Taxes if you’re doing business in Turkey from outside the country
If you are selling goods or supplying services in Turkey, you will always have some interaction with the Turkish tax authorities and you are likely to have to pay some taxes in Turkey.
This is a complicated subject and the detailed arrangements are well outside the scope of this guide; so you would be well advised to consult a Turkish accountant or tax adviser before you start your activities so that you can make sure that you are complying with the rules and choosing the most tax-efficient options.
There are two basic taxes that you need to think about:
Turkey charges VAT on the supply of most goods and services. A number of different rates apply: 18% for most items; 8% for basic foodstuffs, books, medical supplies etc; and a super-low rate of 1% for agricultural products and newspapers.
Your position will also depend upon the interaction between the VAT rules in your own country (if you operate a VAT system there) and those in Turkey.
Because of the growing volume of international transactions, there has been quite a lot of harmonisation between the countries that use the VAT system. These rules change fairly frequently and so you will need to keep abreast of developments, both in your own country and in Turkey. Fortunately, because the rules are harmonised, it is quite likely that any relevant changes relating to Turkey will be flagged up in the information supplied by the VAT authorities in your own country.
For the purposes of the illustration in this guide, I am assuming that your business is based in the UK. If you’re based elsewhere, many of the same general principles will apply, but there are likely to be some differences – possibly substantial.
Goods – VAT in the country that supplies the goods
There is no UK (EU) VAT payable in respect of any goods sold to Turkey, whether they are sold to a business or to a private individual. Such sales are ‘zero-rated’ for VAT purposes.
However, you need to comply with certain rules.
You can only zero-rate the sale if you get and keep evidence of the export, and comply with all other laws. You must also make sure the goods are exported, and you must get the evidence of this within three months from the time of sale.
You mustn’t zero-rate sales if your customer asks for them to be delivered to a UK or EU address. If the customer arranges to collect them from you, an ‘indirect export’, you may be able to zero-rate the sale as long as certain zero-rating conditions are met.
Goods – VAT liability in Turkey
The importation of goods into Turkey is subject to VAT. Only registered taxpayers can import the goods into Turkey and act as an importer. The importer is liable for VAT, customs duties and any Special Consumption Tax (if applicable). In a normal importation, the importer must have acquired the title of the goods.
This means that if, as is normal, you export your goods to Turkey to a local Turkish distributor, who in turn then sells them in Turkey, that distributor will have to pay VAT on the goods when they arrive in Turkey.
Services – VAT in the country that supplies the services
There is no UK VAT charge on any services supplied to Turkey if the ‘place of supply’ of your service is not in the EU.
For EU VAT purposes, the place of supply of a service is the place where it’s liable to VAT (if any). There are a number of place of supply rules for working out where services of different kinds are supplied, for example:
- Where the place of supply of services is in a member state of the EU, that supply is subject to the VATrules of that member state and not those of any other country.
- If the member state is not the UK, such supplies are said to be ‘outside the scope’ of UK VAT.
- Where the place of supply of services is outside the EU, that supply is made outside the EU and is therefore not liable to VATin any EU member state (although local Turkish taxes may apply). Such supplies are said to be ‘outside the scope’ of both UK and EU VAT.
For most supplies of services, the place of supply is decided by what is known as the ‘general rule’.
If you supply services to a business customer, the place of supply is in the place where the customer belongs. In this case, Turkey. Such services will be outside the scope of UK or EU VAT.
If you supply general services to a non-business customer (such as a private individual buying them for their personal use), the place of supply is in the place where you belong. In this case, the UK. However, some special services are treated as supplied in the place where the customer belongs. In this case, Turkey. These special services would, therefore, be outside the scope of UK or EU VAT.
These special services include:
- Transfers and assignments of copyright, patents, licences, trademarks and similar rights
- Acceptance of any obligation to refrain from pursuing a businessactivity
- Advertising services
- Services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services – data processing and provision of information, other than any services relating to land
- Banking, financial and insurance services
- The provision of access to, or transmission or distribution through, natural gasand electricity systems and heat or cooling networks and the provision of other directly linked services
- Supply of staff
- Lettingon hire of goods other than trucks or other means of transport
The detailed rules can be very complicated and you should seek advice from your accountants ‘back home’ and in Turkey before deciding upon your course of action.
Services – VAT in Turkey
According to the Turkish VAT law, where services are supplied from a foreign country but used in Turkey, the transaction is deemed to be performed in Turkey and it is subject to Turkish VAT.
The VAT is payable through a ‘reverse charge mechanism’ if services purchased from a foreign supplier are performed in Turkey; or if services rendered abroad are enjoyed in Turkey and where the recipient of the payment (that is service provider) is not a tax registered entity in Turkey.
In such a case, the Turkish purchaser is liable to account for the VAT due on behalf of the foreign supplier.
Taxes on profit
If you are supplying goods from outside Turkey, you will not have to pay any tax in Turkey on any profit your company makes from the sale of those goods.