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VAT Registration in Turkey

VAT Registration in Turkey

Updated on Tuesday 28th January 2020

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Katma Deger Vergisi (KDV) is the Turkish name for international VAT and it was introduced for the first time in 1985. The VAT must be paid for every good and service that is supplied in Turkey in the commercial, industrial and agricultural field. The VAT is also applied for professional activities and for the import of different products and services. Below, our lawyers in Turkey provide information on how the VAT is applied and how the registration process for VAT purposes must be completed. We can also help foreign entrepreneurs interested in opening businesses to register their companies in Turkey.

 

How does the VAT apply in Turkey?

 

The value added tax enters the category of indirect taxes in Turkey as it is applied by commercial operators to the price of the services and goods they sell, and then it is charged to the final consumer. Turkish companies selling goods and services will need to register for VAT, collect the amount of money corresponding to the product or service sold and then transfer it to the tax authorities. Companies collecting VAT in Turkey must comply with specific requirements, among which:

 

  • issue invoices to the clients, the invoices must clearly state the amount of money collected as a VAT;
  • keeping accurate accounting documents related to the collection and transfer of the VAT;
  • file tax returns through which any VAT amount paid in excess is recovered by the company;
  • respect the requirements imposed on the tax base under which the VAT is imposed.

 

It is advisable to talk to one of our lawyers in Turkey for more information on the legislation related to the imposition of the value added tax.

 

VAT compliance in Turkey

 

In order to pay the Turkish value added tax, individuals and companies supplying goods and services are required to register with the tax authorities and obtain a VAT number. The VAT will be imposed on specific transactions, among which the delivery of goods and services, the import and export of specific goods, rental activities, organization of lotteries or other games of chances, activities related to the organization of various events, such as concerts and sports activities, and the sale of goods and services.
 
An important aspect to be considered when it comes to VAT compliance in Turkey is that there is no minimum registration threshold in this country. This means that each taxpayer, no matter the amount of money charged as VAT, is required to register with the tax authorities.
 
 
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VAT rates in Turkey

 

The standard rate for VAT in Turkey is 18%, but there are reduced rates for some goods and services and exemptions.For the following products, the VAT is 8%:

 

  • food;
  • textile;
  • raw for products sold in pharmacies;
  • accommodation in tourism entities, such as motels, hotels or every other unit that offers similar facilities.

The lowest VAT rate is 1% and is available for some agricultural products. In Turkey, there are a few exemptions from VAT and they are related to exports, international transportation, roaming for clients outside Turkey, equipment delivered to entrepreneurs who own an investment incentive certificate and who pay VAT, specific services in harbors and airports. The government and other public entities can deliver goods for educational, cultural and health purposes without the obligation of paying VAT. The same exemption is valid for services in free zones and for banking and insurance transactions.

 

Goods exempt from the VAT in Turkey

 

Turkey is a very advantageous country from a taxation point of view, especially when it comes to the value added tax. This is because many goods and services are exempt from the VAT. In other cases, the VAT can be credited after it has been paid. The following goods and activities benefit from VAT exemptions in Turkey:

 

  • cultural and educational activities are exempt from the VAT if they are provided by public authorities, if they encourage innovation, or if they bring any improvements;
  • goods sold by sole traders who benefit from tax exemptions under the provisions of the Income Tax Act;
  • the delivery of goods produced by farmers, as long as they are exempt from taxation under the Income Tax Act;
  • incomes generated by real estate rentals, as long as the property is not a company’s asset;
  • the delivery of gold, silver, and other precious metals, as long as they are deemed as mass deliveries;
  • various goods and services destined for export, such as vehicles also benefit from VAT exemptions.

 

Turkey also has many free zones in which companies are exempt from the VAT. Among these, we name the Antalya Free Zone, the Istanbul Atatürk Airport FTZ, the Istanbul Stock Exchange (ISE) International Securities Free Trading Zone and the Corlu European Free Zone. Starting with 2018, a few changes have been brought to the VAT Law in Turkey. Among these, the most important ones refer to several VAT exemptions related to the delivery of goods to duty-free shops, the delivery of goods and services donated for the construction of public interest facilities such as schools and hospitals. Specific healthcare services offered to foreigners are also exempt from the VAT. The purchase of equipment and machinery used for research and development activities in specific zones are also on the list of VAT-exempted goods. Starting with 2019, the delivery of software for gaming activities in technology zones are also exempt from the value added tax in Turkey.

 

When is VAT registration required?

 

The registration for VAT is mandatory for both local and foreign enterprisers involved in commercial activities in Turkey. These are required to obtain a VAT number if:
 
  • they import goods into Turkey;
  • they export goods outside Turkey;
  • they supply services and goods in Turkey.

 

It should be noted that compared to other countries, there is no VAT registration threshold in Turkey, meaning there is no exception to companies delivering taxable products and services in this country.

 

VAT registration process in Turkey

 

A foreign investor who registers his company for paying the usual taxes doesn’t have to register separately for VAT. The obligation of registering for VAT is applied for investors in commercial, industrial, agricultural and other independent activities. This procedure must be accomplished before doing business in Turkey, no matter the country of residence of the entrepreneur. A foreign investor must register his company for taxes even if he opens a branch or a subsidiary of his parent company. If a foreign entity is not registered for paying taxes in Turkey, then the reverse charge mechanism is applied, but these companies can’t import goods or services into Turkey. When the entrepreneur has forgotten to register for taxes or he doesn’t respect the deadline, he can be fined. He will have to pay the double amount of the tax or penalties of 1.40% per month.

