WHAT IS VALUE ADDED TAX (VAT) IN TURKEY?

Value Added Tax (VAT) is an indirect tax levied on the added value created during the production and sale processes of goods and services in Turkey. Regulated under the Value Added Tax Law No. 3065, this tax came into effect in 1985 and is one of the primary consumption taxes in Turkey.

VAT in Turkey is calculated at each stage where goods or services change hands, creating a tax burden that is ultimately passed on to the final consumer. Sellers calculate the VAT amount in Turkey during sales transactions, collect it from buyers, and declare and pay it to the tax office at regular intervals.

In this context, Value Added Tax in Turkey can be defined as a system that taxes the value increase occurring throughout the production, distribution, and consumption chain of goods and services. The primary purpose of VAT in Turkey is to increase the government’s indirect tax revenues, finance public expenditures, and control the informal economy.

WHO PAYS VALUE ADDED TAX IN TURKEY?

Value Added Tax in Turkey is paid by the final consumer. However, sellers act as intermediaries in calculating and paying VAT in Turkey. The responsibility for VAT lies with the seller, meaning the seller determines the VAT amount when offering goods or services for sale and reflects it on the consumer. Therefore, the consumer ultimately pays the VAT in Turkey, which is included in the product or service price.

The business that offers the product or service to the consumer collects the VAT in Turkey and remits it to the government. However, sellers can deduct the VAT they have paid on their own purchases of goods and services. This system ensures that businesses are taxed only on the value they add.

VAT rates in Turkey vary depending on the type of goods or services sold. In Turkey, the general VAT rate is 20%, but lower rates apply to certain products and services. For example, a 1% VAT rate applies to essential food items, while a 10% VAT rate applies to sectors such as restaurants and hotel services. On the other hand, the 20% rate is the most commonly applied rate for general commercial and industrial products.

Although sellers play a crucial role in calculating VAT in Turkey, the ultimate tax burden falls on the individuals who consume the goods or services. It is important to note that individuals residing abroad or those residing in Turkey but receiving their salaries from abroad are also subject to VAT on their expenses made in Turkey.

WHAT IS THE VAT BASE IN TURKEY?

The Value Added Tax (VAT) base refers to the taxable amount used to calculate VAT in Turkey. It is the amount obtained by separating the VAT from the total sales price of a good or service.

Businesses determine the amount of VAT they have calculated on their sales and the tax they need to pay by deducting the VAT from the total sales amount. To calculate the VAT base in Turkey, the applicable VAT rate and tax amount for the relevant good or service must be known. However, when calculating the VAT base, Special Consumption Tax (ÖTV) is not included in the calculation.

Accurately determining the VAT in Turkey is crucial for businesses to maintain proper income and expense tracking and to correctly calculate their tax obligations.

HOW TO CALCULATE THE VAT BASE IN TURKEY?

Businesses determine the amount of Value Added Tax (VAT) they need to pay by calculating their sales revenue excluding VAT. To do this, specific VAT base calculation formulas are used. The VAT base is the amount obtained by subtracting VAT from the total sales price of a product or service.

The fundamental formulas used in VAT base calculations are as follows:

• VAT-exclusive amount (Base) calculation: Base = VAT Amount / VAT Rate × 100
• VAT-inclusive total calculation: VAT-Inclusive Total = Base + VAT Amount
• Alternative Base Calculation: Base = VAT Amount / (VAT Rate / 100)

For example, if a 20% VAT rate applies to a product and the VAT paid is 40 TL, the base is calculated as follows:

Base = 40 / (20 / 100) = 200 TL

In this case, the VAT-exclusive sales price (base) of the product is determined as 200 TL. This calculation is essential for businesses to fulfill their VAT payment obligations correctly.

HOW IS VALUE ADDED TAX (VAT) CALCULATED IN TURKEY?

