Amendment in Wage Payments to Service Personnel Working in Construction, Repair, Installation Works and Technical Services Abroad
The General Communique on Income Tax No. 322, published in the Official Gazette No. 32059 (2nd Supplementary) on 30.12.2022, regulates the procedures and principles for the application of income tax exemption on wage payments made to employees working in foreign construction, repair, installation, and technical services, under the provisions of Law No. 7420, enacted on 03.11.2022.
Below are the explanations regarding the regulations in the Communique:
a) With the enactment of Law No. 7420 on 03.11.2022, wages paid to employees working in foreign construction, repair, installation, and technical services, funded by the employer’s foreign earnings, are exempt from income tax starting from 01.12.2022 (inclusive).
In order for the wage payments to employees in this context to be exempt from income tax, the following conditions must be met:
- The employee must be working in foreign construction, repair, installation, or technical services,
- The service must be provided by the employee physically in the foreign location,
- The payment to the employee must be covered by the employer’s foreign earnings.
b) Employees working in management, administration, accounting, and similar services may also benefit from this exemption, provided they work in foreign construction, repair, installation, or technical services and are physically present in the foreign location.
c) Wages paid by a foreign branch to employees working in foreign construction, repair, installation, and technical services are exempt from income tax. Additionally, no annual income tax return will be required for these employees regarding the exempt wages.
Example: Company (D), headquartered in Turkey, undertakes a construction project abroad and sends 40 employees from Turkey to work on the project. The wages of these employees are paid by the foreign branch of Company (D).
In this case, the wages paid by the foreign branch to the employees for their work in the foreign construction project will be exempt from income tax, and no annual income tax return will be required from the employees for these exempt wages.
d) Wages paid by a Turkish company (head office) on behalf of the foreign branch will not prevent the exemption. In this case, income tax withholding will not be made by the Turkish company (head office), and the employee will not need to file an annual income tax return for the wages.
Example: Company (E), headquartered in Turkey, sends 50 employees from Turkey to work on a construction project abroad. The wages of these employees are paid by the foreign branch, financed by the foreign earnings.
In this case, no income tax withholding will be made on the wages paid by the head office, and the employees will not be required to file an annual income tax return for these wages.
Example: Company (F), headquartered in Turkey, undertakes a repair project abroad and sends 30 employees from Turkey. Five employees from the Turkish headquarters are occasionally sent abroad for parts of the project.
In this case, wages paid to the 30 employees working abroad in the repair project will be exempt from income tax. However, the wages of the 5 employees working both in Turkey and abroad will be exempt from income tax only for the part of their work performed abroad, while the wages earned for their work in Turkey will be taxable.
e) If an employee works abroad on such projects while simultaneously working for the Turkish company (head office), only the wages earned for the days spent physically working abroad will be exempt, while the wages earned for work in Turkey will be taxable.
Example: Company (G), headquartered in Turkey, undertakes a technical service project abroad and sends 10 employees from Turkey. Five other employees provide technical support from Turkey for the same project.
In this case, the wages of the 10 employees who work abroad on the technical service project will be exempt from income tax. However, the wages of the 5 employees providing technical support from Turkey will not be exempt and will be taxable.
f) Wages paid to employees working in foreign construction, repair, installation, and technical services by a branch or on behalf of a Turkish company (head office) can only be considered as an expense in determining foreign earnings. The Turkish company (head office) cannot consider these wage payments as expenses for tax purposes.
g) The portion of the wage payments that falls under the exemption will also be exempt from stamp tax.
You can access the related Communique here.
Best regards,
BİLGENER
