Workation and Remote Work in Türkiye – Flexible Working Models with Tax Risks?

Introduction

Accelerated digitalisation and the remote working models that have become widespread particularly in the post-pandemic period have brought new discussions to the forefront in international tax law. In particular, the question of whether a “permanent establishment” is created has become an important tax issue where an employer is not resident in the state in which its employees perform their activities. 

The question of whether a foreign-resident employer creates a workplace (permanent establishment) in Türkiye through a person working from home in Türkiye is mainly assessed within the framework of the following legislation:

  • Corporate Tax Law (KVK)
  • Tax Procedure Law (VUK)
  • Double Taxation Avoidance Agreements (DTAs) signed between Türkiye and the relevant country
  • OECD Model Tax Convention and its commentary for international interpretation

Assessments within this framework:

The Concept of a Permanent Establishment

Under Turkish tax legislation, the concept of a permanent establishment is addressed within the framework of the Corporate Tax Law and the Tax Procedure Law. Accordingly, a workplace is defined as places allocated to or used for the performance of commercial, industrial, or professional activities.

In international tax law, the concept of a permanent establishment is largely interpreted within the framework of the OECD Model Tax Convention and the Double Taxation Avoidance Agreements concluded between countries. Under the generally accepted approach, in order for an enterprise to be deemed to have a permanent establishment in a country, the following elements must exist cumulatively:

  1. The existence of a fixed place of business in Türkiye
  2. Use of this place in carrying on the business activity
  3. Continuity of the activity

In the case of working from home, whether these three elements are met is examined separately.

A Home Office Is Not Always Deemed a Permanent Establishment

If the person working in Türkiye works from home on their own initiative and the employer has no physical presence in Türkiye, it is generally not considered that a permanent establishment is created. For example, in the following situations a workplace often does not arise:

  • The employee works from home in Türkiye based on their own preference
  • The employer has not rented an office in Türkiye
  • The home has not been allocated by the employer as a workplace
  • The employee performs only individual work (for example, a software developer)

In such a case, the home is not regarded as a fixed place of business made available for the company’s use.

Situations Where a Home Office May Be Considered a Permanent Establishment

If the conditions below are met, it may be accepted that a permanent establishment is created in Türkiye:

The home is in practice used by the employer like a workplace

For example:

  • The employer has officially designated the employee’s home as the workplace
  • The home address is used as the company’s business address
  • Company activities are carried out regularly at the home

In such cases, the fixed place of business criterion may be satisfied.

The employee carries out commercial activities in Türkiye on behalf of the company

For example, if the employee:

  • holds meetings with customers
  • conducts sales and marketing activities
  • negotiates contracts
  • and these activities constitute a significant part of the company’s core business,
    the risk to be evaluated as a permanent establishment increases.

The employee has authority to conclude contracts (dependent agent)

If the employee in Türkiye:

  • has authority to sign contracts on behalf of the company,
  • or in practice concludes contracts,
    then a “permanent establishment through a dependent agent” may arise.

The activities are continuous and systematic

If it is not a one-off or short-term arrangement, for example; if the employee works in Türkiye for a long period and the activity is important for the company, the permanent establishment risk becomes stronger.

Example Scenarios in Practice

Example 1: No permanent establishment (generally)

  • A software developer working for an Austrian company works from home in Türkiye.
  • no customer relations
  • no authority to conclude contracts
  • the company has not established any office in Türkiye

Example 2: A permanent establishment may arise

  • A Turkish sales representative of a German company works from home
  • meets with customers
  • takes orders
  • concludes contracts

In this case, a permanent establishment may arise through a dependent agent.

What Happens If a Permanent Establishment Is Created?

If it is accepted that a workplace is created in Türkiye, the foreign company:

  • becomes a corporate taxpayer in Türkiye
  • files a tax return for the income earned in Türkiye
  • becomes subject to accounting and tax compliance obligations

Conclusions

The mere fact that a foreign employer has an employee working from home in Türkiye does not in itself create a permanent establishment. However, if:

  • the home is used by the employer like a workplace,
  • the employee carries out commercial activities on behalf of the company,
  • the employee has authority to conclude contracts,
  • the activities are continuous,

then it may be accepted that a permanent establishment is created in Türkiye. 



Author: Senem Kathrin Güçlüer