What is Double Taxation? – A Simple and Legal Explanation

1. Simple Definition

Double taxation two different countries tax the same income or earnings . This usually occurs when an individual or company earns income in more than one country, and both countries claim the right to tax that income.

For example:

• If a person residing in Türkiye earns rental income in Germany, both Germany and Türkiye may wish to tax that income.

• Unless there is a specific arrangement, this person will face double taxation

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2. Legal Framework

a) National Law

• The Income Tax Law (ITL) and the Corporate Tax Law (CTL)tax the worldwide income of fully taxable individuals in Turkey.

• Therefore, income earned abroad is also taxed in Türkiye.

b) International Agreements

• Turkey signs Double Taxation Avoidance Agreements (DTAAs) to prevent double taxation

• These agreements determine which country has the authority to tax which type of income.

• The OECD Model Treaty on Taxation provides guidance for such agreements.

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3. Types of Double Taxation

1. Legal Double Taxation:

   • The same person being taxed by two different countries on the same income during the same period.

2. Economic Double Taxation:

   • Different individuals being taxed on the same income (e.g., both the company and its partners paying tax on company profits).

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4. Prevention Methods

a) Exception Method

• Income is taxed in only one country and exempt in others.

b) Offset (Credit) Method

• Taxes paid abroad are deductible from taxes payable in Türkiye.

📌 Example: If a Turkish company earns $100,000 USD abroad and pays $20,000 USD in taxes, this $20,000 USD will be deducted from its tax liability in Turkey.

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5. Türkiye's Double Taxation Network

Turkey has signed Double Taxation Avoidance Agreements with more than 80 countries across Europe, Asia, Africa, and the Americas . These agreements protect both individuals and companies from double taxation.

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6. Conclusion

Double taxation can be a significant cost factor for individuals and companies engaged in international trade and investment. Legally, solutions are often found through international tax treaties . Reviewing the provisions of double taxation agreements between relevant countries and seeking advice from a tax expert before making an investment or generating income can reduce both costs and legal risks.