This article is intended to provide general information about Value Added Tax applications in Turkey and is only a brief guide and therefore we highly recommend that proper professional advice is required when dealing with a particular case. The tax professionals of CompoundCpa would be pleased to discuss in detail any matters in this article with you.

• Taxable Transactions:

1. Delivery of goods and services concerning to commercial, industrial, agricultural and professional activities

2.  Importation of all types of goods and services

3. Delivery of goods and services pertaining to other operations;

a. Including mail, telephone, telegraph, telex and similar radio and television services

b. Organization of and participation in all types of lotteries

c. Organizing and displaying shows and concerts with professional artists and sports activities, matches, races and competitions attended by professional athletes

d. Sales realized in auction places and Customs warehouses

e. Delivery of petroleum, gas and their by-products through pipelines

f. Leasing of goods and rights specified in Article 70 of Income Tax Law

• Reverse Charge VAT Mechanism:

As per Turkish VAT Code, the other party involved in the transaction is held liable for the payment of VAT (e.g. on behalf of a non-resident that performs activities subject to VAT) in order to ensure the collection of VAT in certain cases.

The reverse charge VAT only applies to services and rental payments for intangible rights and royalties that are purchased from non-resident entities. For goods supplied in Turkey, the importing party is liable to pay VAT at the Customs.

Under this mechanism, VAT 18% is calculated and paid to the tax office by the resident entity on behalf of the non-resident party. The resident entity treats this VAT as input VAT and offsets it in the same month. This VAT does not create any tax burden for cash flow for the resident entity as long as being in VAT Payable position.

• Withheld VAT

Certain public institutions such as municipalities, state-owned enterprises, universities or private entities such as banks, financial institutions or listed companies are held responsible to withhold a certain portion of the VAT calculated on the invoices for certain goods and services such as toll-manufacturing textile materials and consultancy, security or catering services they purchase.

In that case, the purchaser of the goods or services that withhold a portion of the VAT is required to paying such portion directly to the tax office on behalf of the supplier (who is the legal taxpayer).

• Group VAT registration

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

Also, in Turkey, there is not a separate VAT number. When the company is registered at the tax office, tax authority assigns one single tax number for all kind of taxes.

• Non-Deductible Input VAT

Entities are not permitted to recover Input VAT for the below items:

– VAT incurred on purchases of cars except “rent-a-car” companies must be recorded as either an expense or cost

– Perished (except those perished due to earthquake or flood), missing or stolen goods

– Non-deductible expenses according to Turkish Tax Legislation

– Sold items which are not subject to VAT or exempt from VAT

In principle, for Input VAT to be deducted, the VAT amount must be shown separately on an invoice and such VAT must be recorded in the statutory books.

• VAT Deductibility Period

The right to deduct VAT is allowed to be used until the end of the calendar year following the calendar year in which the tax-generating event occurred. It should be noted that the relevant process starts as of 01.01.2019.

• VAT Exempt Transactions

Full Exemptions

Supply of goods and services with full exemption entitles the taxpayer to deduct the input VAT from the output VAT which is payable while purchasing goods and services. Furthermore, in a full exemption scenario, the taxpayer can be refunded when the input VAT exceeds its output VAT. Such exemptions include:

1. Exportation of goods and services
2. International transportation
3. Delivery of goods for petroleum exploration
4. Delivery of goods to the Directorate of Defence Industry
5. Delivery of goods to the investment incentive certificate holders
6. Services rendered for vessels and aircrafts at harbours and airports

Partial Exemptions

In a partial exemption scenario, unlike full exemption, the input VAT that is paid by the purchaser of the goods or services can neither be deducted from the output VAT nor refunded. Such exemptions include:

1. Goods delivered or services rendered by public institutions (municipalities, universities, etc.) for cultural, educational, health and other similar reasons
2. Goods delivered or services rendered in Free Trade Zones
3. Financial transaction
4. Delivery of unprocessed gold, scrap metal, plastic and other various items

VAT Refund

Transactions entitling refund right;

a) Transactions that are in the scope of full exemptions

b) Transactions that are subject to reduced rate

c) Transactions that are in the scope of partial reverse charge application

d) Transactions prescribed in international agreements

e) Transactions for which excess and unnecessary tax is paid

Our explanations provided above include general information on the issue. No responsibility can be claimed against CompoundCpa due to the implications arising from the context of this document or emerging with respect to its context.