After a company is established before the relevant Chamber of Commerce, information that mentioned company is established is reported to the relevant Tax Office by the Chamber of Commerce. Upon the data sent, the tax office sends a tax inspection to the address where the company is registered within approximately one week following the establishment. The tax inspection is carried out without notice and the company representative is expected to be present at the address declared.
On the other hand, the companies’ tax identification shall be registered before the relevant Tax Office through an accountant. As post-establishment procedures will continue with the Tax Office, issuance of a Power of Attorney to a certified accountant while preparing the signature circulars through a notary public based in Turkey will be beneficial. The process of opening the companies’ tax registration is necessary to define the types and periods of taxes that the company will pay to the government, and is carried out by the relevant accountant upon providing required documents.
This is actually what we call VAT registration in Turkey. Although VAT registration should actually be defined as opening of the companies value added tax registration as a certain tax type only, it has become a term used for opening of companies tax registration in terms of all tax types the company will be obliged to pay such as withholding tax and corporate tax. On the other hand, it should be emphasized that a company that will employ insured employees must also create a Social Security Institution registration along with its VAT registration in Turkey.
What is VAT number in Turkey?
The complete Turkish equivalent of VAT number is “KDV numarası”. A VAT number can be defined as the tax identification number of a company established in Turkey. Businesses in Turkey that are VAT – registered are required to register for VAT in order to fulfill their tax obligations, such as submitting VAT declarations, issuing invoices, and collecting VAT.
In Turkey, the VAT number is obtained by applying to the Revenue Administration (GİB) by taxpayers, in accordance with the Tax Procedure Law. After the application process is completed, the relevant company receives a document containing information regarding its VAT number. This document is used during invoice issuance, declaration submission, and tax payment processes. Obtaining a VAT number is a legal obligation for all businesses that are VAT – registered.
How to obtain a VAT number in Turkey?
To obtain a VAT number, you need to apply to the Revenue Administration with the required documents. Since the procedures for opening the companies’ tax identification and obtaining a VAT number are complex, it will be beneficial for you to follow up with the transactions with a certified public accountant.
Application regarding obtaining a VAT number in Turkey shall be made with required documents such as a notarized copy of the articles of association, notarized copy of signature circular, original trade registry certificate, e-notification form, internet tax office password request, lease contract, certified public accountant contract, start/stop work form, and notarized copies of partners’ identity cards will be made by your certified public accountant.
After procedures at the tax office are completed, your VAT number will be determined, and a document related to your VAT number will be delivered to your certified public accountant. This document will contain all the information regarding the VAT number of the VAT registered company. When issuing invoices, submitting VAT, declarations, and performing other VAT – related transactions, you will be obliged to use your VAT number.
Turkish VAT registration for a foreign company
Value Added Tax is a type of consumption tax that is imposed on goods and services at each stage of the supply chain. Turkey, like many other countries, has a VAT system that is designed to generate revenue for the government. If you are a foreign company conducting business in Turkey and generate revenue from taxable supplies, engaging in taxable transactions within Turkey, you must register for VAT and comply with Turkish VAT regulations.
The registration process requires appointing a tax representative in Turkey and submitting various documents to the relevant tax office. The tax representative appointed will act as the foreign companies’ authorized representative in all tax-related matters, including VAT registration. The tax representative must be a Turkish national or a foreigner with a valid Turkish residency permit. Once a tax representative has been appointed, the foreign company must submit a VAT registration application to the relevant tax office.
The application must include various documents, such as a tax identification number, a copy of the companies’ articles of association, a copy of the companies’ trade registry gazette, and a copy of the tax representatives’ identification documents. The tax office will review the application and may request for additional information and/or documents if need be. Once the application is complete and all required documents are provided, the tax office will issue a VAT registration certificate for the company based in the foreign country.
What is the Reverse Charge Mechanism for Foreign Companies Conducting Business in Turkey?
For businesses providing services in Turkey but do not have a permanent establishment in Turkey, reverse charge mechanism will be applied. The reverse charge mechanism is a VAT collection method used in certain situations where the supplier of goods and/or services does not charge value added tax to the customer.
Instead, the customer is responsible for reporting and paying the value added tax to the relevant tax authorities. This mechanism is often used in cross-border transactions to avoid the need of suppliers to register for VAT in multiple countries.
In Turkey, the reverse charge mechanism applies to foreign companies that do not have a VAT registration in Turkey but provide taxable supplies to Turkish customers. Under this mechanism, the Turkish customer is responsible for reporting and paying the VAT to the tax authorities, rather than the foreign supplier. For example, if a foreign company provides consulting services to a customer based in Turkey, the customer based in Turkey must report and pay the value added tax on those services to the Turkish tax authorities. The foreign company does not charge VAT on the invoice and does not need to register for VAT in Turkey in that case.
