Israel – Turkey Tax Treaty

Business Activity in Turkey

Over the last decade, Turkey has seen positive economic growth and numerous structural reforms. According to TurkStat, Turkey’s GDP grew by 5.7% in the first quarter of 2024, making it one of the fastest-growing economies in the world. The country offers strategic benefits, including access to a market of a 1.3 billion people with a combined GDP of $28 trillion.

Turkey’s young and educated population makes the country more attractive to investors, and the government is working to make Turkey a strategic business hub in the region by implementing ongoing reforms. As a result, positive changes have taken place, including the increase in the World Bank’s Ease of Doing Business rankings to 33^rd position.

Turkey has as well launched several incentive investments for new development and redevelopment projects, in addition to research and development assistance.

More importantly, Turkey has signed and enforced several bilateral agreements and conventions, such as those for investment protection, double taxation prevention, and social security making the country a reliable business hub. Key sectors such as automative, manufacturing, defense, aerospace, energy, infrastructure, and financial services, are supported by research and development, in addition to the simplified regulatory framework.

To conclude, trade volumes in Turkey indicate the potential of the country in the business. As of May 2024, exports reached 29.8% and imports reached 29.7%, with Germany being the top export partner and China the main import partner. In May 2024, the ratios of manufacturing, agriculture, forestry, fishing, mining, and quarrying in total exports were 94.8%, while intermediate goods, capital goods, and consumption goods were 68.9%, 14.7%, and 16.1%, respectively.

Tourism, also, makes a huge contribution to Turkey’s economy providing more than 3 million jobs and generating over 1.7 trillion Turkish Lira on in 2023.

Bilateral Agreements Between Turkey and Israel

Several agreements were signed between Israel and Turkey:

1. Double Taxation Agreement
2. International Investment Agreement

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments agreement between Israel and Turkey was signed on March 13^th 1996 and entered into force on August 26^th 1998. This agreement seeks to strengthen economic relations and create favorable conditions for mutual investments.

To read the agreement in English click here.

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Turkey regarding the avoidance of double taxation was signed in March 13^th 1996 and entered into force on December 31^st 1998.

To read the agreement in English click here.

Applicability of the MLI

The Convention between Israel and Turkey, signed on March 14^th 1996, and effective from 27 May 1998, aims to prevent double taxation and fiscal evasion on income from both countries.

Residency for Tax Purposes in Turkey

Residence of an Individual

If individuals stay in Turkey for more than six months, they are considered tax residents. However, those who stay in Turkey for more than six months for temporary circumstances such as temporary workers, staying involuntary due to an illness, or legal issues and as well as diplomats or students are not considered as resident.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

An entity is considered tax resident in Turkey if their business headquarters or management, is situated in Turkey.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Turkey

Turkey’s Tax Authority is called Turkish Revenue Administration.

Income taxation:15% – 40%

Taxation of companies and branches:25%, 30%

VAT: 1% – 20%

Capital gains tax: 15%, 40%

Withholding Tax

Inheritance Tax and Estate Tax in Turkey

In Turkey, inheritance and gift taxes are levied between 1% to 30%, and can be paid in 3 (three) years for inherited properties and assets, with installments being processed in the months of May and November.

Foreigners inheriting property must pay tax in Turkey, but no tax applies if the property is gifted. Taxes paid in a foreign nation on inherited property are deducted from the tax base as deductible expenses.

Relocation to Turkey

Turkey is home to diverse and yet unique cultural heritage, due to its historical position as a bridge between Asia and Europe. The country’s rich traditions and harmonious society promote personal and professional success, attracting many people who wish to relocate and be part of the vibrant lifestyle.

Turkey is home to around 14,300 Jews. The Jewish community in Turkey ranks 22^nd in the world. The community is represented by the Jewish Community in Turkey, an affiliate of the World Jewish Congress.

Turkey offers many benefits for individuals or companies that are considering relocating. With one of the world’s fastest-growing economies, and positioned as a regional headquarters, with numerous free-trade agreements, providing access to more than 1 billion people, Turkey takes a leading role in productivity and innovation.

The government encourages foreign direct investments without restrictions, while ensuring strong investor protection. Turkey’s numerous tax benefits, which include deductions for research and development, and low corporate taxes attract businesses looking for growth opportunities.

Beyond economic benefits, Turkey also offers a high life quality facilitated by exceptional higher education opportunities, with a 94.2% schooling rate and diploma recognition throughout Europe.

Real Estate Taxation in Turkey

In Turkey, property tax ranges from 0.1% to 0.6%, depending on the type and location of the property, with higher rates in urban areas. For example, for the residence buildings the tax is levied at 0.1%, while for other buildings at 0.2%. Furthermore, if the property is land, then the tax range will be 0.3%. In addition, an extra 10% tax charge is levied on cultural heritage buildings. Property transfers are taxed at 4% and is usually split between the buyer and the seller.

Transfer of Funds from Israel to Turkey

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Turkey

Foreign individuals and legal entities, when choosing to open a company in Turkey, are subject to the same regulations as the local entities. Main types of business entity in Turkey include:

Joint Stock Company

In Turkey, a joint-stock company is one that has capital divided into shares, responsible for debts only with its assets, and allows shareholders to freely transfer their shares. For its incorporation, it requires a minimum of 50.000 Turkish Liras.

Limited Company

A limited company in Turkey has a fixed capital divided in shares and it is solely accountable for its debts through its assets. It can be incorporated by a single shareholder and the minimum capital required is 10.000 Turkish Liras.

Collective Company

A collective company in Turkey requires at least two individual partners, each with the right and obligation to manage the company. There is no minimum capital required to establish a collective company.

Limited Partnership

A Limited Partnership in Turkey requires at least two partners: one active partner with unlimited responsibility and one limited responsible partner. The company is always managed by the active partners.

Branch Office

A branch office in Turkey has no shareholders, is not independent, and should operate for the same purposes as its parent company. There is not a minimum capital required, but it is recommended to allocate a budget for operations.

Incentive Laws in Turkey

Turkey offers numerous incentives to attract both national and international investors. Technology Development Zones aim to support research and development, and high-tech investments by granting significant tax exemptions, at least until the end of 2028. Exemptions are applied on income and corporation taxes, on VAT related to application software, and research and development wages.

In addition, companies receive a 50% discount from government on social security taxes. Organized Industrial Zones and Free Zones offer investor-friendly settings with advanced infrastructures, tax exemptions on land purchase, real estate, VAT, customs duties and low operating expenses.

Strategic and project-based incentives, such as energy, infrastructure provide further assistance to high import areas. The government also offer loans, grants and tax deductions for small and medium-sized companies, making Turkey a desired business investment location. At the moment, these incentives have attracted major corporations like Bosch, Mercedes-Benz, Nestle, Novartis, Hyundai, etc.

Double Tax Treaties in Turkey