VAT in Turkey, known locally as KDV, is an indirect tax applied to supplies of goods and services carried out within commercial, industrial, agricultural and professional activities. Imports of goods and certain cross-border transactions may also fall within the scope of Turkish VAT. Companies should therefore determine which transactions are taxable and which rates apply before commencing their activities.
Knowing the standard VAT rate alone is not sufficient for correct taxation. The nature of the goods or services, the place and timing of the transaction, the tax status of the parties and any applicable exemptions must be assessed together. Mistakes concerning Turkish VAT can directly affect invoices, sales prices, tax returns, cash flow and input VAT accounts.
What Is Value Added Tax in Turkey?
Value Added Tax is an indirect consumption tax applied to the value created throughout the production and distribution process, from the initial supply to the final consumer. Companies calculate VAT on their taxable sales and show the amount separately on the invoices they issue. Subject to the applicable legal requirements, they may deduct VAT paid on business-related purchases from the VAT calculated on their sales.
The amount payable to the tax authority is generally the difference between output VAT calculated on sales and deductible VAT incurred on purchases. However, Turkey’s system may differ from those of other countries in terms of tax rates, exemptions, withholding arrangements, reverse-charge declarations and documentation requirements. A VAT treatment used in another jurisdiction should therefore not automatically be assumed to apply in Turkey.
What Is the VAT Rate in Turkey?
The standard VAT rate in Turkey is 20%. Reduced rates of 10% and 1% apply to goods and services specifically listed in the legislation. The applicable rate cannot be determined solely from the commercial name of a product. Its characteristics, intended use, position within the relevant statutory lists and, where necessary, customs tariff classification must also be considered. The current legal framework is outlined in the VAT rates table published by the Turkish Revenue Administration.
The applicable rate should ideally be established during the contract and pricing stage. Applying a rate lower than required may result in additional tax assessments, late-payment interest and tax penalties. Charging an unnecessarily high rate can lead to invoice corrections, customer reconciliations and refund procedures. Particular care is required for bundled services, product packages, accommodation, food and beverage services and real estate transactions.
The Standard VAT Rate of 20%
The standard 20% rate applies to taxable supplies of goods and services that are not covered by a reduced rate or VAT exemption. Many commercial products, consultancy services, software services, technical services, rental transactions and other business activities may fall within this category. However, companies should not automatically assume that every service is subject to 20% VAT. The place of supply, potential exemptions and VAT withholding requirements should also be reviewed before an invoice is issued.
Reduced VAT Rates of 10% and 1%
The reduced rates of 10% and 1% may only be applied to goods and services expressly identified in the legislation. The 10% rate may apply to certain accommodation, food and beverage, healthcare, education and passenger transportation services. The 1% rate may apply to selected staple food products, certain residential property supplies and other specifically regulated transactions. Companies should review product characteristics, the actual nature of the service, current statutory lists and special conditions before using a reduced rate.
Which Goods and Services Are Subject to Different VAT Rates?
While the 20% rate represents the standard treatment, the 10% and 1% rates apply only to goods and services included in the relevant statutory lists. Technical characteristics and tariff classifications may be decisive for goods. For services, their actual economic nature generally takes precedence over the description used in the contract. Giving a transaction a different name on an invoice does not make it eligible for a reduced rate if its underlying nature remains unchanged.
The following table provides a general framework. Specific conditions, temporary regulations, intended use and the tax status of the parties should be assessed separately for each transaction. Bundled products and services, accommodation packages, food and beverage transactions, real estate and healthcare services may require each component of the transaction to be examined individually.
| VAT rate | General area of application | Points requiring review |
| 20% | Goods and services not subject to a reduced rate | Nature and place of the transaction, exemptions and withholding |
| 10% | Certain services and goods included in the relevant lists | Scope of the statutory list and special application requirements |
| 1% | Selected essential products and specially regulated transactions | Product classification, intended use and statutory conditions |
When Does VAT Become Relevant for Companies in Turkey?
VAT for companies becomes relevant as soon as a taxable commercial transaction is carried out in Turkey. Sales of goods, provision of services, rental transactions, imports and certain cross-border services may create VAT obligations. The absence of profit does not eliminate these obligations. A newly established or loss-making business may still be required to issue invoices for taxable sales and submit the relevant returns.
To determine the correct treatment, the place of the transaction and the date on which the taxable event occurs must first be identified. The company should then assess whether the transaction is subject to VAT, which rate applies, whether an exemption is available and which party is responsible for declaring the tax. Advance payments, partial supplies, long-term projects and transactions between related companies may require additional analysis.
VAT on Supplies of Goods and Services
For domestic supplies of goods, VAT generally becomes chargeable when the goods are delivered. If an invoice or a similar document is issued before delivery, the taxable event may occur earlier, limited to the amount shown in the document. For services, the time at which the service is completed and documented is important. Tax periods for partial supplies, advance payments and continuous services should be reviewed separately, while contracts, invoices and accounting procedures should remain consistent.
