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VAT in Turkey

Comprehensive Guide to VAT in Turkey: Rules, Rates, Refunds.

Value Added Tax (VAT) is a key aspect of Turkey’s tax system, affecting businesses and consumers alike. Understanding how VAT operates in Turkey is crucial for companies doing business in the country and indivicual enterpreneur. This guide provides an in-depth look at the VAT system in Turkey, including applicable rates, registration requirements, and compliance obligations.

What is VAT in Turkey?

Value Added Tax (VAT) is a consumption tax applied to the sale of goods and services in Turkey, as well as the importation of goods. The tax is collected at each stage of the production, distribution and consumption process, with businesses able to reclaim VAT on their purchases, ensuring that the final consumer bears the tax burden.

The purpose of VAT tax in Turkey is to tax the added value of a product or service in circulation until it meets the final consumer and to ensure tax justice by spreading the tax burden over a wide area.

VAT Rates in Turkey

Turkey’s VAT system features several rates depending on the type of goods or services:

Standard Rate (20%): This is the most common VAT rate and applies to the majority of goods and services.
Low Reduced Rate (10%):Pharmaceuticals, and some health products, textile, cloting products, transportation, cultutal & artitics events benefit from this reduced rate.
Reduced Rate (8%): Applies to food and beverages and accommodation services.
Super Reduced Rate (1%): This rate applies to basic food items, pecific goods, such as books & newspapers, some agricultural products, and certain residential properties.Certain essential goods and services, such as , pharmaceuticals, and some health-related products, benefit from this reduced rate.

Understanding which rate applies to your products or services is essential for accurate tax calculation and compliance.

Additionally, some goods and services may be exempt from VAT or VAT rates may be differentiated. For example, some agricultural products, healthcare services and export transactions may be exempt from VAT.

VAT rates are determined and legally enforced by the government. Applying different rates depending on the type of goods or services ensures that different sectors are taxed at different levels

VAT Registration in Turkey

VAT registration is mandatory for businesses involved in taxable activities within Turkey. This includes both domestic and foreign businesses that sell goods or provide services in Turkey. Companies are required to register for VAT if they meet any of the following criteria:

Domestic Businesses: Any business that manufactures, sells, or provides taxable goods or services within Turkey.
Foreign Companies: Foreign businesses providing services to Turkish customers or importing goods into Turkey.
Threshold: While there is no specific sales threshold for mandatory VAT registration, businesses that conduct regular and ongoing economic activities in Turkey are generally required to register for VAT.

VAT Registration Process in Turkey

1. Prepare Necessary Documentation

Before applying for VAT registration, businesses need to gather the required documentation. This typically includes:

Company registration certificate
Tax identification number (TIN) (for foreign companies, a Turkish tax ID must be obtained)
Copy of the articles of association
Passport or identification documents of company directors or representatives
Proof of address (both domestic and foreign addresses if applicable)

2. Submit Application to the Tax Authority

Once all the documentation is in order, businesses can submit their VAT registration application to the Turkish Tax Authority (Gelir İdaresi Başkanlığı). The application must be completed in Turkish and should detail the company’s nature of business, turnover, and expected taxable supplies.

3. Obtain VAT Registration Number

After submitting the application, the Tax Authority reviews the documents and processes the registration. If approved, the company will receive a VAT registration number (Vergi Kimlik Numarası), which must be used on all invoices and for reporting VAT to the authorities.

4. Register for E-Invoicing

Once VAT-registered, businesses must comply with e-invoicing requirements if their revenue exceeds a certain threshold. E-invoicing simplifies VAT reporting and ensures transparency between businesses and the Turkish tax authorities.

Compliance with VAT Legislation in Türkiye

Once registered, businesses & companies must comply with VAT regulations, including:

Issuing VAT Invoices: Every sale must be accompanied by a VAT invoice, clearly indicating the VAT rate & amount charged. If sales are without VAT, the reason must be clearly stated on the invoice.
VAT Returns: VAT returns must be prepared & declareted monthly, detailing the VAT collected on sales and the VAT paid on purchases. The difference between the two amounts determines the VAT payable to the tax authorities or the refund due. VAT returns must be submited to to tax office due by the 24th of the following month after the taxable period.
Payment: VAT payments are generally due by the 26th of the following month after the taxable period, sometimes this may be extened by at end of related month by tax ofice.

