16.02.2021
Taxing The Digital: Recap Of Turkish Perspective
As it is widely discussed, Turkey is taking aggressive steps for taxation of digital companies.
You can find below the short summaries of the steps taken so far.
a. Legal Framework
VAT III liability is introduced with Law No. 7061 which entered into force on January 1, 2018. Tax administration released VAT Communiqué No.17 to present explanations and clarifications on implementation of VAT III liability system on January 31,2018.
b. Scope/Subject
Under VAT III liability, services provided by those whose residences, workplaces, legal headquarters, and principal offices are not located in Turkey to non-VAT registrant Turkish residents is subjected to VAT, on the basis that such services are considered to have been provided in Turkey.
c. Taxpayer
Electronic service providers and intermediaries (in case where electronic service provider cannot be identified)
d. Tax Base
The total value of the transaction that falls under the scope.
e. Tax Rate
General VAT rate in Turkey is %18, reduced rates of %8 or %1 are also applicable for certain services and goods.
f. Registration
For registration, electronic service providers should fill out the form available on the https://www.digitalservice.gib.gov.tr/ . After the approval of this form, a VAT registration will be made on behalf of the non-resident service provider before the Large Taxpayers Tax Office in Istanbul.
g. Declaration and Payment
Declaration should be made until 24th day of the month following the monthly taxation period. Payment should be made until 26th day of the month following the monthly taxation period.
h. Other Considerations
a. Legal Framework
By relying on the authority given by article 11 of Tax Procedural Code No.213, Presidential Decree No. 476 was issued and entered into force on its publication date to be applicable to payments made as of January 1,2019.
b. Scope/Subject
Payments made for advertising services provided through the Internet to the providers of this service or to those who act as an intermediary for the provision of this service will fall under the scope of the withholding tax liability, regardless of whether the payee is a taxpayer.
c. Taxpayer
Electronic advertising service providers and intermediaries.
Since this taxation is formed as withholding, parties who pay for the services that fall under the scope to service providers or intermediaries who transfer the amount to service providers should withhold, declare & pay this the tax amount as tax responsible.
d. Tax Base
The total value of the transaction that falls under the scope.
e. Tax Rate
The withholding tax rates applicable to payments made for advertising services provided through the Internet to the providers of this service or to those who act as an intermediary for the provision of this service as follows:
f. Registration
No registration is required.
g. Declaration & Payment
Declaration and payment by tax responsible should be made until 26th day of the month following the monthly taxation period.
h. Other Considerations
To apply this withholding tax to the income derived from Turkey by the non-resident digital service providers is mostly challenged before courts in consideration of the double taxation treaties and definition of "place of business". 1
a. Legal Framework
The Law No. 7194 on Digital Service Tax and the Amendment of Certain Laws and Law Decree No. 375 ("Law No. 7194") introduced a new digital service tax ("DST"). The DST related provisions of the Law No. 7194 entered into force in the beginning of March 2020.
b. Scope/Subject
The revenue obtained from the following services offered in Turkey are subject to DST:
The revenue from the intermediary services provided by digital service providers in the digital environment for the services mentioned in the first paragraph are also subject to the digital service tax.
The term "provided in Turkey" is also explained as " providing the service in Turkey, making use of the service in Turkey, performing the service for people in Turkey, or evaluating the service in Turkey (the purpose of the evaluation is to pay the service in Turkey or, if the payment is made abroad, to transfer the payment to the accounts of the payer or on behalf of the payer or its reservation from its profit. On the other hand, the service is not considered to be evaluated in Turkey if the advertising service offered in digital environment is performed for people who are not in Turkey.)"
c. Taxpayer
Digital service provider regardless of their tax liability status in Turkey.
The Ministry of Treasury and Finance may hold those who are parties to the taxable transactions and those who mediate the processing and payment in order to secure the payable tax in case of the absence of the taxpayer's residence, work place, legal and business centers in Turkey, responsible for the payment of the tax.
d. Tax Rate
Current DST rate is 7.5%. However, the President has the authority to reduce the rate to 1% or double the rate (namely, 15 %) in accordance with the service types.
e. Tax Base
Revenue generated due to services subject to the tax.
No deduction is accepted from the tax base under the name of expense, cost and tax.
On the other hand, DST paid by resident companies can be deducted from the CIT tax base of those companies.
f. Important Exemptions
In the period prior to the relevant accounting period, those whose revenues in Turkey are less than 20 million Turkish Lira or whose worldwide revenues are less than 750 million Euro or equivalent foreign currency equivalent Turkish Lira for the services mentioned are exempt from DST.
g. Registration
For registration, digital service providers should fill out the form available on the https://www.digitalservice.gib.gov.tr/
h. Declaration &Payment
Declarations should be submitted and paid by the end of the month following the monthly taxation period by digital service providers.
i. Other Considerations