In its simplest form, value added can be defined as “the price of goods/services sold – the price of goods/services purchased.” The VAT rate in Turkey varies depending on the sector. In Turkey, the main VAT rates are 1%, 10%, and 20%. The most commonly applied rate is 20%, while a 10% rate applies in the service sector, such as restaurants and hotels, except for certain exemptions.

Two different methods can be used for VAT calculation in Turkey.

• VAT-Inclusive Calculation Formula:

Net amount × (1 + VAT rate)

For example, if the net price of a product is 1,000 TL and the VAT rate is 20%, the VAT-inclusive price is calculated as follows:

1,000 × (1 + 0.20) = 1,000 × 1.20 = 1,200 TL

This calculation is used to determine the total price, including VAT, based on the VAT-exclusive price.

• VAT-Exclusive Calculation Formula:

Gross amount / (1 + VAT rate)

Using the same example, if the gross (VAT-inclusive) price is 1,200 TL and the VAT rate is 20%, the net price excluding VAT is calculated as follows:

1,200 / (1 + 0.20) = 1,200 / 1.20 = 1,000 TL

This formula helps determine the VAT-exclusive price from the VAT-inclusive amount. It is recommended to use the VAT calculation tool to calculate VAT in Turkey.

WHICH TRANSACTIONS ARE SUBJECT TO VALUE ADDED TAX IN TURKEY?

Value Added Tax (VAT) in Turkey applies to a wide range of transactions in the production, sale, and consumption of goods and services. Under the Value Added Tax Law No. 3065, transactions subject to VAT in Turkey include:

• Delivery of goods and services within the scope of commercial, industrial, agricultural, and professional activities
• Rental of movable and immovable properties, as well as rights
• Importation of all kinds of goods and services
• Communication services
• Activities related to games of chance
• Transportation of petroleum and gas through pipelines
• Concerts and performances by professional artists
• Matches and competitions involving professional athletes
• Sales transactions carried out in customs warehouses
• Sales made through auctions

These transactions fall under the VAT system in Turkey, ensuring that tax is collected at the stage when the relevant goods or services reach the final buyer.

WHAT ARE THE VAT RATES IN TURKEY?

In Turkey, Value Added Tax (VAT) rates in Turkey vary depending on the type of goods and services.

The most commonly applied VAT rate in Turkey is 20%, while certain goods and services are subject to lower rates of 1% and 10%. Reduced rates are applied to specific product and service groups in line with economic and social policies.

1) Goods and Services Subject to 1% VAT in Turkey:

The 1% VAT rate primarily applies to essential food products. The following items are subject to a 1% VAT rate:

• Grains, legumes, and certain agricultural products with high export potential
• Lentils, rice, bulgur, dried beans, kidney beans, broad beans, chickpeas
• Other basic food products: water, tea, sugar, oil, meat, milk, etc.
• Vegetables and fruits: potatoes, onions, garlic, etc.
• Olives and olive oil
• Used passenger cars and tractors
• Certain residential properties with a net area not exceeding 150 m²
• Some machinery and equipment used in manufacturing

2) Goods and Services Subject to 10% VAT in Turkey:

Following recent adjustments, some goods and services that were previously subject to an 8% VAT rate are now taxed at 10%. These include:

• Clothing and accessories: shoes, slippers, boots, and similar items
• Bags and luggage: handbags, suitcases, and related products
• Textile and leather goods: textiles, ready-to-wear clothing, leather products, and shoe uppers
• Publications and stationery: books, lead pencils, colored pencils, watercolors, pastels, school notebooks, erasers, sharpeners, and rulers
• Food and beverage services: coffeehouses, tea gardens, tea houses, cafes, pastry shops, restaurants (including takeaway services), and similar establishments, excluding alcoholic beverages
• Private education, courses, transportation, and dormitory services
• Healthcare services for humans, animals, and plants, as well as medicines and medical devices
• Cinema, theater, opera, ballet, and museum entrance fees
• Catering and accommodation services
• Agricultural tools and equipment, certain professional equipment, and furniture