VAT Refund in Turkey

Businesses & companies that pay more VAT on purchases than they collect on sales may be eligible for a VAT refund. This may occur in cases where companies or businesses are involved in the export of goods and services, in construction and contracting work, or in the provision of certain services in certain special regions.

1. Who is Eligible for a VAT Refund in Turkey?

Ground and Coastal Services at Air and Sea Ports: Loading, unloading and similar services provided to the cargo and passengers of sea and air transport vehicles in ports and airports are also included in the scope of the VAT Refund in Turkey.
International Transportation Services:
Freight and passenger transportation operations between Turkey and foreign countries by sea, air, road and railway are exempt from VAT and are within the scope of VAT refund.

The exemption includes;

– Transportation operations that start in a foreig country and end in a foreign country by passing through Turkey,

– Transportation operations that start in a foreign country and end in Turkey,

– Transportation operations that start in Turkey and end in a foreign country.
Construction and Contracting Works: In construction projects, as well as engineering, architectural, and survey services associated with these works, a portion of the VAT calculated on the transaction amount is withheld by the buyer and paid directly to the tax office instead of the seller.
If this leads to an excess VAT payment by the seller, they are eligible for a VAT refund.

Additionally, companies and businesses involved in housing construction in Turkey may also qualify for a VAT refund due to the difference between the VAT rate on their incurred costs and the VAT rate applied during the sale of these houses.
Export :
- Export of Goods : Businesses that pay VAT on goods they sell abroad may be eligible for a VAT refund in Turkey once the sale is final. Because exports are generally zero-rated for VAT. To claim a VAT refund, businesses must provide supporting documentation and follow procedures set by the Turkish tax authorities.

- Export of Services : Invoices issued by companies operating in the following areas for services provided to companies or individuals outside Turkey are exempt from VAT and the VAT included in the cost of these services can be refunded.

* Architecture

* Engineering

* Design

* Software

* Medical Reporting

* Accounting & Book-Keeping

* Call Center

* Product Testing

* Certification

* Data Processing, Saving & Analysis

2. Conditions for VAT Refund Eligibility

Goods must be exported: The items purchased must leave Turkey within three months of the purchase date. Proof of export, such as stamped customs documents, is required.
Purchase from Authorized Retailers: Only goods bought from authorized retailers that participate in the VAT refund scheme are eligible. These retailers will provide the necessary VAT refund form at the time of purchase.
Minimum Purchase Amount: The total amount spent on goods must exceed a specified threshold, typically around 100 TRY (excluding VAT).

3. How to Apply for a VAT Refund in Turkey

Request a VAT Refund Form: At the time of purchase, request a VAT refund form from the retailer. Ensure that the form is filled out correctly, including the total amount, VAT paid, and retailer details.
Get Customs Validation: Before leaving Turkey, present the goods, receipts, and VAT refund form to Turkish Customs at the airport or border crossing. Customs officials will validate your VAT refund form by stamping it.
Submit Your Refund Claim: After customs validation, submit your VAT refund form to a VAT refund office or authorized agent, typically located at airports. Alternatively, you can mail the documents to the relevant VAT refund agency.
Receive Your Refund: VAT refunds can be issued in cash, credited to your credit card, or transferred to your bank account. The processing time may vary depending on the method chosen.

VAT Withholding in Turkey

Value Added Tax Withholding is a mechanism in Turkey where a portion of the VAT due on certain transactions is withheld by the buyer and paid directly to the tax authorities, instead of being paid to the seller. This process is typically applied in specific sectors and transactions to ensure the collection of VAT and to reduce the risk of tax evasion.

