad will be exempt, and the payments made for the work performed in Turkey will be subject to tax.
Example: Company (G), headquartered in Turkey, has undertaken a technical service job abroad and sent 10 service personnel from Turkey for this job. Five additional service personnel are providing technical support from Turkey.
In this case, the salary payments for the 10 service personnel working abroad on the technical service job will be exempt from income tax. However, the salary payments for the five service personnel providing technical support from Turkey will be subject to tax.
f) Salary payments made to service personnel working in foreign construction, repair, assembly jobs, and technical services by the foreign branch or the Turkish company (head office) on behalf of the branch can only be considered as an expense for determining the foreign earnings. The Turkish company (head office) cannot deduct these salary payments as an expense.
g) The part of the salary payments exempted from income tax is also exempt from stamp duty. The related Communique can be accessed here.
Best regards,
BİLGENER
