BASIC PRINCIPLES OF TREATIES FOR PREVENTING DOUBLE TAXATION
Navigating the complex world of international tax laws is particularly important for multinational corporations and individuals with cross-border income. Understanding the general principles of tax laws can significantly aid in efficient tax planning and avoiding the pitfalls of double taxation. To prevent double taxation, most countries sign tax treaties that are based on “United Nations Model Double Taxation Convention between Developed and Developing Countries” (also known as the “UN Model Convention”). The main principles of the UN Model Convention are as follows:
What is a Tax Residency in Turkey?
One of the foremost considerations in international tax law is determining an individual’s or entity’s tax residency. Tax residency is typically established by factors such as:
- Location of permanent home.
- Center of personal and economic interests.
- Physical presence over a certain period.
Tax residency is pivotal as it dictates where you may owe taxes on your global income.
What is Source vs. Residence Taxation?
International tax law generally distinguishes between two types of jurisdictions:
- Source Country: The country where the income is generated.
- Residence Country: The country where the taxpayer resides.
Different rules may apply for taxing income based on these distinctions.
How is Income Classified?
Different types of incomes such as dividends, interest, royalties, and capital gains are often taxed differently. It’s important to understand how each type of income is classified and taxed in different jurisdictions.
What are the Methods to Avoid Double Taxation?
To prevent the same income from being taxed in both the source and residence countries, two main methods are commonly used:
- Exemption Method: Under this method, one country agrees to not tax income that has been taxed in another country.
- Credit Method: This method allows the taxpayer to claim a credit for taxes paid in one country against the taxes owed in another country.
What are Information Exchange Agreements?
Countries often enter into agreements to share tax-related information. This transparency helps in preventing tax evasion and ensuring compliance with international tax laws.
How Can You Come Up with an Effective Tax Plan?
For effective tax planning and management, consider these steps:
1) Determine Your Tax Residency: Establish where you are considered a tax resident to understand your global tax obligations.
2) Understand the Taxation Rules in Relevant Jurisdictions: Consult a lawyer to familiarize yourself with how different types of income are taxed in countries where you have economic interests.
3) Utilize Tax Treaties and Avoid Double Taxation: Be aware of tax treaties between countries you are involved in and use them to your advantage to avoid double taxation.
How Can Foreign Companies Open a Bank Account in Turkey?
For foreign legal entities, opening a bank account in Turkey is a complex process and involves various documents. To open a bank account in Turkey, first and foremost, a foreign legal entity needs to first establish legal presence in Turkey by setting up wither a branch or a subsidiary. The difference is, a branch can represent the main body but does not have an entity of its own whereas a subsidiary is a legal entity on its own and is owned by its parent company.
How Can You Open a Bank Account in Turkey?
For foreign citizens, opening a bank account in Turkey requires a valid passport and a valid residence permit. If you do not have a residence permit yet and wish to open a bank account without establishing residence in Turkey, you can hire an attorney to help claim a valid reason for opening a bank account.
In summary, understanding the basic principles of international tax laws is essential for high-net-worth individuals with cross-border economic activities. By staying informed and seeking professional advice from a Turkish tax lawyer, you can navigate these laws to your advantage, ensuring tax efficiency and compliance. Antalya Tax Lawyer Baris Erkan Celebi and his Antalya Law Firm offer legal advice to foreign clients on Turkish tax laws and banking laws.