1- How Does VAT Withholding Work

In this system, the buyer is responsible for deducting a certain percentage of the VAT amount and paying it to the tax office. The seller is responsible for collecting the non-deductible portion of the VAT and paying it to the tax office. The deducted VAT is deducted by the buyer from the total amount they owe the seller.

2- Scope of VAT Withholding

VAT Withholding is widely applied in the following sectors and services in Turkey, including construction and engineering.

– Food Service of Restaurant
– Organization Services
– Building Inspection Services
– Customer Finding and Taking Services to Touristic Stores
– Cleaning, Environment and Garden Maintenance Services
– Construction works and related engineering, architecture and study-project services,
– Renovation, maintenance and repair services of machinery, equipment, fixtures and vehicles,
– Study, plan-project, consultancy, inspection and similar services
– Processes subject to publication, advertisement and naming rights revenues of professional sports clubs
– Shuttle transportation Services
– All Kinds of Printing Services
– Sale of Copper, Zinc and Aluminum Lead Products
– Sale of Wood and Forest Products

3- Benefits of VAT Withholding

This mechanism helps the Turkish government maintain efficient VAT collection and reduces the risk of non-payment of VAT by the seller by ensuring that the tax burden is shared between the buyer and seller. In cases where KDV Tevkifatı causes the seller to have excess VAT payments, they may be eligible for a VAT refund from the Turkish tax authorities.

VAT Exemption in Turkey

AT exemption refers to the situation where goods or services are exempt from Value Added Tax (VAT). VAT exemption applies when certain activities, business types, production, and service products are not subject to VAT as per government regulations.

In the case of VAT exemption, no VAT is added to the price of the goods or services sold. Some categories of production belonging to associations, foundations, partnerships, municipalities, and professional organizations are also exempt from VAT payments.

Institutions and organizations operating under VAT exemption are issued a VAT Exemption Certificate.

VAT Exception in Turkey

VAT Exception occurs when a transaction is exempt from VAT, and the VAT incurred related to this transaction is deductible. If the incurred VAT cannot be deducted, it is refunded to the taxpayer in the month when the transaction occurred, ensuring the complete removal of VAT from the goods or services subject to exemption. In other words, under VAT exemption, the seller does not add VAT to the invoice, and the VAT they incurred due to the exemption is deducted. If there is any VAT that cannot be deducted, it can be refunded.

A. Full Exception

Full Exception allows taxpayers who perform certain exempt transactions to fully deduct the VAT amounts incurred from the VAT amounts they calculate for their transactions. Additionally, if the incurred VAT amounts cannot be deducted through the deduction method, they can request a refund.

To benefit from the full exception , it is required to obtain an Investment Incentive Certificate. Businesses that have obtained an incentive certificate are except from VAT for both the goods and services they offer for sale and the equipment they acquire for their business.

Transactions covered under the full exception include:

Export of goods,
Export of services,
Diesel deliveries to trucks, tractors, and semi-trailers carrying export goods,
Roaming services,
Services of TechnoPark Companies
Delivery of sea, air, and railway transportation vehicles and their construction, renovation, maintenance, and repair,
Services provided at ports and airports for sea and air transportation vehicles,
Construction, renovation, and expansion of rail lines connecting ports and airports,
Tools, equipment, and computer programs related to the education, profession, and daily life of disabled individuals,
Deliveries and services related to oil exploration and pipeline construction,
Exploration, enrichment, and refining of precious metals,
Delivery of investment goods under incentives,
Deliveries and services for national security purposes,
International transportation,
Contracted services for customers in free zones,
Deliveries and services to diplomatic bodies and missions,
Deliveries and services to international organizations,
Exemptions under international agreements duly enforced.

B. Partial Exception

Partial exception means that taxpayers performing certain except transactions cannot deduct the VAT amounts they incurred for those transactions from the total VAT they calculated for their business. However, they can record the VAT as an expense and deduct it from their annual tax.

C. Difference Between Full Exception and Partial Exception

Under full exception , the seller does not calculate VAT on the delivery, and they can deduct the VAT incurred due to the exception. If there is any VAT that cannot be deducted, it can be refunded. In full exception, no tax burden remains on the seller. The state completely waives the VAT on the goods subject to full exception.

