Indirect tax

Indirect tax - Turkey

01 Jan 202513 min read

This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Turkey.

Indirect tax snapshot
What are the current rate(s) of indirect tax?	Standard rate of 18% for most goods and services. Reduced rate of 8% for some goods and services including basic food stuffs, textile products books and similar publications. Minimum rate is 1% goods and services include agricultural products such as raw cotton, dried hazelnuts newspapers and magazines. 18% VAT is applied to payments that are made to non-resident for their professional services, use of intangibles like copyrights and sale of those rights.
Are there any confirmed or anticipated changes to these rates?	No.
What is the principal indirect tax?	Value Added Tax (VAT) is the principal indirect tax. It is a tax on consumer expenditure and is collected on business transactions and imports.
Is there a registration limit for the tax?	No. According to the VAT Law, without any exceptions, all taxpayers that make a transaction subject to VAT are responsible.
Does the same registration limit apply to non-established businesses?	No registration limit still applies. Foreign entities must register as soon as they start taxable transactions. Registration can be through a subsidiary, branch, or permanent establishment in Turkey. Reverse charge mechanism continues: if the foreign entity is not registered in Turkey, the Turkish purchaser accounts for VAT on their behalf. Electronic service providers (non-residents) must register under “special VAT liability” and file monthly KDV-3 returns.
Does a non-established person need to appoint a fiscal representative in order to register?	Yes. To register as a taxpayer, a non-established person needs to appoint a fiscal representative.
How often do returns have to be submitted?	Most businesses are required to submit VAT returns covering one month accounting periods. A VAT return should be filed by the 24th day of the month following the end of the taxation period and the tax should be paid on 26th day of the same month.
Are penalties imposed for the late submission of returns/payment of tax?	Yes. If a VAT return, or the corresponding payment, is submitted late a penalty will be imposed. Turkish tax authorities impose a procedural non-compliance penalty for the late submission of a VAT return.
Are any other declarations required?	Yes. Additional declarations have to be submitted in respect of certain supplies made to customers that need to be reverse charged or are subject to withholding VAT.
Are penalties imposed in other circumstances?	Yes. Penalties can be imposed for a range of errors or omissions.
Can the tax incurred by overseas businesses be claimed if they are not registered in your country?	Yes, in certain circumstances and subject to certain conditions.
Deduction of VAT	In some cases you cannot deduct the VAT. For example, VAT in purchases of cars, missing and stolen stocks.

What is the principal indirect tax?

In Turkey, there are several indirect taxes but the most important indirect tax is VAT.

The beginning of the studies on VAT in Turkey goes back to 1970. In 1974, a draft VAT law, which was the result of studies of a technical group, was prepared. The subject (VAT) was discussed by different levels of public opinion and some project games were organised to test the drafts with the volunteer enterprises. After the appreciation of the results of these discussion and games, seven law drafts were prepared from 1974-1984. The 8th draft was enacted on 2 November 1984 and entered into force on 1 January 1985. By the VAT Law, eight indirect taxes on consumption were abolished.

The Turkish tax system levies VAT on the supply and the importation of goods and services. The Turkish name for VAT is Katma Değer Vergisi, abbreviated to KDV.

Liability for VAT arises when:

a person or entity performs commercial, industrial, agricultural or independent professional activities within Turkey;
goods or services are imported into Turkey.

(A transaction is deemed to be carried out in Turkey if the goods are in Turkey at the time of delivery and if services are rendered and enjoyed in Turkey).

VAT is levied at each stage of the production and the distribution process. Although, liability for the tax levies on the person who supplies or imports goods or services, the real VAT burden is on the final consumer. This result is achieved by a tax-credit method where the computation of the VAT liability is based on the difference between the VAT liability of a person on his sales (output VAT) and the amount of VAT he has already paid on his purchases (input VAT).

The Turkish VAT system employs multiple rates and the Council of Ministers is authorised to change the VAT rates within certain limits.

Is there a registration limit for the tax?

VAT taxpayers are defined in the VAT Law as those engaged in taxable transactions, irrespective of their legal status or nature and their position with regard to other taxes.

