Main principles of VAT settlement in Turkey

Doing business requires attracting new customer groups. To this end, companies seek to enter new local markets in different countries. One attractive destination is Turkey. It is a country with a low average age of the population, which encourages investment. The decision to launch your company in a new market will also be dictated by tax policy, so it is worth having a look at how VAT is accounted for in Turkey.

Obligation to register and basic VAT rates

There is no VAT turnover threshold in Turkey. This means that anyone to carry out activities subject to the Turkish legal system is obliged to notify the local tax office. Registration for VAT in Turkey is mandatory, regardless of the status of the business and the nature of the transaction. Turkey VAT law provides for three groups of VAT rates. The standard VAT rate is 18%, in addition to which reduced rates are used: 8% i 1%. These are used for certain types of goods, for example, textiles.

Time limits for VAT returns

VAT returns in Turkey must be submitted by the 24th day of the month following the end of the accounting period. The tax itself must be paid on the 26th day of the same month. The returns should be submitted monthly, even if no transactions subject to VAT have taken place. They may be submitted electronically or on paper.

VAT reverse charge mechanism

Turkish tax rules include a VAT reverse charge mechanism, which requires the calculation of VAT by resident entities on payments to persons in foreign countries. Under this system, VAT is calculated and paid to the relevant tax authority by the resident entity. The resident entity treats this VAT as input tax and offsets it in the same month. VAT is not a tax charge for a resident or non-resident entity, except for its effect on the resident’s cash flow if there is insufficient output VAT to offset the input tax.

VAT exemptions in Turkey

There are free zones where companies are exempt from Turkey VAT. In addition, certain supplies of goods do not require VAT to be charged, for example, the purchase of equipment related to research or certain healthcare services. It is also possible to obtain an Investment Incentive Certificate, which allows for tax relief, or to obtain cash subsidies for newly established capital companies.

Cooperation with a specialized tax office

Due to changing legislation, running a business in Turkey requires constant updating of knowledge on applicable taxes. For this reason, many entrepreneurs choose to use a specialized tax office such as INTERTAX. In this way, a company can always operate in full compliance with the applicable law and optimize its revenues on an ongoing basis. This can be an important step to gaining a competitive edge in a foreign market.