In partial exemption, since the seller still bears a VAT burden, the state partially waives the VAT revenue.

Penalties for Non-Compliance With VAT in Turkey

Failure to comply with VAT regulations in Turkey can result in significant penalties. These may include fines, interest on unpaid taxes, and in severe cases, criminal charges. It is essential for businesses to maintain accurate records and ensure timely filing and payment of VAT to avoid these penalties,

Figure out of the VAT system in Turkey is essential for businesses operating within the Turkey. Understanding the different VAT rates, registration requirements, and compliance obligations can help ensure that your business remains compliant with Turkish tax laws. By staying informed and up-to-date on VAT regulations, companies can avoid penalties and optimize their tax position.

FAQs About VAT in Turkey

What is the standard VAT rate in Turkey?

The standard VAT rate in Turkey is 20%, which applies to most goods and services.

What are the other VAT rates in Turkey besides the standard rate?

Turkey has tree reduced VAT rates: %10 Pharmaceuticals, and some health products, textile, cloting products, transportation, cultutal & artitics events benefit from this reduced rate, 8% for essential goods and services (like basic food items), and 1% for certain items like newspapers, some agricultural products, and low-cost housing.

Who is required to register for VAT in Turkey?

Any business that sells taxable goods or services in Turkey is required to register for VAT. Foreign companies operating in Turkey may also need to register if they engage in taxable activities.

How do businesses file VAT returns in Turkey?

VAT returns must be filed on a monthly basis through Turkey’s Interactive Tax Office. The deadline for filing is the 24th of each month, and payment is due by the 26th.

Are there any VAT exemptions in Turkey?

Yes, certain goods and services are exempt from VAT, including exports, financial services, healthcare, education, and services provided by charitable organizations.

Can I claim a VAT refund in Turkey?

Yes, businesses can claim a VAT refund if the input VAT exceeds the output VAT, especially in cases of exports, as exports are zero-rated.

Are foreign companies subject to VAT in Turkey?

Yes, foreign companies selling goods or services in Turkey, especially in sectors like e-commerce and digital services, may need to register for and charge VAT.

What happens if I don’t file VAT on time in Turkey?

Late VAT filings or payments can result in penalties and interest charges. It’s important to file VAT returns and make payments by the deadlines.

How is VAT applied to e-commerce in Turkey?

E-commerce businesses selling goods or digital services to Turkish consumers are required to charge VAT. Foreign e-commerce platforms must also comply with Turkish VAT regulations if they exceed the local thresholds.

Is VAT applicable on imports to Turkey?

Yes, VAT is levied on imported goods at the applicable VAT rate, and importers must pay this VAT when bringing goods into Turkey.

How does VAT apply to exports in Turkey?

Exports are zero-rated for VAT purposes, meaning businesses do not charge VAT on exported goods or services, and they can often claim refunds on input VAT paid.

Can small businesses register for VAT voluntarily?

Yes, businesses that fall below the mandatory VAT registration threshold can voluntarily register for VAT in order to charge and reclaim VAT on their transactions.

What documentation is required for VAT registration in Turkey?

Businesses need to provide documentation such as their tax identification number, proof of business activities, and detailed information on their operations to register for VAT.

What are the penalties for VAT non-compliance in Turkey?

Non-compliance, such as failing to file VAT returns or under-reporting VAT, can lead to fines, penalties, and potentially legal action depending on the severity of the infraction.

Contact Us For VAT Regulations in Turkey

A&M Consulting Co. as a Turkish Accounting & Tax Consulting Firm specializes on end to o end performing VAT Registration Services & VAT Refund Services for particularly foreign investors and corporate companies in Turkey.

We continue to offer cost-effective solutions to facilitate corporate companies and especially foreign investors to enter the Turkish market smoothly and quickly and to ensure their full compliance with local tax legislation.

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You can reach out to our experienced consultans via email or by filling out the Contact Form on our website’s contact page.