VAT, GST and Sales Tax in Turkey

Summary

Name of the tax Value-added tax (VAT)
Local name Katma deger vergisi (KDV)
Date introduced 2-Nov-84
Trading bloc membership European Customs Union, The system of Pan-Euro-Mediterranean Cumulation
Administered by Revenue Administration (http://www.gib.gov.tr)
VAT rates
Standard 18%
Reduced 1% and 8%
Other Full exemption and partial exemption
VAT number format 1234567890
VAT return periods Monthly
Thresholds
Registration None
Recovery of VAT by non-established businesses Limited

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods or services made in Turkey by a taxable person in the course of performing commercial, industrial, agricultural or independent professional activities
  • Services received in Turkey or benefited from in Turkey by a taxable person or any other person responsible for payment of the tax
  • Goods and services imported into Turkey

Who is liable

A taxable person is any person or legal entity that is registered or must register for VAT in Turkey. Any entity that has a fixed place of business or regularly carries out commercial or professional operations in Turkey must register in Turkey.

No VAT registration threshold applies. VAT registration is grant­ed automatically by the tax office when a business registers for corporate and income tax purposes. It is necessary to have a fixed place of business to register for tax registration. A fixed place of business includes a residence, place of business and registered head office or business center in Turkey. Only entities that are registered for tax may import goods into Turkey.

Group registration. VAT grouping is not permitted under Turkish VAT law. Legal entities that are closely connected must register for VAT separately. Related parties are regarded as separate for tax purposes.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in Turkey. A non-estab­lished business may not register for VAT only. If a Turkish taxable person receives services from an entity that does not have a fixed establishment in Turkey, VAT is accounted for using the reverse-charge mechanism (that is, the Turkish recipient of the service must self-assess VAT).

Reverse charge. The reverse charge is a form of self-assessment for VAT through which the recipient of services accounts for the tax. The reverse charge applies if certain services subject to Turkish VAT are made by a person that is not resident in Turkey or that does not have a permanent establishment or headquarters in Turkey. The Ministry of Finance is authorized to determine the parties responsible for the payment of VAT. The recipient does not need to be a taxable person under Turkish VAT law. The recipient may be an individual or an institution.

The reverse charge applies to the following services performed or used in Turkey:

  • Transfers of copyrights, patents, licenses, trademarks, know-how and similar rights
  • Import commissions
  • Services of independent professionals, such as engineering, consulting, data processing and provision of information
  • Interest payments made to foreign entities other than banks and financial institutions
  • Rental services
  • Transfer or assignment of the right to use capacity for the trans­mission, emission, or reception of signals, writings, images, sounds, or information of any nature by wire, radio, optical or other electromagnetic systems
  • Other services not specified in this list

Penalties for reverse-charge supplies. Penalties apply to several VAT offenses, including failure to account for VAT under the reverse-charge mechanism. The penalty equals 100% of the tax that has not been accounted for. The interest applies from the due date of the tax payment to the date on which the penalty notice is issued.

Tax representatives. A foreign business with no establishment in Turkey but which sells goods located in Turkey must appoint a tax representative (agent) in order to register for VAT. It is not possible to register without the appointment of such a representa­tive, i.e., direct registration is not possible.

A foreign business with no establishment in Turkey but which performs services in the country may shift the liability for the VAT to its customer in Turkey (reverse-charge mechanism). There is no registration threshold in Turkey.

Registration procedures. An application must be submitted to the tax office with the documents listed below. There is no online application system:

  • Articles of association of the company
  • Registration certificate or original trade registry gazette
  • Signature circular document indicating the authorized signato­ries and their signature samples
  • Trade registry document of the legal entity founder or autho­rized signatory (if any)
  • Notarized passport copies of the authorized signatories and founders of the company
  • Potential tax numbers of the founders and signatories which are obtained from the tax office
  • Notarized lease agreement in the name of the company
  • Originally signed Form of Commence Business (standard form to be received from the tax authority)
  • Power of attorney (only if the application will be conducted by a representative)

Approximately one week after submitting an application with the above documents, the tax officer will conduct an inspection at the registered office of the company. This is to determine whether or not there actually is an office space with adequate equipment. The authorized signatory of the company shall be present for this inspection to sign the necessary documents, or such documents shall be signed by the representative via a power of attorney. Upon completion, the tax number will be issued within a few days.

Late-registration penalties. In case of late registration, the follow­ing penalties could apply:

  • Tax loss penalty
  • Late payment charge (interest)
  • Irregularity penalty

Digital economy. The Turkish Government is reportedly consider­ing a range of proposals that would enable the Turkish Revenue Administration to collect both direct and indirect taxes on sales and revenue-generating online activities by nonresident busi­nesses.

Deregistration. In the case of the closing down of a business or the dissolution of a legal entity, the person authorized to repre­sent the company must submit written notice to the tax office within one month of the date of closure. After submitting the application for the liability cancellation, a visit to the relevant workplace is performed by the authority to confirm its closure.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices subject to VAT.

In Turkey, the following VAT rates apply:

  • Standard rate: 18%
  • Reduced rates: 1% and 8%

The standard VAT rate applies to all supplies of goods or services, unless a specific measure provides for a reduced rate or exemption.

Examples of goods and services taxable at 1%

  • Newspapers and magazines
  • Basic foodstuffs
  • Used passenger cars

Examples of goods and services taxable at 8%

  • Foodstuffs
  • Books
  • Pharmaceuticals
  • Medical products
  • Some construction equipment
  • Admission charges for cinemas, theaters, and operas

The term “exempt supplies” refers to supplies of goods and ser­vices not subject to VAT. “Partially exempt” supplies (as speci­fied in Articles 16 and 17 of the VAT law) do not give rise to a right of input tax deduction (see Section F). Some supplies are classified as “fully exempt,” which means that no VAT is due, but the supplier may recover related input tax. These supplies include exports of goods and related services.