3) Goods and Services Subject to 20% VAT in Turkey:

Certain essential and durable consumer goods fall under the highest VAT bracket of 20%. The main products subject to this VAT rate include:

• Cleaning and hygiene products: soap, shampoo, detergent, disinfectants, wet wipes (whether soaked with soap, detergent, or solution), toilet paper, paper towels, tissue paper, and napkins
• Tobacco and alcoholic products: cigarettes and alcoholic beverages
• Durable consumer goods: automobiles, furniture, and household appliances

These products are subject to the highest VAT rate in Turkey due to their consumption characteristics and tax policies.

The Revenue Administration periodically updates lists determining which goods and services qualify for reduced VAT rates in Turkey. Any goods and services not included in these lists are subject to the standard VAT rate of 20%. Up-to-date VAT rates in Turkey and regulations can be found on the official website of the Revenue Administration.

WHAT IS A VAT RETURN IN TURKEY?

A Value Added Tax (VAT) return is a tax declaration submitted to the tax authorities, reporting the VAT amounts calculated on the sale of goods and services. While VAT returns in Turkey are typically filed on a monthly basis, certain small businesses may submit them quarterly.

The VAT return in Turkey must be submitted to the relevant tax office by the 28th day of the following month after the relevant period ends. The tax payment deadline coincides with the return submission deadline.

Errors in VAT calculations in Turkey and declarations can lead to significant time and financial burdens for businesses, as well as tax penalties. Therefore, ensuring accurate VAT calculations in Turkey and properly submitting tax returns is crucial, and seeking assistance from a tax lawyer in Turkey is recommended.

WHEN SHOULD VAT RETURNS BE SUBMITTED IN TURKEY?

VAT returns in Turkey are typically prepared by a company’s financial advisor. The deadlines for submitting VAT returns are as follows:

• Monthly VAT return: Must be submitted by 11:59 PM on the 28th day of the following month.
• Quarterly VAT return: Must be submitted by 11:59 PM on the 28th day of the month following the three-month period.
• VAT return under tax withholding responsibility: Must be submitted by the 21st day of the following month (previously the 24th). Payment must be made by the 23rd day (previously the 26th). These changes took effect on January 1, 2024.

Even if no VAT payment is due, the VAT return must still be submitted, and the applicable stamp tax must be paid.

VAT REGULATIONS FOR INVOICES RELATED TO SERVICES FROM ABROAD

When services are imported into Turkey, VAT liability arises if the service is used in Turkey and is not subject to a VAT exemption. In such cases, the obligation to pay VAT in Turkey falls on the recipient of the service, as per legal provisions.

Turkish residents and companies incorporated under Turkish corporate law must assume VAT liability when purchasing services from foreign entities with no residence, business premises, or headquarters in Turkey. In such cases, the applicable VAT amount must be declared and paid via the Reverse Charge VAT Return (Form No. 2).

For VAT liability to arise, the following conditions must be met:

• The service provider must be a foreign entity.
• The recipient must be a resident individual or a legal entity established in Turkey.
• The service must not be exempt from VAT in Turkey.
• The service must be used in Turkey.

If a service is purchased from a foreign entity and used outside Turkey, no VAT liability arises. Given the complexity of VAT obligations, consulting an attorney is advisable to avoid potential tax penalties.

VAT EXEMPTION AND VAT REDUCTION CONDITIONS IN TURKEY

Any individual or entity residing in Turkey is required to declare and pay the VAT on imported services via the VAT Return No. 2 as a responsible taxpayer. The VAT incurred on service imports can be deducted by the VAT taxpayer importing the service, provided there are no legal restrictions. Additionally, payments made abroad for such services are subject to withholding tax at the rates specified under Article 30 of the Corporate Tax Law (KVK). This withholding tax is calculated on the gross payment amounts and must be declared and paid via the withholding tax return in the following month.

