As is known, a new VAT provision was introduced into the VAT Code and, pursuant to this provision, VAT arising from services provided electronically in return for payment by those without a residence, workplace, headquarters or business center in Turkey to individuals who are not VAT taxpayers must be declared and paid for by the service providers.
In our legal alert dated 29 December 2017, we also shared with you details of the Ministry of Finance's draft communiqué within the scope of this new VAT application.
The VAT Communiqué Amending General VAT Application Communiqué No. 17 (the "Communiqué") has been published in Official Gazette No. 30318 dated 31 January 2018. According to the Communiqué, the new VAT application entered into force as of 1 January 2018.
As some of the provisions in the Communiqué differ from its draft version, please take our below explanations as the basis for further details regarding the new VAT liability of non-residents supplying services electronically.
While the Communiqué's draft version included a section regarding the scope of electronic services, the Communiqué that entered into force did not provide any explanation regarding the scope of electronic services. It is currently unclear to us why the Ministry of Finance chose to remain silent on this topic.
What are the amendments?
1. VAT registration for non-resident electronic service providers
- If the services are supplied electronically through a permanent establishment in Turkey, the tax arising from these services must be declared and paid in line with general rules (through VAT Return No. 1).
- Electronic service providers falling within the scope of the Communiqué must declare the VAT arising from these services by way of a "Special VAT Registration for Electronic Service Providers."
- VAT arising from these services is declared electronically through VAT Return No. 3.
- Before submitting VAT Return No. 3 for the first time, these electronic service providers should fill out the form available on the Revenue Administration's website, www.digitalservice.gib.gov.tr. After this form is filled out and approved, a "Special VAT Registration for Electronic Service Providers" will be made on behalf of the non-resident service provider before the Large Taxpayers Tax Office. Upon registration, the taxpayer will be provided with a user code and password to be able to log onto the online tax office.
- Those who made a Special VAT Registration for Electronic Service Providers are not required to make a separate "work starting declaration"
- Those who made a Special VAT Registration for Electronic Service Providers are not required to have their VAT returns signed by certified public accountants without being subject to any limit.
- In cases where the electronic service provider is not explicitly indicated as the supplier and this is not reflected in the contractual arrangement between the parties, the invoices and similar documents issued do not explicitly identify the electronically supplied services and the supplier thereof, the VAT arising from these services supplied electronically will be declared and paid by those who act as the intermediary for the supply of these services. Those who are authorized to request payment from customers or set the general terms and conditions of the service or who are liable to supply these services are deemed to be electronic service providers.
2. Calculation of VAT
- Electronic service providers that made a special VAT Registration should calculate the VAT arising from their services supplied electronically to individuals who are not VAT taxpayers by applying the relevant VAT rate for these services.
- Those who made a Special VAT Registration are not obligated to keep legal books in line with the Tax Procedure Code.
- If those who made a Special VAT Registration for Electronic Service Providers received deliveries of goods and services from VAT taxpayers in Turkey in relation to such electronic services declared through VAT Return No. 3., they are allowed to benefit from the VAT deduction mechanism under Article 29/1 of the VAT Law, for the portion of the VAT shown on the invoices and similar documents related to such deliveries of goods and services they received from VAT taxpayers in Turkey.
- These invoices and similar documents should be maintained within the scope of the provisions of the Tax Procedure Code related to the maintenance and submission of books and records.
3. Declaration and payment
- Electronic service providers with a special VAT registration will declare the VAT arising from their services supplied electronically to individuals who are not VAT taxpayers, in Turkish lira on a monthly basis by the evening of 24th day of the following month through VAT Return No. 3 via the online tax office.
- However, the VAT related to services supplied electronically in January, February and March 2018 will be declared by these service providers between 1 April and the evening of 24 April through VAT Tax Return No. 3.
- If the service fee is determined in a foreign currency, the service fee will be converted into Turkish lira based on the buying rate of exchange declared by the Central Bank of the Turkish Republic on the Official Gazette published on the date the taxable event occurs. When converting foreign currencies that are not published in the Office Gazette, the current exchange rate will be taken into consideration.
- There is no requirement to submit a tax return for the periods where there is no service supplied electronically.
- VAT will be paid by the end of the 26th day of the same month of the declaration.
- This payment can be made to tax offices, banks authorized for tax collection or via the Revenue Administration's official website (www.gib.gov.tr) with bank cards of banks authorized to collect.
- Those who do not comply with the provisions related to VAT liability for services supplied electronically will be subject to tax penalties regulated under the Tax Procedure Code.