Examples of partially exempt supplies of goods and services

  • Leasing immovable property by an individual
  • Financial transactions
  • Supplies to certain cultural bodies
  • Supplies by and to certain governmental bodies
  • Water for agriculture
  • The supply of unprocessed gold, foreign-exchange money, stocks and bonds, duty stamps, scrap metal, plastic and certain other items
  • Storage services performed at bonded warehouses or temporary storage places
  • Delivery of goods or performance of services in free-trade zones

Examples of fully exempt with credit supplies of goods and services

  • Exports of goods and services
  • Services rendered at marinas and airports for marine and air conveyances
  • International transport
  • Supplies to persons engaged in petroleum exploration
  • Supplies of goods to investment certificate holders
  • Sales to the Directorate of the Defense Industry

Option to tax for exempt supplies. Not applicable.

Excise tax (Special Consumption Tax). An excise tax is imposed on the import, manufacture and first acquisition of a range of goods. The following are the groups of products subject to excise tax:

  • Petroleum, gas and derivatives
  • Automobiles and other vehicles
  • Tobacco and specific beverages
  • Luxury products

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The basic time of supply for goods is when they are delivered. The basic time of supply for services is when they are performed. However, if the supplier issues an invoice before the time of supply, VAT applies to the extent that the supply is covered by the invoice.

Prepayments. A prepayment or deposit does not result in a tax­able transaction.

Continuous supplies of services. If services are received continu­ously but payment is made periodically, the tax is declared every month. If the invoice is issued before the declaration period, the tax point is the date of the invoice.

Goods sent on approval. The tax point for goods sent on approval is when the customer accepts the goods and a supply is made.

Imported goods. The time of supply for imported goods is either the date of importation or the date on which the goods leave a duty suspension regime.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made.

Input tax includes VAT charged on goods and services supplied in Turkey, VAT paid on imports of goods and VAT self-assessed on reverse-charge services.

If the input VAT exceeds the output VAT, the excess amount is generally not refunded but can be carried forward to subsequent VAT periods (see Refunds).

A valid invoice or customs document must generally accompany a claim for input tax. The right of deduction may be exercised in the tax period in which the purchase documents are entered into the recipient’s books of account, but only during the calendar year in which the taxable event takes place.

Nondeductible input tax. Input tax is not recoverable if it is charged on purchases of goods and services that are not used for business purposes and are considered to be nondeductible expens­es for corporate tax purposes. In addition, input tax may not be recovered for partially exempt transactions.

Examples of items for which input tax is nondeductible

  • Input tax of nondeductible expenses in corporate tax law
  • Expenses related to the previous fiscal years

Examples of items for which input tax is deductible (if related to a taxable business use)

  • All kinds of commercial expenses for operating activities of the entity
  • All direct and indirect expenses for commercial purposes of the entity

Partial exemption. An input tax deduction is granted for taxable supplies and for supplies that are exempt with credit. An input tax deduction is not granted for partially exempt supplies. If a tax­able person makes both taxable and partially exempt supplies, it may recover only input tax related to supplies that are taxable or fully exempt.

Refunds. If the amount of input VAT recoverable in a period exceeds the amount of output VAT payable in the same period, a refund is, as a rule, not granted. In most cases, the taxable person must carry forward the excess amount to a future VAT period. Refunds of the excess are available only for the following:

  • VAT related to supplies of goods subject to a reduced rate
  • VAT related to supplies of goods and services that are exempt with credit

The amount of the VAT refund may be credited against other tax liabilities.

Preregistration costs. The amount of incurred VAT for the prior costs and expenditures related to the registration process could be deductible after the registration process is complete.

Recovery of VAT by non-established businesses

Turkey does not refund VAT incurred by non-established busi­nesses, except for the following:

  • Expenses by nonresident international transporters on repairs, fuel and spare parts
  • Expenses by non-established businesses on fairs and exhibi­tions (if the business’ country of residence is on mutual terms with Turkey)

Invoicing

VAT invoices and credit notes. Turkish taxable persons must pro­vide invoices for all taxable supplies and services. Taxpayer recipients of the supplies and services must retain copies of the invoices.

Credit notes may not be used to reduce VAT charged and reclaimed on supplies of goods or services.

Proof of export. Turkish VAT is not charged on exports. However, to qualify as VAT-free, export supplies must be supported by evidence that confirms the goods have left Turkey. The evidence required consists of the customs declaration, which clearly iden­tifies the exporter, the customer, the goods and the export desti­nation, and invoice information.

Foreign-currency invoices. An invoice issued for a domestic sale must be issued in Turkish lira. The invoice may also show the invoiced amount in a foreign currency if the TRL equivalents are stated.

An invoice issued for an export sale may be issued in a foreign currency. The amount of the invoice must be recorded in the sup­plier’s books together with the exchange rate on the date of the transaction.

VAT returns and payment

VAT returns. The VAT return period is monthly. Returns must be submitted electronically through the internet by the 24th day of the month following the end of the return period. Payment in full must be made by the 26th day of the same month.

Tax return liabilities must be paid in Turkish lira.

Special schemes. Returns must be declared in the form which was designated according to the provisions of Tax Procedural Law.

Electronic filing and archiving. Taxpayers are obliged to submit their tax returns by using the Ministry of Finance’s system called “e-beyanname.” All tax returns must be submitted through this system and are electronically archived. Tax returns from previous periods are easily retrievable from this system.

Annual returns. Not applicable.

Penalities

No specific penalties relate to VAT offenses. Penalties are pre­scribed by the Tax Procedures Code, which defines various acts of non-compliance with the tax laws.