According to the Value Added Tax (VAT) Law No. 3065, individuals and entities engaged in activities such as the supply of goods and services, imports, customs or transit procedures, auction sales, and organizing games of chance are considered VAT taxpayers.

However, certain exceptional situations specified in Articles 11 to 17 of the same law justify VAT exemption. These exemptions, known as VAT exemptions, are applied in two forms: full VAT exemption and partial VAT exemption.

Company owners liable for VAT in Turkey can benefit from these exemptions by obtaining a VAT reduction or avoiding full payment. Therefore, questions such as what VAT exemption in Turkey is and what its conditions are are frequently researched. Topics like who is exempt from VAT in Turkey, how to obtain a VAT exemption certificate, and which VAT exemption codes should be used on invoices are essential.

• WHO CAN BENEFIT FROM VAT EXEMPTION IN TURKEY?

Individuals and entities eligible for VAT exemption in Turkey are those engaged in specific activities and meeting the exceptional conditions stipulated in the VAT Law.

1. VAT Exemption in Exports: All activities related to the export of goods and services, as well as services provided to foreign customers, services offered under roaming agreements, and contract manufacturing services for customers in free zones, are subject to VAT exemption in Turkey. The sale of goods purchased by non-resident travelers and taken abroad, goods and services acquired by transportation companies not based in Turkey, and cinematographic works purchased by foreign producers also qualify for VAT exemption in Turkey.
2. Exemptions for Vehicles, Oil Exploration, and Incentive-Certified Investments: Leasing, operating, repairing, and maintaining maritime, air, and railway transport vehicles are exempt from VAT in Turkey. Additionally, the supply of goods and services for oil exploration and extraction, as well as pipeline transportation, falls within this scope. Machinery and equipment purchases by taxpayers holding an investment incentive certificate and activities such as the construction of ports and airports are also VAT-exempt.
3. Transportation Exemption: Transit transportation activities between foreign countries and Turkey are VAT-exempt if carried out by companies not based in Turkey.
4. Diplomatic Exemptions: On a reciprocal basis, the supply of goods and services to foreign diplomatic missions in Turkey and their diplomatic personnel is exempt from VAT in Turkey.
5. Import Exemption: The import of tax-exempt goods and services, bonded warehouse regimes under the Customs Law, and free zone applications also fall under VAT exemption in Turkey.
6. Social Purpose Exemptions: Services acquired by government institutions and foundations for cultural, scientific, artistic, and sports-related activities are VAT-exempt.
7. Simplified VAT Exemption: Deliveries and services provided by tradesmen who are not subject to income tax obligations under the Income Tax Law and whose earnings are determined on a simplified basis are exempt from VAT.

For detailed information, Articles 11-17 of VAT Law No. 3065 can be consulted.

• WHAT ARE THE CONDITIONS FOR FULL AND PARTIAL VAT EXEMPTIONS IN TURKEY?

VAT in Turkey is a type of tax collected from end consumers and paid by taxpayers. When a business sells a product, it includes VAT in the sale price and records it in its accounting. If, at the end of the month, the VAT paid on purchases exceeds the VAT collected from sales, the business can carry forward the excess VAT as a credit for the following period.

This system helps maintain a balance between revenue and expenses for businesses. However, VAT exemptions in Turkey provide even greater advantages, particularly for businesses eligible for such exemptions. VAT exemptions are categorized into two types: full exemption and partial exemption.

Taxpayers benefiting from these exemptions must be aware of their respective VAT exemption codes.

1- What Is Partial VAT Exemption in Turkey?

A business subject to partial VAT exemption in Turkey does not calculate or display VAT on the invoice for the goods or services it provides. Therefore, they cannot deduct these VAT amounts or pass them on to the final consumer. However, transactions subject to partial exemption are limited to specific situations. Some cases eligible for partial exemption in Turkey include transactions related to education, culture, social assistance, and military purposes.

The transactions covered under partial VAT exemption in Turkey and the partial exemption codes that must be stated on the invoice are determined according to the following provisions.