 

VAT registration requirements for foreign companies in Turkey

 

The VAT Law in Turkey requires foreign companies collecting the VAT in this country to register with the authorities through a representative agent. In other words, a foreign company which does not have an office in Turkey must appoint a Turkish resident to register it for VAT, as no direct registration is possible. The foreign company can appoint a natural person or another company to register it for VAT with the Turkish authorities. Our law firm Turkey can handle this procedure on your behalf if you are a foreign entrepreneur requiring such service.

 

Filing VAT returns in Turkey

 

All traders must file VAT returns on a monthly basis with the tax authorities. The return must be filed on the 24th of the following month and the tax must be paid by the 26th of the same month for the previous taxation period. This requirement must be fulfilled even if the company has not supplied any taxable goods or services. Local companies can recover the VAT paid in Turkey, however, this mechanism is not available for foreign companies with commercial activities here. Foreign companies can reclaim the VAT paid in Turkey only if the resident country has signed an agreement with Turkey for this purpose. At the moment, there are several countries in the EU which have signed such agreements. At the beginning of 2018, Turkey also enabled a new rule for foreign e-service providers which requires them to register for VAT here.
 

Short facts about double tax treaties in Turkey

 
The necessity of avoiding the double taxation on profits stands at the base of numerous double taxation agreements signed by Turkey with countries worldwide. The VAT, the corporate income tax, and the dividend tax are among the taxes protected by the above-mentioned double taxation agreements signed by Turkey. Estonia, Czech Republic, the Netherlands, Israel, Ethiopia, Finland, Greece, Latvia, New Zealand, Hungary, France, Singapore, Poland, Korea, Germany, Albania, Austria, Australia, Belarus, Norway, Montenegro, Saudi Arabia, Lebanon, Serbia and Montenegro, Malaysia, Japan, Morocco, Spain, Romania, Slovenia, Sweden, Croatia, Macedonia, Italy, Bulgaria, Qatar, and Thailand are among the countries with which Turkey signed double taxation agreements. The avoidance of double taxation can be made with the help of the deduction method for a company that paid the taxes in one of the countries, or the tax exemption method in the same conditions. For those wanting to know more about the taxes in Turkey, how the VAT is imposed and about the double taxation treaties, our lawyers in Turkey stand at their disposal.
 

Short facts about the corporate tax in Turkey

 
The corporate tax in Turkey is set at a 22% rate and it is among the lowest taxes in the world and a benefit for international investors interested in making business in this country. Just like in all countries that impose the corporate tax, this is the main tax in Turkey that owners of companies in this country need to consider. We remind that the corporate tax applies to the profits of companies with establishments in Turkey, except for the partnerships. Knowing the tax structure before engaging in a business in Turkey is mandatory for both local and international entrepreneurs, so complete guidance and information can be offered by one of our advisors. We can also provide accounting services, on request, for companies registered in Turkey.
 

Tax minimization tools in Turkey

 
Reducing the amount of taxes in Turkey enters the attention of foreign investors in this country who can consider the advantages of tax minimization methods available. All sorts of financial strategies can be implemented in the firm, with complete support of an advisor who must know the company and its expenses. In this sense, an experienced accountant can be hired for your company in Turkey and asked about the tax minimization tools that can be used in the firm. For instance, paying in advance a credit or a loan to cut a part of the fees or making a donation in assets or cash can be among the tax minimization methods that can apply in the company. Also, making investments in the company’s equipment can be subject to tax exemption. The reinvested profits in the company are not subject to taxation, so this might be a useful tax minimization tool for entrepreneurs with businesses in Turkey. If you would like to receive a correct and suitable business and an investment tax planning comprising tax minimization methods, do not hesitate to talk to one of our advisors.
 

Making investments in Turkey

 
Located on two continents, Europe and Asia, Turkey is an important business destination for international investors who want to generate profits in this part of the world. The economic stability and the wide range of opportunities are among the strongest points of Turkey when it comes to the interest of making investments. Alongside these, the skilled and trained workforce, the developed infrastructure and transportation, the low operational costs, the appealing tax structure, the simplified methods through which a company can be registered play a major role when deciding for business in Turkey. The agricultural and the tourism sectors are well-developed and two important areas that sustain the gross domestic product in Turkey. Below you can find interesting information and statistics about the investments and the economy in Turkey:
 
  1. Turkey is considered the second largest FDI recipient found in the western part of Asia, according to the UNCTAD 2019 World Investment report.
  2. Around USD 134,524 million was the total FDI stock for Turkey in 2018.
  3. World Bank ranked Turkey 43rd out of 190 worldwide economies.
  4. Most of the investors in Turkey come from a European country, but the USA is also an important player.
  5. Between January and March 2019, Turkey received most of the investments from Azerbaijan.
  6. Retail and wholesale trade are two important sectors where foreign investments are directed.
 
If you need more details about the VAT registration or any other information about the taxes in Turkey, you may contact our Turkish lawyers. You can also rely on us for complete business registration services in Turkey.