According to VAT Law Article 8, VAT liability is originally on;
- seller of the product or provider of the service
- importer of goods or services
- carrying or customs responsible of the transit trade
- and some specially determined parties in the law (i.e. postage service provider, TV radio broadcaster etc.)
Accordingly, in sales transactions that take place in Turkey, seller of the service or product is liable with collecting and declaring the VAT on the transaction.
However, Article 9 of the same law defines Tax Responsibility as;
“In case the liable taxpayer does not have a legal or business center or workplace in Turkey and in other cases which Ministry of Finance finds necessary, other parties that are also involved in the transaction may be held responsible with the payment of the tax.”
With this power provided by the law, MoF determined different type of Withholding VAT mechanisms in Turkey. There are not voluntary basis application. Thus if a transaction falls under one of the below scope of services or deliveries, the withholding VAT application becomes mandatory.
A) Full Withholding VAT
- Services provided by non-residents: In case a service is provided or benefitted in Turkey, the recipient of the service is responsible to pay the VAT to tax office.
- Services and deliveries in the scope of professional service: In principle, if someone provides professional services regularly, then this person shall register for VAT purposes. However, in case this service is provided occasionally that is out of the taxation scope, again the taxpayer recipient of the service is responsible to pay the VAT.
- Rental services: Originally, rental services are in the
scope of VAT and service provider shall declare and pay VAT. But, in case the renter is not a taxpayer (similar to above) and the rentee is a taxpayer, the rental service VAT responsibility switches to the recipient of the service.
- Advertisement services: Similar to above, in case the service is received by taxpayers from non-taxpayers (listed in the communiqué), advertisement services fall into withholding VAT mechanism.
Please note that, above notes are high level explanations and each category has some special conditions determined in the communiqué.
Full Withholding VAT is declared and paid via VAT declaration no.2 and can be deducted in VAT declaration no.1 if standard VAT deduction conditions are met (i.e. periodicity condition, business relation condition etc.).
B) Partial Withholding VAT (VAT Split)
Some services and deliveries are subject to partial Withholding VAT in Turkey. For example, if a service is subject to 7/10 partial Withholding VAT, 70% of the calculated VAT should be paid by the recipient via VAT declaration no.2.
One of the criterias to determine whether the transaction shall be subject to withholding VAT or not is the nature of the service or delivery. Below list includes the general definition of the service or delivery but the Communiqué has further explanations to understand which services/deliveries fall in this scope.
The second criteria to apply withholding VAT is the recipient of the service or delivery. In some cases, all VAT taxpayers are determines as responsible but in some other cases, only a number of defined recipients are held responsible.
Below is the list of services that are subject to partial Withholding VAT in Turkey.
|Services Subject to Partial Withholding VAT||Split Rate||Delivered To|
|Construction works and engineering-architecture and survey-project services conducted with these works||3/10||Defined Recipients|
|Survey, planning-project and consultation, audit and similar services||9/10||Defined Recipients|
|Maintenance, modification and repair services for machinery, equipment, fixture and vehicles||5/10||Defined Recipients|
|Food service and organization services||5/10||Defined Recipients|
|Labor procurement services (including private security and protections services)||9/10||VAT Taxpayers and Defined Recipients|
|Construction audit services||9/10||VAT Taxpayers and Defined Recipients|
|Outsources textile and clothing works, bag and shoe sewing works and intermediary services to these works||5/10||VAT Taxpayers and Defined Recipients|
|Customer arrangement and transfer services rendered to touristic stores||9/10||VAT Taxpayers|
|Transactions of sport clubs involving broadcasting, advertising and copyright income||9/10||VAT Taxpayers and Defined Recipients|
|Cleaning, environmental and garden care services||7/10||VAT Taxpayers and Defined Recipients|
|Shuttle bus transportation services||5/10||VAT Taxpayers and Defined Recipients|
|All types of printing and typography services||5/10||Defined Recipients|
|Other services besides the above mentioned ones||5/10||Government Institutions|
Below is the list of deliveries that are subject to partial Withholding VAT in Turkey.
|Deliveries Subject to Partial Withholding VAT||Split Rate||Delivered To|
|Delivery of Bar Metals||5/10||VAT Taxpayers and Defined Recipients|
|Delivery of Copper, Zinc, Aluminum and Lead Products||5/10||VAT Taxpayers and Defined Recipients|
|Delivery of Scrap and Waste||5/10||VAT Taxpayers and Defined Recipients|
|Delivery of Raw Materials, Manufactured with Metal, Plastic, Rubber, Rubber Fabric, Paper and Glass Scrap Wastes||9/10||VAT Taxpayers and Defined Recipients|
|Delivery of Cotton, Angora, Wool and Leaf with Crude Hide and Leather||9/10||VAT Taxpayers and Defined Recipients|
|Delivery of Tree and Forrest Products||5/10||VAT Taxpayers and Defined Recipients|
Please note that above rates and services may be changed by MoF during the year, therefore before taking any action on the above, please get professional advice about up-to-date legislation.
Partial Withholding VAT is declared and paid via VAT declaration no.2 and can be deducted in VAT declaration no.1 if standard VAT deduction conditions are met (i.e. periodicity condition, business relation condition etc.).
C) Digital Services Withholding VAT
Please refer to our previous articles about Digital Service Withholding VAT mechanism in Turkey.
Digital Service Withholding VAT is declared and paid via VAT declaration no.3. by the digital service providers. This VAT cannot be recoverable (refundable or deductible) since these service providers are not full tax registered in Turkey.