Tax Agreement Between Türkiye and the USA: How It Actually Helps You

The U.S.–Türkiye Income Tax Treaty is designed to stop the same income being fully taxed twice and to make cross-border work, investment and business a bit less painful. The agreement and its protocol were signed in Washington on 28 March 1996 and later entered into force as the first full income tax treaty between the two countries. IRS+1

What does the treaty cover?

The treaty applies mainly to income taxes in both countries and is relevant if you are:

• A resident of Türkiye with U.S.-source income, or

• A U.S. citizen/resident with income from Türkiye.

It sets rules for:

• Business profits

• Employment income and professional services

• Dividends, interest, royalties

• Capital gains

• Pensions and government service

The text and official technical explanation are published by the IRS and the U.S. Treasury, and these are the primary references professionals use. IRS+1

2. Residence and “tie-breaker” rules

Each country has its own domestic definition of tax residency, but if both claim you as a resident, the treaty uses tie-breaker rules (home, centre of vital interests, habitual abode, nationality) to decide which country is your treaty residence. IRS+1

This matters because:

• Your residence country usually has the main right to tax your worldwide income.

• The source country (where the income arises) may still withhold tax, but at limited treaty rates.

3. Business profits and permanent establishment

For most active businesses, profits are taxable only in the country of residence, unless the business has a permanent establishment (PE) in the other country – e.g. a fixed place of business like an office, branch, or building site that lasts beyond a certain period. IRS+1

If a Turkish company has no U.S. PE, its U.S.-source business profits are generally not taxed in the U.S. (and vice-versa). Once a PE exists, the host country can tax the profits attributable to that PE.

4. Dividends, interest and royalties – the key rates

The treaty caps withholding tax that the source country can charge on certain cross-border payments: IRS+1

• Dividends

  • Up to 20% generally

  • Reduced to 15% if the recipient company owns at least 10% of the payer

• Interest

  • Generally capped at 15%

  • 10% limit for interest on loans from a financial institution

  • Certain government-related interest is exempt from source-country withholding

• Royalties

  • Normally capped at 10%

  • Payments for industrial, commercial, or scientific equipment are treated as royalties but capped at 5%

These caps are often lower than default domestic withholding rates in Türkiye or the U.S., so correctly invoking the treaty can save real money for investors and lenders. IRS+1

5. Employment, services and capital gains

Employment and independent services

For employment income, the country where you physically work usually has the primary taxing right, with some short-stay exceptions. For independent personal services (consultants, freelancers), the treaty looks at whether you have a fixed base or cross a 183-day presence threshold in the other country before that country can tax you. IRS+1

Capital gains

In general, capital gains are taxable only in the country of residence, except for:

• Gains from real property (including shares in entities heavily holding real estate) – taxed where the property is located

• Certain short-term share disposals under specific conditions

This is broadly consistent with recent U.S. treaty policy. IRS+1

6. How double taxation is actually relieved

Even with treaty limits, you can still face tax in both countries. The treaty therefore requires each state to provide relief from double taxation, typically via a foreign tax credit for tax paid in the other state. IRS+2IRS+2

• A U.S. citizen living in Türkiye reports worldwide income to the IRS but can usually credit Turkish income taxes against U.S. liability (subject to U.S. rules).

• A Turkish resident taxed in the U.S. on U.S.-source income may claim relief under Turkish law for U.S. taxes, assuming treaty and documentation requirements are met. H&CO+1

Correctly applying these rules can significantly reduce the overall tax burden for expats, cross-border workers, and investors.

7. Practical tips if you want to use the treaty

1. Prove residency

   • Obtain a residency certificate from your tax authority (Gelir İdaresi or IRS) before claiming treaty rates. Konyada Yatırım+1

2. Provide forms to payers

   • For U.S. payers, non-U.S. persons usually file Form W-8BEN / W-8BEN-E and may need to indicate treaty articles.

3. Track days and presence

   • Count days in each country carefully; crossing the 183-day threshold can change where employment and service income is taxed. IRS+1

4. Keep documentation

   • Contracts, invoices, payment records and residency certificates are essential if tax authorities later question your treaty position.

Sources and disclaimer

Key official sources include the U.S.–Türkiye Income Tax Treaty (1996), its Technical Explanation, and summaries from the U.S. State Department and IRS treaty pages. Congress.gov+4IRS+4IRS+4

This article is general information, not legal or tax advice. For real decisions, especially with significant income or investments, you should consult a qualified tax professional familiar with both U.S. and Turkish rules.style and setting achievable goals for a more sustainable future.