The following people or entities are liable for VAT:

those supplying goods and services related to commercial, industrial, agricultural and professional activities.
those importing goods or services related to all types of goods and services.
those required to complete customs formalities in case of transit of goods through Turkey.
general directorates of postal services (PT and Telecom) and radio and television corporations.
organisers of any kind of chance and gambling.
organisers of shows, concerts and sporting events with the participation of professional artists and professional sportsmen.
lessors of goods and rights stated in Article 70 of the Income Tax Law.
applicants for optional tax liability.
the party that realizes deliveries in auction places and Customs warehouses
the party that indicates VAT on invoice or other relevant documents by mistake.

Goods and rights are set out in Article 70 of the PIT Law including; immovable property such as land, buildings, mines and rights which are in the nature of immovable property; and other goods and rights such as all kinds of motor vehicles, machines and equipment, ships, literary, artistic and commercial copyrights, commercial or industrial know-how, patents, trademarks, licenses and similar intangible properties and rights.

According to the new regulations that made on law numbered 3065, The Ministry of Finance is authorized to register ‘Group VAT liability’, that allows corporations taxpayers to present a VAT declaration at consulate with companies with at least a 50% share in case of their wishes. With this arrangement, companies will also be able to download VAT which they cannot deduct from different group companies of VAT. It’s not mandatory. The company that is registered for group VAT liability is responsible for the assessment of group VAT. All taxpayers who are members of the group are jointly responsible for the VAT.

Does the same registration limit apply to non-established businesses?

In the event that the taxpayer is not resident or does not have a place of business in Turkey, a legal head office or place of management in Turkey, or in other cases deemed necessary, the Ministry of Finance is authorized to hold any one of the people involved in a taxable transaction responsible for the payment of tax.

According to the Turkish VAT law, there is a so-called reverse charge VAT mechanism, which requires the calculation of VAT by resident companies over payments to abroad. Under this mechanism, VAT is calculated and paid to the related tax office by the Turkish company or customers on behalf of the non- resident company (foreign company). On the other hand, the local company treats this VAT as input VAT and offsets it in the same month.

Toll-manufacturing and ready-made materials (textiles) are subject to partial withholding: Only 5/10 of the calculated VAT is paid to the seller by the purchaser. Therefore, the purchaser will be responsible for paying 5/10 of calculated VAT to the tax office directly.

Junk metal, waste paper, junk plastic material deliveries are exempted from VAT: In the case of the renouncement of the above mentioned exemption, the purchaser pays 5/10 of the calculated VAT to the seller. Therefore, the purchaser will be responsible for paying 5/10 of the calculated VAT to the tax office directly.

Is there any specific legislation to tax non-resident supplies of electronically supplied/digital services to private consumers resident in your country?

No specific legislation. However, the electronically supplied/ digital services may be due a reverse charge VAT and possibly withholding tax (WHT). If the company buys digital services to resell them without alterations or they buy digital services for its own use, WHT will not be due. If the company buys the digital services with the intention of alteration, duplication and reselling, then it will be due WHT.

With the new provision in 1 March 2018 Electronic services provided to individuals in Turkey non-residents, payments provided electronically, are subject to VAT. If a permanent establishment arises during the supply of the services, then under general terms of the Turkish law, a VAT return must be filed. Non-residents that fall within the scope of these new regulation must register as ‘special VAT liability of electronic service providers’ and remit the amount of VAT related to these transactions with a VAT return (the VAT-3 return) filed online which is available in the government website. These VAT-3 returns are to be filed monthly, and return for each month is filed on or before the close of the 24th day of the following month with the actual VAT amount being payable and paid until the close of business on the 26th day of that month.

Does a non-established business need to appoint a fiscal representative in order to register?

Yes, to register you need to establish a company based in Turkey, to do this you also need to appoint a fiscal representative.

Types of companies

Incorporated companies such as a:

Joint-stock company (A.);
Limited liability company (Ltd. ti.);
Commandite company;
Collective company;
Cooperative company.

Joint stock company

The company’s stock capital is divided into shares and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder. At least one shareholder (real person or legal entity) and a minimum capital of TRY 50,000 are mandatory. The mandatory company shall include a general assembly and a board of directors.

Limited liability company

It is a company established with at least one shareholder (real person or legal entity) and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder. A minimum capital of TRY 10,000 is mandatory.