VAT registration for a local company in Turkey
Companies with foreigner real person or legal entity partners established in Turkey must register for VAT and comply with Turkish VAT regulations. The registration process requires obtaining a potential tax identification number before company establishment both for the company to be established and for real person representatives of the company to be established, registering the company before the relevant chamber of commerce and submitting various documents to the tax office for obtaining TIN number and VAT registration.
The first step in the VAT registration process is to obtain a TIN (Tax Identification Number) from the relevant tax office. The TIN is a unique number that identifies the company for tax purposes. It is important to note that companies based in Turkey must obtain a TIN before they can start conducting business in Turkey. Once the TIN has been obtained, the company can proceed with the VAT registration process.
The company based in Turkey must submit an application to the relevant tax office along with various documents, such as a compy of the companies’ AOA, a copy of the companies’ trade registry gazette, and a copy of the companies’ bank account information. The tax office will review the application and once the application is complete, the tax office will issue a value added tax registration number for the company. After receiving the VAT registration certificate, the company must start complying with Turkish VAT regulations including charging VAT on taxable supplies, issuing invoices with VAT, submitting VAT returns to the tax office, etc.
It is important to note that, companies must be aware of their VAT reporting obligations. Value added tax returns must be submitted to the tax office ona monthly or quarterly basis, depending on the companies’ turnover. The VAT return must include details of all sales and purchases made during the reporting period. It is important to note that all tax obligations can be followed up easily with a certified public accountant.
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How does the VAT apply in Turkey?
The Value Added Tax system in Turkey is governed by the 3065 numbered Value Added Tax Law and its implementing regulations. The standard VAT rate in Turkey is currently 18%, but there are also reduced rates of 8% and 1% for specific goods and/or services. The reduced rates are generally applied to essential items such as food, medicine and books.
VAT rates in Turkey
The standard VAT rate in Turkey is 18%. However, there are also reduced VAT rates that apply to certain goods and/or services. 8% VAT rate is for various consumption goods and services including food and beverage services, and products such as soap, detergent, shampoo, baby diapers and for products used to separate and cleanse some basic consumption goods.
On the other hand 1% VAT rate is set for certain basic or essential food and beverage by 5189 numbered Presidential Decree which is published in 13/02/2022 dated and 31749 numbered Public Gazette, such as bread, milk, butter, sugar, mineral waters and eggs. It is important to note that some goods and/or services are exempt from VAT.
Books that are stored within the stocks of the publishers or that will be published, to be sold to distributors or bookstores as wholesale OR to be sold through e-commerce platforms or directly from publishing houses to real person consumers that are not taxpayers are exempt from VAT as of 1 February 2019 under Article 13/n of the Law No. 2065.
Again for example diagnosis, treatment, rehabilitation and preventive medicine services provided to foreign nationals who do not have citizenship ties with the Republic of Turkey and who are not settled in Turkey according to Income Tax Law No. 193 are exempted from VAT. VAT rates change swiftly in Turkey and depends on the type of service or product to be obtained.
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The content of the invoice in Turkey
Invoices to be issued in Turkey shall be in accordance with regulations such as 3475 numbered Tax Procedure Law and 193 numbered Income Tax Law. There are key components an invoice issued in Turkey shall contain. The invoice must include a word indicating that the document is an original invoice at the top of the page in bold and with capital letters.
The invoice must include also the name, address and tax identification number (TIN) of the seller and if the seller is a legal entity, the invoice must also include the trade registry number and the registered address of the company.
The invoice must include the name, address and TIN of the buyer also. If the buyer is a legal entity, the invoice must also include the trade registry number and the registered address of the company. Each invoice must have a unique number and date of issuance.
The invoice must describe the product or service being sold to the buyer in detail, including the quantity, unit price and total price. The invoice must also contain tax information. In other words it shall include the tax rate to be applied to the sale, along with the amount of tax charged. The invoice must also show the net and gross amounts of the sale.
The invoice must include payment terms agreed upon between the seller and the buyer, including the payment due date, payment terms, and discounts offered along with service date or delivery date of the good. Finally an invoice issued in Turkey also shall include the electronic signature of the seller. It is important to note that content of an invoice might change as per invoice type to be issued as per law such as export invoices, note of expenses, self-employed invoices.
