Turkey: Special VAT Return for Electronic Service Providers

published on 23 October 2019 | reading time approx. 4 minutes

According to the modification made in Article 9(1) of the VAT Law No. 3065 via VAT Communiqué Nr. 17., the VAT regarding the services provided in electronic environment by those that have no residency, business place, legal center and business center in Turkey to non-VAT registered individuals (B2C) shall be declared and paid by the providers of the service. The new regulation came into force on 1 January 2018. The companies who are in this scope are supposed to be registered at the online VAT tax office for electronic service providers.

1. Subject of the tax

Electronically supplied services provided by those that have no residency, business place, legal center and business center in Turkey to non-VAT registered individuals (B2C) are subject to VAT. These electronic services include online services like streaming music, films, gaming services, domain names, hosting, website and webpage support etc.

The non-resident service provider can take the online test on the internet site of the Turkish Tax Authority in order to be sure whether they are in scope of the special regulation for electronic services or not.

2. Taxpayer and their responsibilities

Foreign (non-resident) electronic service providers, who supply their services to non-VAT registered individuals in Turkey, have to be registered for VAT (VAT No. 3) purposes in Turkey and declare their output VAT. VAT No. 3 is the only VAT type which taxpayers can be registered only for one special type of tax in Turkey. The service providers in this scope must fill the form on Turkish Revenue Administration's website before filing the VAT return No. 3 for the first time.

Upon completing and filing the application form in electronic environment, "Special VAT Registration for Electronic Service Providers" will be registered in the name of the service provider at Large Taxpayers Tax Office Directorate. These taxpayers are not required to present “the start of business notification” in Turkey. The Administration recognizes the registration day as “starting of business”. After the registration, non-resident service provider are assigned user code, password and code for making transactions on Internet tax office. VAT-3 registered electronic service providers are not obliged to keep legal books according to the local regulation.

3. Declaration, Calculation and Period of Payment

The VAT return No. 3 has to be filed on monthly basis. The deadlines for filing and paying monthly VAT-3 returns is the evening of the 26th day of the following month. On the other hand, payment of the returns has to be done until 26th of the following month.

The currency in the VAT-3 return has to be in Turkish Lira. The tax payment of VAT-3 can be made on the web page using all DEBIT cards and only foreign bank credit cards. The payment has to make to tax authorities and collection authorized banks, as well as the internet address of the Revenue Administration (www.gib.gov.tr) with the bank or credit card of the banks authorized for collection.

In cases where the price is in foreign currency, the foreign currency must be converted into Turkish currency at the foreign currency buying rate of The Central Bank of The Republic of Turkey published on Official Gazette on the date of transaction. The respective currency rates are being announced previous day at 15:30 on the internet site of Central Bank of The Republic of Turkey.

Non-resident service providers are not required to have their returns signed by a professional intermediary or local CPA. The non-resident service providers calculate VAT over the rate specified for such services for the service they provide to non-VAT taxpayers in Turkey in electronic environment. Moreover, the overall rate for VAT in Turkey equals to 18 per cent. Non-resident service provider are not required to file tax return for the related term in case there is no transaction to declare.

If the electronic services are provided by establishing a workplace in accordance with Tax Procedure Law No. 213, the special VAT return is not needed to be filed. In this case, the companies in such condition is to be deemed as a regular taxpayer in Turkey. That is to say, that those companies have to fulfill any kind of tax liability in Turkey and have to keep all the legal books in Turkey.

4. Failure to Fulfill the Obligations

In case of failure to fulfill the obligation in the scope of Article 9/1 of the Value Added Tax Law No. 3065, tax penalties on the Tax Procedure Law No. 213 shall be applied to taxpayers. Tax loss penalties are imposed for the undeclared and unpaid taxes, which creates a loss for administration. In this case, tax loss penalty equals to the original tax amount. In other words, taxpayer will be liable to pay double of the tax amount. Special irregularity penalties are imposed for tax returns, which are not properly filed or are not filed on time. For 2019, the penalty amount is 1,900 TRY for a single tax return

5. Deductible VAT

In case a non-resident service provider obtains goods or services from a third party and if these obtained goods or services related with the services provided by the non-resident service provider to the B2C or B2B customer in Turkey, the related amount of VAT on obtained goods and services can be deducted while filing VAT return.

The VAT must be shown on invoices and similar documents that are issued for goods and services provided from VAT taxpayers in Turkey.

6. Modification on 1 January 2019

As of first of January 2018 the new rules for non-resident electronic service providers only applied on B2C transactions. B2B transactions continued to apply reverse charge mechanism and thus were not affected by the new regulations at all.

As from 1 January 2019 reverse charge still applied to B2B services, however from first of January 2019, non-resident service providers should as well declare their sales of electronic services to businesses. Declaration should be prepared as a list and uploaded to the system. The lists must be uploaded in the same period as the VAT return period.

The related list must contain following information:

Purchaser-Tax Registration Number
Purchaser- Name and Surname/Trade name (Mandatory)
Purchaser- Address
Currency of Payment (Mandatory)
Price of Service (Mandatory)
Payment Method (Mandatory)
Issued Invoice- Date (Mandatory)
Issued Invoice-Number (Mandatory)

7. Conclusion

Thanks to improvement in technology, the variety of commercial transactions is increasing day by day. Thus companies, who provide online services are given the opportunity to reach their end user around the world without any agent or intermediary.

According to the Turkish VAT law all kinds of goods and services delivered in Turkey are subject to VAT. Prior to this the new regulation tax authority in Turkey is not able to collect VAT from end users or from foreign service providers. On the other hand a local company who supplies an equivalent service is obligated to calculate VAT and fill VAT return monthly. The new regulation is issued, in order to avoid any inequality in competition.