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Value Added Tax (VAT) Guidelines: Turkey

published on 23 March 2022

1. VAT SCOPE, VAT RATES AND VAT EXEMPTIONS »
2. VAT REGISTRATION AND SIMPLIFICATIONS »
3. DECLARATION REQUIREMENTS AND PENALTY REGIME »
4. VAT RECOVERY »
5. INVOICING »
6. OTHERS »

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »

1. VAT Scope, VAT Rates and VAT Exemptions

According to Turkish VAT law taxable transactions include the supply of goods and services, which contain the characteristics defined in the law. Following transactions realized in Turkey are subject to VAT:

Delivery of goods and services related to commercial, industrial, agricultural and professional activities.
Import of all types of goods and services.
Delivery of goods and services related to other operations including mail, telephone, telegraph, radio, television, delivery of petroleum, gas and their by-products through pipelines, renting of immovable which are not registered to any business entities fix assets, copyrights, motor vehicles, machinery and equipment.
Organization of and participation in all types of lotteries.
Organization and presentation of concerts, sport activities and contests.
Sales realized in auction places and Customs warehouses.

Definition of “Transaction realized in Turkey”: In order for transactions to be subject to VAT in Turkey, goods must be present in Turkey at the time of delivery or services must be rendered or benefited in Turkey.

The standard VAT rate is 18 percent, the reduced VAT rates are 1 percent and 8 percent. There are mainly two types of VAT exemptions in Turkey; full exemption and partially exemption.

Full exemption includes exemptions with right of deduction and exemptions with right of refund. Partially exemption, on the other hand, includes exemptions with right of deduction and exemptions without right of deduction. In partially exemption, non-deductible taxes cannot be refunded.

The taxpayers can renounce exemptions by applying to the relevant tax office with a petition provided that they fulfill the conditions and procedures stated in the relevant article.

Please also note that it is not possible to waive certain exemptions stated explicitly in the relevant article. However, this is rarely applied in practice.

Export deliveries are exempt from VAT if the following conditions are met: The deliveries must be made either to a foreign customer, a buyer in a Free Trade Zone (which is considered as non-Turkish customs territory), or an authorized customs warehouse operator. The goods delivered must leave Turkish customs territory and reach a foreign country, a Free Trade Zone, or must be stated in authorized customs warehouse for subsequent delivery to a foreign customer.

In order to benefit from the export exemption for a supply of services, the following conditions should be met: The services must be performed for a customer which is resident abroad,

invoices and other documents must be issued in the name of the foreign customer,

services must be utilized/enjoyed abroad.

2. VAT registration and simplifications

There is no turnover threshold for VAT registration in Turkey. Any person or entity engaged in an activity within the scope of the VAT law must notify the local tax office where his place of business is located. If there is more than one place of business, registration is performed by the tax office that is authorized with respect to individual or corporate income tax.

Those who engage in commercial, industrial, agricultural or independent professional activities in Turkey are required to register for tax purposes in Turkey. As the registration for tax is an outcome of engaging business activity in Turkey, the registration should be completed before engaging into any commercial/business activity.

The same rules apply to non-Turkish entities. A local branch, subsidiary or permanent establishment of a foreign entity can be registered for tax purposes.

If the foreign entities are not tax registered in Turkey, the Turkish purchaser is liable to account for VAT on behalf of the foreign company (reverse charge-mechanism). The reverse charge-mechanism is applied in the case where the recipient of payment (that is service provider) is not tax registered entity in Turkey. The reverse charge-mechanism is not applicable for the delivery of the goods; the importer will be liable to pay import VAT. Note that only tax registered companies can import goods into Turkey.

According to the modification on VAT law regarding the services provided in electronic environment by those that have no residency, business place, legal center and business center in Turkey to non-VAT registered individuals (B2C) shall be declared and paid by the providers of the service.

Electronically supplied services provided by those that have no residency, business place, legal center and business center in Turkey to non-VAT registered individuals (B2C) are subject to VAT. These electronic services include online services like streaming music, films, gaming services, domain names, hosting, website and webpage support etc.

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.

To appoint a representative, the foreign business must give a proxy to its chosen representative who is either a real person or a legal entity. The foreign business will be registered with the tax office for VAT and other Turkish taxes. The authorities have no right to veto the choice of representative if the representative is liable.

3. Declaration requirements and penalty regime

The taxation period is one month. A VAT return should be filed by the 26th day of the month following the end of the taxation period. Tax should be paid on 26th day of the same month. The VAT return should be filed for each month even if no deliveries subject to VAT have been made.

If the taxpayer does not have residence, a work place or a business place in Turkey, the local purchaser of the goods party to whom delivery is made, or the service recipient will be liable for the payment of VAT (such as reverse charge VAT). In this context, there is so-called VAT Return II by which reverse charge VAT is declared to the relevant tax office by the 26th day of the following month and paid on 26th day of the same month. VAT returns can be submitted only electronically.

Taxpayers who act contrary to the provisions of tax laws are penalized with the tax loss, irregularity penalty and other penalties:

Tax loss penalty: The tax loss penalty is computed as one times the amount of tax concerned
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
Late payment charge (interest): The current late payment charge is 1.40 percent per month.

VAT registration to the tax office is automatic on the declaration of a place of business. Non-declaration is subject to a procedural non-compliance penalty.

4. VAT recovery

The VAT system works as a tax credit mechanism. The input VAT paid for purchases is offset against the output VAT generated through sales. The offset is made in the monthly VAT return. If input VAT exceeds the output VAT, the balance is not refunded, carried forward to the following months.

According to the Turkish VAT Law, the following input VAT is not deductible:

VAT paid on expenses not deductible for income and corporate tax purposes
VAT incurred on expenses related to a supply of goods and services exempt from VAT (“partial exemption”) and not subject to VAT
VAT paid on acquisition of company cars, except cars which are used by those who engaged in wholly or partially car rental business or operation of such cars
VAT paid on the goods which were lost, except for those arising from earthquake, flooding or fire

In principle, a foreign company which is not registered for tax in Turkey cannot recover or refund any input VAT paid in Turkey.

It should be noted that VAT paid by non-resident companies in relation with their transportation activities and participation in fairs, open-air markets, and exhibitions in Turkey shall be refunded on condition of reciprocity.

Turkey has signed reciprocity agreements with the following countries: Bosnia-Herzegovina, Bulgaria, Denmark, Finland, France, Netherlands, Ireland, Italy, Malta, Norway, Portugal, Romania, Slovenia, Slovakia and Switzerland. It should be noted that the application of reciprocity is not connected to the existence of a written agreement.

5. Invoicing

There are formal invoicing requirements to be fulfilled.

If invoices do not content all of the necessary requirements or if some indications are not correct it is possible to amend these invoices via cancellation and new issuing.

An electronic submission of invoices via e-invoice application is possible. E-invoices are also liable form the information that is covered by paper-based invoices.

On the other hand it is not possible to send invoices via fax and e-mail according to Tax Procedural Law. Invoices should be original in order to be registered.

Those services purchased from non-resident entities by resident tax payers and benefited in Turkey are considered to be supplied in Turkey. This procedure is known as the reverse charge-mechanism or “tax shift mechanism”. Non-resident supplier of services in Turkey need not therefore register for VAT.

Consequently, the recipient of the services in Turkey has to calculate VAT at the standard rate of 18 percent on the gross invoice amount (except for financial leasing transactions) and accounts for this amount as “VAT Payable”.

Credit notes and debit notes are not acceptable documents according to Tax Procedural Law. In some cases (e.g. price difference invoices in import) these documents can be acceptable and reverse charge VAT should be calculated by tax payers.