A “foreign” company (an employer situated outside of an employee’s country) has an employee who should work in the same foreign country (the country where the company is situated). However,
- Due to the coronavirus, he is working remotely from Turkey
- Even after the coronavirus crisis he is working from Turkey
1. Tax Implications & Permanent Establishment (PE) Risks
Regardless of the source of income (whether Turkey or abroad),
a) If the employee’s length of stay in Turkey is less than 183 days;
Taxpayer status → Considering the employee is a foreign citizen; limited.
Turkish citizen taxpayer status should be determined according to DTT.
In the event that there is no applicable DTT; limited.
Turkish income tax liability for employees → In accordance with the most of Turkey’s DTTs; provided that the salary is paid by, or on behalf of, an employer who is not a resident of Turkey and if the salary is not borne by a permanent establishment or a fixed base which the employer has in Turkey, the associated salary income is not subject to income tax in Turkey.
According to sub-article 23/14 of the Turkish Income Tax Code, salaries paid in the form of foreign exchange to service staff employed by employers whose legal and business headquarters are not in Turkey and who are subject to limited tax liability on their earnings acquired outside of Turkey, salaries paid to said staff are exempt from Turkish Income Tax.
In all other cases, the salary paid to the employee concerned from Turkish source income is taxable in Turkey, which will necessitate self-declaration (i.e. the filing of annual personal income tax) of generated employment income for the employee.
PE risk for employers → Employees and employees’ homes do not create PE risk if they do not have representation & signature authority and they are assigned to perform for the works that are not carried out in Turkey.
Tax implication for employers → None
b) If the employee’s length of stay in Turkey is more than 183 days;
Taxpayer status → Depending on the provisions of the DTT (if any), the employee might be considered as a full taxpayer.
In the event that there is no applicable DTT; full taxpayer.
As per Article 5 of the Turkish Income Tax Code, foreigners such as businessmen, experts and other individuals whose situations resemble these shall not be considered as settled in Turkey, even if they have remained for more than six months in the country. Accordingly, said foreigners might still be treated as limited liable taxpayers in Turkey.
Turkish income tax liability for employees → The case shall not differ from the same sub-section of abovementioned scenario a), except that the DTT provisions will not be binding.
PE risk for employers → The case shall not differ from the same sub-section of above-mentioned scenario a).
Tax implication for employers → None
As per the “OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis” publishing, one might argue that the presence of an employee in Turkey, as per DTT provi-sions, will not create a PE, as long as the employee is assigned to carry out works that are not carried out in Turkey.
2. Social Security Implications
If the social security contribution payment in the home country and the submission of a relevant copy of the certificate of coverage conditions are met;
a) The employee’s country of residence is a signatory party of the European Convention on social security or bilateral social security agreement with Turkey;
Social security implications → Contribution payment to the Turkish Social Security Institution is not necessary.
b) The employee’s country of residence is not a signatory party of either the European Convention on social security or the bilateral social security agreement with Turkey;
Social security implications → After an exemption period of 3 months, the provisions of the Turkish social security law will be applicable.
3. Health Insurance Issue
A work permit is not necessary if the employee of a foreign employer is assigned to carry out works that are not carried out in Turkey.However,
a) If the employee’s country of residence has signed a bilateral social security agreement with Turkey;
Social security implications → It should be determined as per the regulations set forth in the bilateral social security agreement.
b) If the employee’s country of residence has not signed a bilateral social security agreement with Turkey;
Social security implications → The individual will be subject to Turkish social security applications as of the first day following the 3rd month of the employment period.
Furthermore, private health insurance is not obligatory and would be decided upon freely as per the employer’s HR policy.
4. Immigration Issue
Foreigners must apply for a residence permit if they need to extend their visa term before its expiry date.
5. Duty of Care to Compensation Levels
Local legislation might only be implemented if the presence of a foreign employee creates a PE or if the employer currently has a PE in Turkey.
6. Benefits & Payroll
Turkish labour law cannot be implemented unless the foreign employer has a PE in Turkey.
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