Commandite company

It is the company established to operate a commercial enterprise under a trade name. Whereas the liability of some shareholders is limited to the capital subscribed and paid by the shareholder (commanditer), for some shareholders there is no limitation of liability. Legal entities can only be commanditer. No minimum capital is required. The rights and obligations of the shareholders are determined by the articles of association.

Collective company

It is the company established to operate a commercial enterprise under a trade name and, the liability of none of the shareholders is limited only to the capital subscribed and paid by the shareholder. No minimum capital is required. It is mandatory that all the shareholders be real persons. The rights and obligations of the shareholders are determined by the articles of association.

How often do returns have to be submitted?

The declaration consists of VAT arising from sales and purchases in a month. The deadline for this declaration is the 24th of the following month. The deadline for the payment is, on 26th the following month (two days later than the deadline of the declaration).

All VAT returns have to be submitted within 24 days of the end of the relevant accounting period, together with any tax due.

The VAT return should be filed for each month even there is no deliveries subject to VAT have been made.

Are penalties imposed for the late submission of returns/ payment of tax?

A default surcharge penalty will be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date.

For a late submission of the declaration, it will be considered a first degree irregularity. If the declaration is submitted late and a VAT payment is due, it will be considered as a first degree irregularity as well as a tax loss. If the declaration is submitted on time, but the VAT paid late, the VAT will be due a late payment penalty.

Are any other declarations required?

Businesses that are required to file VAT declarations must also fill in forms of BA-BS (declarations for buying and selling totals over TRY 5000). This is for the tax office to conduct a cross- examination between sellers and buyers to check if each side is correctly declaring its transactions.

Are penalties imposed in other circumstances?

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.

Civil penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes.

Criminal proceedings may be brought in the case of more serious matters.

Some penalties can be imposed in case of not registering for VAT or late registration which are:

tax loss penalty: the tax loss penalty is computed as one times the amount of tax;
irregularity penalty: it is imposed if the procedures of Turkish Tax Procedural Law are not complied with. This is a lump-sum amount that changes per year.

Can the VAT incurred by overseas businesses be claimed if they are not registered in Turkey?

No. In Turkey exports are not due VAT. The goods are taxed at point of destination.

The only way in which a company which is not registered in Turkey to incur VAT would be if this company buys goods from a Turkish registered company and sells those goods directly to another company in Turkey. This way, the destination of the goods will be in Turkey. Thus as a result, the company that sells the goods to non-registered overseas business must issue the invoice with VAT. However, the overseas business cannot claim this VAT back. In case, this company is registered in Turkey, it faces VAT when buying goods in Turkey, but if it exports these goods it must issue the invoice without VAT. But this way, it has the possibility to claim the VAT it endured when acquiring the goods in Turkey.

What information must a VAT invoice show?

A VAT invoice must show:

an invoice number which is unique and sequential;
the seller’s name and address;
the seller’s TAX registration number;
the invoice date;
the customer’s name and address;
a description sufficient to identify the goods or services supplied to the customer;
the rate of any cash discount;
the total amount of VAT charged expressed in TRY.
Customer’s VAT number;
VAT due;
Tax office of customer and supplier;
Waybill number;
Date of Delivery of goods.

For each different type of item listed on the invoice, the following must be shown:

the unit price or rate, excluding VAT;
the quantity of goods or the extent of the services;
the rate of VAT that applies to what’s being sold;
the total amount payable, excluding VAT.

Where a VAT invoice includes zero-rated or exempt goods or services, it must:

show clearly that there is no VAT payable on those goods or services;
show the total of those values separately;
state clearly the corresponding Law article that the good is VAT exempt for.

Deduction of VAT

With the expected new regulation, the deduction limitation for VAT is extended. While the current provision states that ‘The right to deduction may be exercised during the period the relevant documents are recorded in legally compliant books, up to the end of the following calendar year after the tax event occurred.’ Now the wording of changed and ‘The right to deduction may be exercised during the period in which the relevant documents are entered in the books kept pursuant to laws, providing no later than the following calendar year the calendar year in which the event giving rise to tax took place’. So VAT on any invoice that is related to transaction realized in a calendar year can be deducted within 2 years.