Permanent Establishment in Turkey: When a Foreign Business Becomes Taxable

Permanent establishment, commonly abbreviated as PE, is one of the central concepts in international business taxation. It determines when Turkey may tax the business profits of a company resident in another country.

The assessment must be completed under two layers. Turkish domestic law determines whether the foreign company has a workplace or permanent representative in Turkey. If a double taxation treaty applies, that treaty may restrict Turkey’s taxing rights by introducing a fixed-place test, time thresholds or exclusions for preparatory and auxiliary activities.

What Is a Permanent Establishment?

A permanent establishment is generally a sufficiently substantial business presence through which a foreign enterprise conducts all or part of its activities in another country. It is not necessarily a separate legal entity.

Under Article 3 of Turkish Corporate Tax Law No. 5520, a foreign corporation whose legal and business centres are both outside Turkey is a limited taxpayer. Commercial income obtained through a workplace or permanent representative in Turkey may be taxed as Turkish-source corporate income.

The Turkish Domestic Workplace Test

Article 156 of the Turkish Tax Procedure Law defines a workplace broadly as a place allocated to or used for commercial, industrial, agricultural or professional activities. Its examples include:

• offices, administrative premises and branches;
• factories, workshops and production facilities;
• shops, warehouses and storage premises;
• construction sites;
• mines, quarries and agricultural facilities; and
• other locations allocated to or used in carrying on the activity.

The statutory list is illustrative rather than exhaustive. A location that is used to perform the foreign enterprise’s core business can therefore require analysis even if it is not labelled as an office or branch in the contract.

Fixed-Place Permanent Establishment

Many Turkish tax treaties define a PE as a fixed place of business through which the enterprise’s business is wholly or partly carried on. A typical review considers whether:

• a physical business location exists in Turkey;
• the location has a sufficient degree of permanence;
• the location is available to the foreign enterprise;
• the company’s personnel or representatives use it for business; and
• core, rather than merely preparatory or auxiliary, activities are conducted there.

Ownership or a formal lease is not always required. A customer’s premises, shared office, project room or employee’s home may require review if the foreign enterprise has continuing access and uses the location to perform its business.

Can a Home Office Create a PE?

Remote working from Turkey does not automatically create a PE for every foreign employer. The risk increases where:

• the employee regularly conducts the company’s core business from the Turkish home;
• the arrangement is required or commercially supported by the employer;
• the foreign company has no alternative office available to the employee;
• customers or suppliers treat the address as the company’s Turkish location;
• the employee negotiates or concludes contracts from Turkey; or
• the arrangement continues for a substantial period.

A personal decision by an employee to work briefly from Turkey, without the home being placed at the employer’s disposal, presents different facts. Employment, payroll, social security and work-permit obligations may still arise independently of corporate PE status.

Permanent Representative and Dependent Agent Risk

A fixed office is not the only way to create taxable presence. Article 8 of the Turkish Income Tax Law defines a permanent representative as a person connected to the represented enterprise under a service or agency relationship and authorised to perform one or multiple commercial transactions in its name and on its behalf.

Domestic law specifically identifies certain commercial representatives, agents, employees, continuously funded persons and persons holding consignment stock for continuing sales as potential permanent representatives.

Contract wording alone is not decisive. If agreements are nominally approved abroad but the Turkish representative routinely determines the commercial terms, the actual conduct should be assessed.

Construction and Installation Projects

Construction sites are included within the Turkish domestic workplace definition. Tax treaties commonly provide a specific duration threshold before a construction, installation or assembly project constitutes a PE.

There is no safe assumption that every treaty uses twelve months. Depending on the treaty, the threshold and covered activities may differ. Connected contracts, preparatory work, temporary interruptions, subcontractor periods and attempts to divide one commercial project between group companies may affect the calculation.

Service Activities and the 183-Day Threshold

Some Turkish treaties allow Turkey to tax foreign enterprises that provide services in Turkey for more than a specified period, often 183 days within a twelve-month period. Other treaties contain different wording or do not use a service-PE provision.

