Article 9 the Turkish Value Added Tax (VAT) Law on the “Party Liable for Tax” was amended in 2017. New amendment stipulates that VAT arising from services provided electronically by those without a residence, workplace, headquarters, or business centre in Turkey to individuals in Turkey who are not VAT taxpayers must be declared and paid by the non-resident e-service providers.

Off-shore sale of physical goods is not within the scope of the new VAT regulation, but it is already regulated in earlier legislation. Thus, any person in Turkey, either a business person or a real person who is not a VAT taxpayer, must withhold, declare and remit the VAT of the off-shore sales on behalf of foreign merchant under the existing VAT legislation. Accordingly, no amendments were made regarding VAT implementation for the sale of physical products.

What types of electronic services are subject to VAT in Turkey?

Services supplied through the internet or an electronic network are subject to VAT and VAT rate is determined based on the services type.

In Turkey, Standard VAT rate is 18%; reduced rates are 1% (e.g. newspapers and magazines, basic foodstuff) and 8% (e.g. e-books, pharmaceuticals, medical products). In this context, reduced tax rates for the digital goods and services are also applicable.

Electronic services include online services like streaming music, films, gaming services, domain names, hosting, website and webpage support etc.

Who is responsible for new VAT Declaration?

Non-resident electronic service providers falling within the scope of the new VAT regulations will declare the VAT arising from these services by way of a "Special VAT Registration for Electronic Service Providers No.3. The VAT return will be electronically submitted through VAT Return No. 3 via the internet tax office.

How to submit VAT Declaration?

Before submitting VAT Return No. 3 for the first time, non-resident electronic service providers must fill out the form available on the Turkish Revenue Administration's website, https://digitalservice.gib.gov.tr/

The Service is currently on air and it is possible for non-resident electronic service providers falling within the scope of the new VAT regulations to register via Revenue Administration's website.

How often do non-resident electronic service providers need to report to the Turkish tax authorities?

Under the existing legislation the VAT return period of taxpayers who registered as “Special VAT Registration for Electronic Service Providers” is monthly. Filing deadline is by the 24th day of the month following the taxation period.

However, the VAT Communiqué provided a transition period and made it possible to declare first VAT return in the April. Thus, non-resident electronic service providers will declare the transactions they have made in January, February, and March of 2018 with the VAT Return No. 3 to be filed until 24th of April.

There is no requirement to submit a tax return for the periods where there is no service supplied electronically.

VAT will be paid in Turkish Liras by the end of the 26th day of the declaration period. In this regard, the first VAT will be paid on 26th April by non-resident electronic service providers.

VAT return must be filled in Turkish Lira, as well, and mandatory FX rate is the daily exchange rate (BUYING) of the relevant currency which is announced by the Central Bank of Republic of Turkey in the Official Gazette.

Which VAT rate should non-resident electronic service providers apply to their supply of electronic services?

Standard VAT rate is 18%; reduced rates are 1% (e.g. newspapers and magazines, basic foodstuff) and 8% (e.g. books, pharmaceuticals, medical products).

Accordingly, the standard VAT rate of 18 % is also applicable for digital goods and services including foreign supplied ones. However, there are also reduced tax rate applicable for the digital goods and services.

Are there any penalties for late filing?

It is stated in the recent VAT Communiqué that late filings will be subject to tax penalties regulated under the Turkish Tax Procedure Code. A tax penalty (special irregularity fine) will be charged to non-complaints. The amount of tax penalty depends on the case.

Take Away

Turkish Tax Authorities has provided a transition period for the first VAT declaration of non-resident tax payers. Accordingly, first VAT declaration will be made for the first quarter of 2018 and it will cover 3 months transactions of non-resident electronic service providers.

In line with the first implementation period, which is an exception, VAT of first quarter (January-April 2018) will be paid by the end of the 26th April. However, after exception period VAT returns will be submitted, and VAT will be payable monthly.

Based on this fact, it is highly advisable that electronic service providers must initially fill out the form available on the Revenue Administration's website, https://digitalservice.gib.gov.tr/

After this form is filled out and approved, a "Special VAT Registration for Electronic Service Providers" will be made for the non-resident electronic service provider before the Large Taxpayers Tax Office in Istanbul. Upon registration, the taxpayer will be provided with a user code and password to be able to operate in the internet tax office.

We recommend that non-resident electronic service providers take the necessary actions to comply with the new VAT obligations in Turkey.