Turkey extends VAT to non-resident digital service suppliers

International digital service suppliers are now liable for Turkish VAT on supplies to consumers there after a pre-Christmas rule change by Turkey’s Revenue Administration.

Apr 4, 2018

International digital service suppliers are now liable for VAT on supplies to their consumers in Turkey. The first VAT returns, for digital supplies in the first quarter of 2018, are due by April 24.

Turkey digital services tax

The Turkish move was officially announced on December 5, and a Draft Communiqué (law) was released on December 22. The new rules came into effect on January 1, 2018. A Final Communiqué was released in Turkey’s Official Gazette on January 31, 2018. There were some significant changes between the Draft and Final Communiqués which we explore in more detail.

Turkey is the latest jurisdiction to extend its VAT system to cover cross-border digital services supplied by non-resident businesses. To date over 50 jurisdictions worldwide have introduced such rules. Indeed, at the turn of 2018 four tax jurisdictions — Turkey, Saudi Arabia, the UAE, and Belarus — all introduced new VAT rules aimed at non-resident digital service suppliers.

Impact on global digital businesses

As a result of the December 2017 move by the Turkish tax authorities digital businesses with a global reach need to understand that they are liable for applying, collecting, and remitting Turkish VAT (current standard rate of 18%) on their supplies to customers there.

The Final Communiqué revealed changes to four key aspects of the new rules. They are as follows:

1. Definition of affected services: The pre-Christmas Draft Communiqué provided extensive definitions of affected digital services. However, in the Final Communiqué, these definitions have been removed. This will, of course, cause uncertainty and complexity for affected non-resident digital service suppliers.

2. Role of Intermediaries: Intermediaries are liable for VAT declaration and payment. In the case of digital services provided through a telecommunication network, interface, or digital portal, then digital platforms are obliged to declare and remit the VAT due.

3. Deduction of VAT - B2B transactions: No VAT deduction was allowed to non-resident taxpayers in the Draft Communiqué. However, the Turkish tax authorities changed this approach in the Final Communiqué. stating that: “It is allowed for a non-resident taxpayer of digital services to deduct VAT from VAT payable if services and goods are obtained from those who have VAT liability in Turkey and VAT is shown on invoices and similar documents provided that VAT is related to the declared services under the special VAT liability of non-resident taxpayer of electronic services.”

4. VAT declaration and payment period: A one-off transitional payment period has been established in the Final Communiqué (rather than the first return on February 24). For services rendered in Q1 2018 by non-residents to customers based in Turkey one return can be filed on covering these supplies, the VAT must be filed by April 24. Thereafter VAT must be filed on a monthly basis 24 days after the filing period, e.g. VAT on supplies made in April must be filed by May 24.

Note that no changes have been made between the Draft Communiqué and the Final Communiqué on other issues such as FX, the declaration currency, whether a local agent is required, threshold level, and VAT rates to be applied.

Remember that VAT is only due on cross-border B2C supplies of digital services, however, the lack of a B2B validation system adds real-time complexity when attempting to distinguish between private customers and businesses.

Additional information

You can find more detail here from the Turkish tax authority.

The Final Communiqué can be found here.

The Turkish Revenue Administration’s registration portal is now accessible here. This portal was capable of accepting registrations as of from Wednesday, April 4. It is available in English and a simple registration process is in place.

The information contained in this publication (“Information”) has been provided to you for general information purposes only and we recommend that you obtain professional advice before acting or refraining from action as a result of the Information. Taxamo accepts no liability for any loss occasioned to any person acting or refraining from action as a result of the Information.