A service-day review should determine:

• whether the services are physically performed in Turkey;
• which personnel perform the activities;
• whether the projects are the same or commercially connected;
• whether simultaneous employee days are counted once or separately under the applicable rules;
• which rolling or fixed period the treaty uses; and
• whether a fixed-place PE already exists without relying on a day threshold.

GİB guidance on treaty-based professional services generally calculates post-26 September 2017 activity periods by reference to the days during which the relevant activity is conducted in Turkey, without multiplying each day by the number of personnel present. The exact treaty and project relationship must still be reviewed.

Warehouses, Stock and Logistics Arrangements

A warehouse is expressly included within the Turkish domestic workplace definition. Under some treaties, facilities used solely for storage, display, delivery or purchasing may fall within a PE exclusion where the activity remains preparatory or auxiliary.

Risk increases where personnel process orders, manage local sales, provide fulfilment services, determine inventory strategy or hold consignment stock for continuing customer deliveries. Modern treaty anti-fragmentation provisions may also prevent a group from dividing a cohesive Turkish operation into several nominally auxiliary activities.

Does a Turkish Customer or Subsidiary Create a PE?

Selling to Turkish customers does not automatically create a PE. A Turkish subsidiary is also generally a separate taxpayer and does not become the foreign parent’s PE merely because of ownership.

The conclusion can change if the Turkish company or customer provides premises to the foreign enterprise, acts as a dependent contracting agent or performs functions that go beyond an independent customer or service-provider relationship.

Digital Sales and Servers

A website accessible in Turkey does not by itself have a physical location. However, server infrastructure, local personnel, fulfilment operations or other facilities used to conduct the business may require separate PE analysis.

A business without a PE can still have Turkish VAT, withholding or digital services tax obligations. “No permanent establishment” should never be treated as meaning “no Turkish tax compliance.”

What Happens When a PE Exists?

Where a foreign company has a taxable PE in Turkey, its obligations may include:

• registering with the competent Turkish tax office;
• maintaining statutory accounting records and supporting documentation;
• filing annual and advance corporate tax returns;
• paying corporate tax on profits attributable to the Turkish PE;
• completing VAT and withholding tax compliance where applicable;
• registering employees for payroll and social security purposes;
• documenting transactions between the PE and foreign head office;
• applying transfer pricing and profit-attribution principles; and
• reviewing branch-profit remittance withholding and treaty reductions.

The general corporate tax rates in force are explained in GİB’s March 2026 Corporate Tax Rate Applications Guide. The final effective tax burden can differ according to the company’s sector, income, incentives, minimum-tax rules and applicable treaty.

How Are Profits Attributed to the Turkish PE?

Turkey does not automatically tax the foreign company’s entire worldwide profit merely because a PE exists. The taxable amount should reflect the profits attributable to the functions performed, assets used and risks managed through the Turkish presence, subject to domestic law and the relevant treaty.

The analysis commonly requires:

• a functional analysis of the Turkish activities;
• segmented revenue and expense records;
• support for head-office charges and cost allocations;
• contracts with customers, employees and subcontractors;
• records showing where decisions and risks are managed; and
• arm’s-length pricing for transactions with related parties.

Permanent Establishment Risk Checklist

Choosing an Appropriate Turkish Structure

If the planned Turkish activity will be substantial and continuing, voluntarily establishing a registered branch or subsidiary may provide more certainty than allowing an unregistered PE to arise through actual conduct.

Our Strategic Tax Planning Services in Turkey include PE risk reviews, treaty analysis and operating-model assessments. Investors requiring a separate Turkish entity can also review our Company Formation Services in Turkey.

Official Sources

• Turkish Revenue Administration: Corporate Tax Law No. 5520
• Turkish Revenue Administration: Tax Procedure Law No. 213
• Turkish Revenue Administration: Income Tax Law No. 193
• Turkish Revenue Administration: Double Taxation Treaties
• GİB ruling on workplaces, permanent representatives and liaison offices
• GİB ruling illustrating treaty service-PE provisions
• GİB: 2026 Corporate Tax Rate Applications Guide

Reviewed on 18 August 2026. This article provides general information. Permanent establishment and profit-attribution conclusions depend on the business model, actual conduct, documentation, domestic legislation and the wording and current status of the applicable treaty.