VAT on Imports and Cross-Border Transactions
VAT on imported goods is generally calculated and collected during customs clearance. The taxable amount may include the customs value of the goods, customs duties and other amounts required by law to be included in the VAT base. For cross-border services, companies must determine where the service is supplied, where it is used and which party is responsible for declaring the tax. Services purchased from a foreign business and used in Turkey may create a reverse-charge VAT obligation.
What Are the VAT Obligations of Companies in Turkey?
Companies must fully document their taxable transactions, apply the correct tax rate and declare VAT in the appropriate period. Key obligations include issuing legally compliant invoices, reconciling purchase and sales documents with accounting records and reporting exemptions and withholding transactions using the correct codes. Depending on the field of activity, gross sales revenue and other statutory criteria, electronic documentation systems such as e-Invoice and e-Archive Invoice may also become mandatory.
As a general rule, the regular VAT return must be submitted by 11:59 p.m. on the 28th day of the month following the relevant tax period, and the assessed tax must be paid within the filing period. The general deadline for reverse-charge VAT returns is the 25th day of the following month. Public holidays and specific extensions should also be considered. Current deadlines can be checked in the filing and payment schedule published by the Turkish Revenue Administration.
Issuing Legally Compliant VAT Invoices
A legally compliant invoice must clearly describe the transaction and include all mandatory information. The details of the seller and buyer, invoice date and number, nature of the goods or services, taxable base, applicable VAT rate and calculated tax amount must be correctly stated. Relevant explanations and codes should be used for exempt or VAT-withholding transactions. Because incorrect invoices may affect both the seller’s declaration and the buyer’s right to deduct VAT, documents should be reviewed before they are recorded.
Filing VAT Returns and Paying the Tax Liability
When preparing a VAT return in Turkey, output VAT on sales, deductible VAT on purchases, exemptions, withholding amounts and adjustment items must be reported in the appropriate sections. If output VAT exceeds deductible input VAT, a tax liability arises. If input VAT is higher, the difference does not automatically create a cash refund entitlement and may instead be carried forward. VAT refunds may only be requested for transactions specified in the legislation and upon submission of the required documents and electronic lists.
How Does Input VAT Deduction Work in Turkey?
Input VAT deduction in Turkey allows a company to offset VAT paid on business-related purchases against VAT calculated on its sales. To claim the deduction, the expenditure must be connected with the company’s commercial activity, supported by a legally compliant document and recorded in the statutory books within the permitted period. Private expenses, non-deductible costs and expenditure connected with certain exempt transactions may be wholly or partially excluded.
The tax period in which the deduction is claimed and the date of accounting recognition are also important. Purchase invoices should be reviewed, recorded and reconciled with supplier accounts in a timely manner. If deductible input VAT exceeds output VAT, the difference is generally carried forward to later periods. A cash or offset refund is only possible where the law provides a refund entitlement and all required supporting documents are submitted.
Which VAT Rules Apply to Foreign Companies?
VAT liability in Turkey may also affect companies headquartered outside the country. The nature of the transaction, place of supply, existence of a Turkish company or permanent establishment and tax status of the customer are decisive. Imports, local supplies, cross-border services used in Turkey and electronic services supplied to consumers may create different registration, declaration or reverse-charge obligations.
Foreign companies should analyse their contractual and supply chains before commencing business. They should determine which entity acts as the seller, who imports the goods, where the service is used and which party must declare the VAT. Incoterms, invoice currency and cost allocations between group companies may also affect the treatment. The absence of a permanent establishment in Turkey does not automatically place a transaction outside the Turkish VAT system.
VAT Obligations When a Company or Permanent Establishment Exists in Turkey
A company incorporated in Turkey generally invoices and declares its taxable transactions under the standard Turkish VAT rules. A foreign company’s permanent establishment may also face local invoicing, bookkeeping, documentation and filing obligations depending on its activities. Transactions between the Turkish operation, foreign head office and other group companies must be reviewed separately. A conclusion should not be based solely on the foreign location of the parent company without assessing the functions performed, contractual arrangements and actual flow of services.
Reverse-Charge VAT on Services Received from Abroad
When a service is obtained from an entity with no residence, workplace, registered office or place of management in Turkey and the service is used in Turkey, the Turkish recipient may be required to declare VAT under the reverse-charge mechanism. Subject to the applicable requirements, the recipient may also recognise the declared amount as deductible input VAT. The treatment depends on the nature and place of use of the service, the status of the parties and whether the transaction qualifies for an exemption.
Which Transactions Are Exempt from VAT in Turkey?
Turkish VAT legislation provides exemptions for certain transactions. Exports of goods and services, some international transportation activities, diplomatic supplies, selected transactions under investment incentive programmes and certain specifically regulated financial or commercial transactions may qualify. However, an exemption should not be applied based solely on the general description of the transaction. Both the substantive conditions and documentation requirements must be fulfilled.