Filing VAT returns in Turkey
VAT refund in Turkey refers to the reimbursement of the VAT amounts paid by taxpayers under certain conditions. VAT refunds do help businesses regulate their cash flow and reduce their costs. To get a VAT refund in Turkey, you must be a taxpayer and have applied for a VAT refund through one of the e-İrsaliye or e-Fatura systems. When making your application, you must indicate that you are requesting a VAT refund, taking into account your VAT declaration.
Your VAT claim will be reviewed and approved by the Tax Administration Presidency, and if approved, your VAT refund will be processed. Companies can claim a VAT refund either through the VAT return or through a separate application to be made to the tax authorities. The deadline for filing a VAT return in Turkey is the 24th day of the following month.
There are exceptions in Turkish law system where the input VAT in the absence of transactions subject to VAT can be refunded to the taxpayer upon applicaiton. Companies that export goods and services outside of Turkey can claim VAT refund on the input VAT paid on purchases related to these exports. Companies that import goods into Turkey for processing or manufacturing purposes and then re-export them can claim a VAT refund on the import VAT paid.
This scheme is known as inward processing relief (IPR). Diplomatic exemptions and internal organizations that are exempt from VAT can claim a refund on the VAT paid on goods and services used in their official activities in Turkey.
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Tax minimization tools in Turkey
There are several tools that companies can use to minimize their tax liabilities while staying within the legal framework. One of the most common tax minimization tools in Turkey is tax deductions. Turkish tax law allows businesses to deduct expenses related to their business activities, such as salaries, rental expenses and equipment purchases.
By deducting these expenses, companies can reduce their taxable income and as a result lower their tax liability. Another common tax minimization tool is benefitting from tax credits. Tax credits are incentives provided by the government to encourage certain activities or behaviors that are beneficial to the economy.
For example, companies that invest in research and development or hire employees with disabilities may qualify for tax credits. These credits can be used to offset tax liabilities or carried forward to future tax years.
Another tool that businesses can use to minimize their tax liability in Turkey is transfer pricing. Transfer pricing involves setting the price of goods or services transferred between affiliated companies at arm’s length to ensure that the transactions are conducted on a fair and equitable basis. By setting transfer prices appropriately, companies can allocate profits to low-tax jurisdictions and reduce their overall tax burden.
Companies in Turkey can also take advantage of tax treaties between Turkey and other countries. Tax treaties are agreements between countries that regulate how taxes are levied on individuals and businesses that operate across borders.
These treaties can help companies avoid double taxation, where the same invome is taxed twice in two different jurisdictions. Double taxation can occur in different scenarious. For example, a Turkish company that has a subsidiary in the US may have to pay taxes on the same profits both in Turkey and the United States.
Tax treaties can provide relief from such double taxation by determining which country has the right to tax certain types of income and limiting the tax rate that each country can apply. Lastly, businesses in Turkey can consider using tax planning services. Tax planning involves working with tax professionals such as certified public accountants to optimize a companies’ tax strategy and ensure compliance with tax laws and regulations.
Tax planning can involve identifying tax incentives, restructuring a companies’ operations, or developing strategies for minimizin tax liabilities. By utilizing the tools stated herein, businesses can optimize their tax burden, improve their cash flow and enhance their bottom line.
Making Investments in Turkey
Turkey is a country located at the crossroads of Europe, Asia and the Middle East, making it a strategic hub for trade and commerce. In recent years, the country has taken steps to create a more favorable investment environment which has led to increased interest from foreign investors. There are many reasons why investing in Turkey can be a smart move for businesses looking to expand their global reach.
If you are willing to obtain information before investing in Turkey, you can review our Article, International Foreign Investment Law and ask our lawyers in Turkey specialized on foreign investments, company establishment and tax law. You can also visit our firms Blog and our Article Commercial and Corporation Law and obtain detailed information on company formation which are taken up comprehensively by our lawyers based on company types.
MESCI Law Firm is one of the most prominent law firms in Turkey, which has been providing legal services to its clients for over a decade. Mesci Law Firm has a strong reputation for providing high-quality legal services, which is reflected in its extensive client base. The firm serves a wide range of clients, including foreigner multinational corporations, small and medium-sized enterprises, start-ups, and individuals.
Legal services of our law firm in Istanbul are comprehensive and cover all aspects of business and commercial law. The firm provides legal advise and assistance on matters such as company formation, mergers and acquisitions, commercial contracts, intellectual property rights, labor law, dispute resolution and regulatory compliance among others. The firms lawyers have extensive experience in representing clients in court and alternative dispute resolution forums, such as arbitration and mediation.