Learn the key tax and legal issues affecting cross-border energy transactions in Turkey. This 2026 guide explains withholding tax, double taxation treaties, EPC contracts, foreign currency payments, VAT, customs, transfer pricing, and legal risk management.

Turkey has become one of the leading destinations for international investment in renewable energy, electricity generation, battery storage, natural gas infrastructure, and transmission projects. Foreign investors regularly enter into cross-border transactions involving EPC contracts, equipment purchases, financing, engineering services, Power Purchase Agreements (PPAs), technology licensing, and joint ventures.

While these transactions create valuable investment opportunities, they also involve complex legal and tax issues. Poor transaction structuring may result in unexpected withholding taxes, VAT exposure, customs disputes, permanent establishment risks, transfer pricing adjustments, double taxation, and contractual disputes.

This guide outlines the most important legal and tax considerations for foreign investors participating in Turkish energy projects.

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What Is a Cross-Border Energy Transaction?

Cross-border transactions commonly include:

• EPC Contracts with foreign contractors.
• Import of solar panels and wind turbines.
• Battery storage equipment purchases.
• Engineering and consultancy services.
• Foreign project financing.
• Technology licensing.
• Software and SCADA agreements.
• O&M services.
• Share acquisitions.
• Joint venture investments.

Each transaction should be reviewed separately for tax and regulatory purposes.

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Choosing the Right Transaction Structure

Investors generally operate through:

• Turkish subsidiaries.
• Branch offices.
• Joint ventures.
• SPVs (Special Purpose Vehicles).
• Consortiums.
• Direct investment structures.

The chosen structure affects taxation, liability, financing, and regulatory approvals.

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Withholding Tax

Payments made to foreign companies may trigger Turkish withholding tax depending on the nature of the payment.

Potentially affected payments include:

• Royalties.
• Interest.
• Dividends.
• Technical services.
• Consultancy fees.
• Software licenses.

The applicable treatment depends on the legal character of the payment and the relevant legislation or treaty. Double taxation treaties may reduce or eliminate withholding tax where treaty conditions are satisfied.

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Double Taxation Treaties

Turkey has an extensive network of Double Taxation Agreements (DTAs).

These treaties may:

• Reduce withholding tax.
• Prevent double taxation.
• Allocate taxing rights.
• Provide foreign tax credits.
• Establish permanent establishment rules.

Foreign investors should obtain a valid tax residency certificate before applying treaty benefits.

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Permanent Establishment (PE) Risk

A foreign company may become taxable in Turkey if its activities create a permanent establishment.

PE risks may arise through:

• Long-term construction projects.
• Site offices.
• Project managers.
• Local representatives.
• Dependent agents.
• Repeated engineering services.

Early tax planning helps reduce unexpected corporate tax exposure.

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VAT Considerations

Cross-border energy transactions may involve:

• Import VAT.
• Reverse-charge VAT.
• Domestic VAT.
• VAT exemptions.
• Investment incentive benefits.

Incorrect VAT treatment may result in tax assessments and penalties.

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Customs Issues

Renewable energy projects frequently involve imports of:

• Solar panels.
• Wind turbines.
• Transformers.
• Battery systems.
• Inverters.
• Electrical equipment.

Investors should verify:

• HS Codes.
• Customs valuation.
• Certificates of Origin.
• Product conformity.
• Import documentation.

Customs disputes may delay project completion.

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Transfer Pricing

Multinational energy groups should ensure that:

• Management fees.
• Shareholder loans.
• Equipment sales.
• Intra-group services.
• Royalties.

are conducted on arm’s-length terms.

Proper transfer pricing documentation reduces audit risks.

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Foreign Currency Payments

Many energy contracts are denominated in:

• US Dollars.
• Euro.
• Pound Sterling.

However, Turkish foreign exchange regulations may affect how certain contracts between Turkish residents can be denominated and settled. The applicable rules depend on the type of contract and available legal exemptions.

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Financing Transactions

Project finance documentation should address:

• Loan agreements.
• Security packages.
• Parent guarantees.
• Share pledges.
• Assignment of receivables.
• Insurance proceeds.

Lenders also require compliance with tax and regulatory obligations.