The distinction between full and partial exemptions is also important for input VAT purposes. VAT incurred in connection with transactions covered by a full exemption may remain deductible or refundable under certain conditions. For partial exemptions, deduction of the related input VAT may be restricted. The scope of exemptions, required documentation and refund procedures are set out in detail in the VAT General Application Communiqué.
VAT Exemption for Export Transactions
For the export exemption to apply to goods, the products must physically leave the Turkish customs territory and the company must possess documents proving the export. Service exports are subject to additional requirements, including that the service must generally be provided for a customer abroad and used outside Turkey. Issuing an invoice to a foreign company is not sufficient on its own. Contracts, customs records, payment documents and evidence of where the service is used should be documented consistently.
VAT Exemptions for Certain Investments and Business Transactions
Supplies of certain machinery and equipment included in a valid investment incentive certificate may be exempt from VAT when the applicable conditions are fulfilled. The exemption should only be used for the investment, investor and eligible assets specified in the certificate. Before issuing an invoice, companies should check the validity period of the certificate, the machinery and equipment list, documents to be presented to the seller and any reporting obligations. Applying an exemption to an ineligible transaction may result in additional tax assessments and penalties.
Which VAT Mistakes Should Companies Avoid in Turkey?
Common mistakes include applying the wrong VAT rate, issuing incomplete invoices, filing returns late and deducting input VAT without sufficient documentation. Applying exemptions without the required evidence or failing to assess services received from abroad for reverse-charge VAT may also create significant risks. Assuming that every invoice issued to a foreign customer is automatically VAT-exempt can produce incorrect results, particularly for service transactions.
Other sources of error include discrepancies between electronic invoices and accounting records, failure to process adjustments for returns and price differences and unreconciled purchase and sales accounts. Contracts should clearly state whether prices include or exclude VAT. Reviewing complex or unusual transactions before a contract is signed can help prevent the need for subsequent corrections to invoices and previously submitted tax returns.
How Does STB CPA Turkey Support Companies with Their VAT Obligations?
STB CPA Turkey supports companies in assessing taxable transactions, determining the correct VAT rate and reviewing the required documentation. Its tax services can be integrated with a company’s operational and invoicing procedures. The work focuses on applying the regulations correctly, maintaining traceable accounting records and fulfilling filing obligations within the applicable deadlines.
Support may cover domestic transactions as well as imports, exports and cross-border services. Relevant contracts, invoices and transaction chains are evaluated according to their economic substance. VAT accounts can also be reconciled with purchase and sales records through accounting and financial reporting services. This approach helps identify discrepancies and necessary corrections before the VAT return is submitted.
Reviewing the Applicable VAT Rates
The review begins by determining whether a transaction falls within the scope of the Turkish VAT system. The nature of the goods or services, reduced rates, exemptions and withholding requirements are then assessed. STB CPA Turkey can also review whether invoice descriptions, product classifications and contractual terms are consistent with the applied tax treatment. This is particularly useful for new products, bundled services and cross-border business models, where an incorrect VAT treatment may create additional tax liabilities.
Support with VAT Returns and Input VAT Deductions
When preparing a return, sales transactions, purchase invoices, exemptions, withholding amounts and adjustments are compiled according to the relevant tax period. The underlying accounts and supporting documents should be reconciled before submission. For input VAT deductions, the business purpose of the expenditure, validity of the document and recording date are reviewed. Where a transaction creates a refund entitlement, the required VAT lists and application documents must also be prepared completely and reconciled with the amounts declared.
Frequently Asked Questions About VAT in Turkey
The following answers provide a general overview of common VAT questions faced by domestic and foreign companies. Because contractual terms, place of supply, product classification, customer status and exemption conditions may change the result, each transaction should be assessed according to its specific characteristics.
Do Foreign Companies Have to Pay VAT in Turkey?
Foreign companies may incur Turkish VAT or create local obligations when they import goods, carry out local supplies or provide taxable services in Turkey. If the foreign business does not have a company or permanent establishment in Turkey, the Turkish recipient may be required to declare VAT under the reverse-charge mechanism for certain services. Special registration and filing rules may apply to electronic services supplied to Turkish consumers. The result depends on the business model, place of transaction, customer status and country in which the service is used.
Can VAT Paid in Turkey Be Reclaimed?
A refund cannot be claimed for every input VAT surplus. When deductible input VAT exceeds output VAT, the difference is generally carried forward to subsequent periods. A refund entitlement may arise for transactions specified by law, including exports and certain supplies subject to reduced rates. VAT returns, invoices, payment records and required electronic lists must be complete. Depending on the amount and refund method, additional reports, guarantees or tax inspections may be required.
What VAT Rate Applies to Services in Turkey?
Services are generally subject to the standard 20% VAT rate unless a reduced rate or exemption is specifically provided. The nature of the service, place of supply and identity of the recipient may also affect the correct treatment. For cross-border services, companies must assess whether the service is used in Turkey and whether VAT should be declared by the Turkish recipient under the reverse-charge mechanism rather than charged by the foreign service provider.
