Double taxation agreement Germany – Türkiye

The double taxation agreement (DTA) between Germany and Turkey serves to prevent the double taxation of income and assets of individuals liable for tax in both countries. The 2011 agreement (in force since August 1, 2012) primarily regulates income tax, corporation tax, trade tax, and wealth tax, but not inheritance tax.

Although a double taxation agreement (DTA) has existed between Germany and Turkey since 2011, it only covers income and wealth tax, not inheritance or gift tax. This means that real estate inherited in Turkey can, in principle, be subject to both Turkish and German inheritance tax if the deceased was resident in Germany and met the requirements for German tax liability.

What information does the German tax office receive?

The German tax office receives the following information from Turkey as part of the automated exchange of information:

Overview of the scope and content of the transmitted data:

Name, address and tax identification number of the account holders (natural persons and companies) who are liable for tax in Germany and hold an account in Turkey.
Account balances at the end of the year or at the time of reporting.
Income from the account, including interest, dividends, capital gains, and other investment income. This does not refer to the type of income, nor does it break it down into rent, etc.

Data transmission process:

Turkish banks and insurance companies transmit the data centrally to the Turkish financial authority.
This authority forwards the data records to the German Federal Central Tax Office (BZSt).
The Federal Central Tax Office (BZSt) assigns the data records to German taxpayers using their tax ID and forwards them to the responsible tax offices, where the information is compared with the tax returns.

Discrepancies between reported and declared income can trigger inquiries or tax evasion proceedings. Call us!

Reporting period and scope:

The exchange concerns account information from the 2019 tax year onwards. Earlier years are not subject to automatic exchange but may become relevant in the context of criminal investigations. The exchange includes both existing and new financial accounts in Turkey, provided there is a connection to Germany. This information enables German authorities to precisely verify whether capital income from Turkey is being properly taxed in Germany.

Basic principles of application:

For income such as rental income from properties located in Turkey, Turkey has the right to tax it. This income is tax-exempt in Germany, but must be declared in the German tax return and affects the tax rate on other income (progression clause).
For interest, dividends and certain other income, withholding taxes are limited according to double taxation agreements and can be credited in Germany.
In the case of pensions and retirement benefits, Germany, as the country of residence, usually has the right to tax them, with the exception of state benefits from Türkiye.

The double taxation agreement (DTA) provides for two methods to avoid double taxation:

Exemption method (income is exempt from tax in Germany, but counts towards the progression clause) and
Credit method (taxes paid in Turkey are credited against German tax).

Practical example application:

Apartment rental in Istanbul:

Rental income is taxed in Turkey. It is tax-free in Germany, but increases the tax rate on other German income. Nevertheless, the rental income must be declared in the German tax return.

Important: There is no double taxation agreement (DTA) for gifts or inheritances.!

There is a risk of double taxation if both Turkey and Germany levy inheritance tax.

Real estate acquisition through inheritance – tax consequences:

The double taxation agreement (DTA) applies to income from real estate (e.g., rental income):

Turkey can exercise its right to tax real estate located there; Germany will credit taxes paid abroad or exempt the income from German taxation. Allowances and the specific tax assessment must be reviewed in Germany according to the Inheritance Tax Act (ErbStG); in case of doubt, consulting a tax expert is recommended.

Recommended procedure:

When inheriting real estate in Turkey that triggers German inheritance tax liability, the tax obligations in both countries should be carefully examined. Double taxation can only be limited through individual tax credits under foreign tax law or through specific structuring.

Conclusion:

The double taxation agreement between Germany and Türkiye does not protect against double inheritance tax on real estate. However, income tax on rental income or capital gains can be regulated by the agreement.

What tax rules apply to rental income from Turkey in Germany?

The following applies to rental income from real estate in Turkey:

Rental income from Turkey is taxed in Turkey according to the German-Turkish double taxation agreement and is not subject to taxation again in Germany.
Although they are tax-free in Germany, they must still be declared in the German income tax return and are subject to the so-called progression clause. This means that foreign rental income can increase the tax rate for other German income, such as wages, by placing it in a different tax bracket, even though it is not itself taxed in Germany.

Reporting obligation and double taxation:

Even though rental income is taxed in Turkey, there is a legal obligation to report it to the German tax authorities. Failure to report can lead to criminal prosecution. Tax payments are made in Turkey according to Turkish tax law. Withholding tax is levied in accordance with Turkish regulations.

The double taxation agreement ensures that no double taxation takes place, but rather that taxation occurs in the country where the property is located (Türkiye).

Practical advice:

Always declare rental income, even if it is tax-free in Germany – otherwise, you risk penalties if discovered by the tax authorities.
If the income is not declared correctly, self-reporting is recommended to avoid prosecution.
Profits from the sale of Turkish real estate must also be reported and may trigger tax consequences in Germany, for example if the property was held for less than ten years.

In summaryRental income from Turkey is tax-free in Germany, but it increases the tax rate on other income and must be reported to the tax office.

Reporting obligation for shareholdings

According to Section 138 Paragraph 2 of the German Fiscal Code (AO), a German taxpayer must report the establishment, acquisition, sale, or modification of a shareholding in a foreign company if the shareholding is at least 10% or the acquisition costs exceed EUR 150,000. A controlling influence (alone or with related parties) over a foreign company also triggers a reporting obligation. The report is submitted electronically with the income tax return or no later than 14 months after the tax period in which the shareholding was acquired.

Failure to report or late reporting can result in a fine of up to €25,000.

Tax implications

Income from the investment (e.g., dividends, profit shares, capital gains) is generally taxable in Germany; however, the double taxation agreement applies; double taxation is avoided through exemption or credit of foreign taxes. For low-taxed foreign companies, controlled foreign company (CFC) rules may apply under the German Foreign Tax Act (Section 7 AStG).

The mere participation itself is generally not taxable, but any change, acquisition or capital gain must be reported and may be taxable.

Conclusion:

Participation in a Turkish real estate company must generally be declared as soon as relevant thresholds are reached. Income from such participations is taxable in Germany – unreported participations and income can lead to substantial penalties.