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EPC Contracts

International EPC agreements should clearly allocate responsibility for:

• Taxes.
• Customs duties.
• Import procedures.
• Currency fluctuations.
• Delays.
• Force Majeure.
• Change in Law.

Clear drafting significantly reduces future disputes.

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Intellectual Property

Cross-border projects often involve:

• Software licenses.
• SCADA systems.
• Engineering designs.
• Technical know-how.
• Operating manuals.

Ownership and licensing rights should be clearly regulated.

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Compliance

International investors should implement procedures covering:

• Anti-corruption.
• Sanctions.
• Export controls.
• Competition law.
• Data protection.
• Environmental compliance.

Compliance failures may affect financing and investment value.

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Dispute Resolution

Cross-border contracts typically provide for:

• ICC Arbitration.
• LCIA Arbitration.
• ISTAC Arbitration.
• SIAC Arbitration.
• Turkish Commercial Courts.

Dispute resolution clauses should be negotiated before contract execution.

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Top 20 Legal and Tax Checks

1. Determine transaction structure.
2. Review withholding tax exposure.
3. Check DTA availability.
4. Analyze PE risk.
5. Review VAT treatment.
6. Verify customs compliance.
7. Review transfer pricing.
8. Confirm foreign currency rules.
9. Review financing documents.
10. Analyze EPC tax clauses.
11. Review licensing agreements.
12. Conduct sanctions screening.
13. Verify regulatory approvals.
14. Review insurance.
15. Analyze environmental permits.
16. Protect intellectual property.
17. Review dispute resolution clauses.
18. Maintain tax documentation.
19. Conduct legal due diligence.
20. Obtain specialist Turkish legal and tax advice.

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Common Mistakes Made by Foreign Investors

Foreign investors often:

• Ignore withholding tax.
• Fail to apply treaty benefits.
• Create unintended permanent establishments.
• Underestimate customs risks.
• Use inadequate transfer pricing documentation.
• Sign weak EPC contracts.
• Ignore foreign currency restrictions.
• Delay tax planning.
• Fail to coordinate legal and tax advisers.
• Review compliance only after disputes arise.

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Frequently Asked Questions

1. What is the biggest tax risk in cross-border energy projects?

Withholding tax, permanent establishment exposure, VAT, customs issues, and transfer pricing adjustments are among the most significant risks.

2. Can double taxation treaties reduce Turkish withholding tax?

Yes. Many of Turkey’s tax treaties reduce or eliminate withholding taxes if treaty conditions are met and the necessary documentation is provided.

3. When does a foreign company become taxable in Turkey?

A foreign company may become taxable if its activities create a permanent establishment under Turkish law or an applicable tax treaty.

4. Are imported energy equipment purchases subject to customs review?

Yes. Customs authorities may review tariff classification, customs value, origin, and product conformity.

5. Why is transfer pricing important?

Related-party transactions must comply with the arm’s-length principle to reduce tax audit risks.

6. Can EPC contracts allocate tax risks?

Yes. Well-drafted EPC agreements normally allocate responsibility for taxes, customs duties, VAT, and other fiscal obligations.

7. Should foreign investors obtain legal advice before signing contracts?

Absolutely. Early legal and tax planning generally reduces future disputes and unexpected tax liabilities.

8. Why should foreign investors hire a Turkish energy lawyer?

A Turkish energy lawyer can structure cross-border investments, negotiate EPC and financing agreements, coordinate tax planning, review regulatory compliance, manage customs issues, and represent investors in disputes involving Turkish energy projects.

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Legal Support – Contact Our Energy Lawyers

Cross-border energy investments require careful coordination between legal, tax, customs, regulatory, and financing considerations. Proper transaction planning helps foreign investors minimize tax exposure, protect project profitability, and reduce regulatory risk.

Fırat Fesih Kaya and our legal team advise foreign investors, renewable energy developers, infrastructure funds, EPC contractors, multinational corporations, lenders, and institutional investors on cross-border energy transactions, project finance, tax planning, customs compliance, international contracts, and Turkish energy law.

24/7 Emergency Phone: +90 532 769 22 22

Office Phone: +90 312 434 22 22

Email: info@firatfesihkaya.av.tr

Address: Mevlana Boulevard No:221, Yıldırım Tower, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey