Digital Service Tax in Turkey
Digital Service Tax in Turkey is regulated in Articles 1-7 of “Law No.7194 on Making Amendments in Digital Service Tax and Certain Laws and Decree-Law No. 375” published in the Official Gazette dated December 7, 2019 and numbered 30971.
When will the Digital service Tax start?
It shall enter into force at beginning of March 2020 according to the definition of “at the beginning of the third month following the date of publication of this Law” in Articles 1 to 7 in paragraph “a” of Article 54 related to Enforcement of Law No. 7194.
The subject of tax consists of services provided only in Turkey.
The subject of Digital Services Tax is limited to the services provided only in Turkey.
The purpose of the services offered in Turkey: Services to be offered in Turkey, the utilization of services in Turkey, the realization of the service or services for people in Turkey’s or using the service in Turkey. (i.e. Making the payment of services in Turkey or if the payment has been made abroad, the payment is submitted or transferred from profit to the account of person made the payment in Turkey or the account and name of the payer. If the advertisement service in digital media is not offered to people who are not in Turkey, the service cannot be deemed to be offered in Turkey.)
Which services are subject to Digital Service Tax?
All kinds of digital advertising services (including advertising control and performance measurement services, data transmission and management related to users, and technical services for advertising)
Sale of any audio, visual or digital content (including computer programs, applications, music, video, games, in-game applications, and so on) in digital environment and digital services for listening, viewing, playing, recording to electronic devices or using them on digital environment.
Services for providing and operating digital media in which users may interact with each other (including services to sale of or to facilitate to sell goods or service among users)
Income of Intermediary Services is also subject to Digital Service Tax!
The income of intermediary services provided by the digital service providers in the digital environment for the above-mentioned services are also subject to the digital service tax.
Who is responsible for paying the tax?
Digital service taxpayers are digital service providers. In the event that they are fully liable or not in terms of the Income Tax Law and the Corporate Tax Law or it carries out activities or not in limited liability through business or permanent representatives in Turkey, these do not affect digital service tax liability.
Institutions working on advertisement services which are placed, played, addressed the advertisers in the contents offered through platforms owned by big technology companies such as Google, Youtube, Facebook and similar software, and are increasing the recognition and availability of advertisers in the big data, will be the taxpayers of digital service tax. Even though they have commercial enterprises, representatives, etc. in Turkey or not or they are digital taxpayers or not, these do not hinder these institutions to pay the digital service tax.
In the event that the taxpayers do not have any residence, workplace, legal and/or business centers in Turkey, and if it is necessary, the Treasury and the Ministry of Finance of Republic of Turkey can hold those who become a party of transactions which is subject to tax, and intermediaries for process and payment related to tax, responsible to pay the digital service tax in order to secure the tax receivables.
Those who become a party of transactions which is subject to tax: The persons defined as taxpayers of digital service tax in the Law, getting the service, if the original advertising servers do not fulfill its obligations, will be held responsible to pay the tax for those who gave advertisements in Turkey.
Is there a limit in the digital service tax?
Regarding the services mentioned above, in the accounting period prior to the relevant accounting period, those of which revenue obtained in Turkey is lower than 20 million Turkish Lira or worldwide revenue is lower than EUR 750 million or its equivalent foreign currency is lower than Turkish Lira, are exempt from the digital service tax.
If the taxpayer is a member of a consolidated group in terms of financial accounting, the total revenue obtained by the group regarding the services subject to tax is taken into account in the application of these limits.
When will digital service tax liability begin?
If both of the above limits are exceeded within the relevant accounting period, the exemption is terminated, and the digital service tax liability starts from the fourth taxation period following the taxation period in which the limit is exceeded. In determining whether the mentioned limits are exceeded or not, the cumulative revenue obtained within the relevant accounting period as of the end of the quarterly periods of the accounting period will be taken into consideration.
For two consecutive fiscal periods, the tax exemption of those remaining under one of the limits mentioned in the first paragraph will start again from the following accounting period.
Who and which services are exempt from Digital Service Tax?
The income obtained from the following services made in the digital environment are exempt from the digital service tax and the income obtained from these services are not considered in the determination of the limits in the first paragraph:
a) Services of which treasury shares are paid within the scope of the additional Article 37 of Telegraph and Telephone Law No.406 dated 4/2/1924
b) Services of which special communication tax is charged within the scope of Article 39 of the Expenditure Taxes Law No. 6802 dated 13/7/1956
c) Services within the scope of Article 4 of the Banking Law No. 5411 dated 19/10/2005
d) Sale of products produced as a result of R&D activities in R&D centers and services provided exclusively through these products defined in Article 2 of the Law No.5746 dated 28/2/2008 on Supporting Research, Development and Design Activities.
e) Payment services within the scope of Article 12 of the Law No.6493 dated 20/6/2013 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions
Exceptions and exemptions related to digital service tax shall be regulated only by adding provisions to or amending this Law. The provisions of the exception or exemption in other laws are invalid in respect of this tax.
What is the base of tax?
The tax base of the digital service tax is the revenue obtained from the services included in the tax subject during the relevant taxation period.
–If the revenue is calculated as foreign currency, the currency is converted to Turkish Lira on buying rate of Central Bank of Republic of Turkey which is valid on the date when revenue is obtained.
There is no discount from the tax base under the name of expense, cost and tax. Digital service tax is not shown separately in invoices and other similar documents.
What is the Rate of Digital Service Tax?
The rate of digital service tax is 7.5%.
–Digital service tax is calculated by applying the rate to the tax base. There is no deduction from the tax calculated in this way.
When is the declaration of the Digital Service Tax submitted?
The taxation period in digital service tax is one-month periods of the calendar year. However, the Ministry of Treasury and Finance of the Republic of Turkey is authorized to determine a quarterly taxation period instead of a one-month taxation period according to the types of services and the activity volume of the taxpayers.
The digital service tax is calculated upon the taxpayer’s declaration.
What is the responsibility of the service user in the Digital Service Tax?
As mentioned above, if enterprises which do not have any liability in Turkey, do not fulfill their duties related to the tax, the declaration is issued by those who are responsible for making tax deductions. Namely, customers getting service in Turkey shall be responsible for submitting the declaration.
Taxpayers and those charged with tax deduction are obliged to submit their digital service tax declarations to the relevant tax office by the end of the month following the taxation period.
Which tax office will its tax declaration be given?
Digital service tax is levied by the tax office that the service provider which is obliged to value-added tax and is registered to, and for those who are not obliged to value-added tax, it is levied by the tax office determined by the Ministry of Treasury and Finance of Republic of Turkey.
For whom will the tax be accrued on Ordinary Partnerships?
The digital service tax is levied on behalf of the natural or legal person who is the taxpayer or tax responsible. In ordinary partnerships, the tax is levied on behalf of any of the partners who are severally responsible for the payment of the tax.
When will Digital Service Tax be paid?
Taxpayers, who are obliged to submit tax returns and those charged with tax deduction pay the digital service tax belonging to a taxation period within the tax return period.
Can Digital Service Tax be stated as EXPENSE?
–The digital service tax paid by the digital service taxpayers can be deducted by these taxpayers as expense in the determination of the actual net profit based on the corporate tax.
Access to the platforms of those who do not fulfill their obligations will be BLOCKED!
The tax office authorized to levy the digital service tax can notify to digital service providers or it representatives in Turkey within the scope of this Law, which do not fulfill their liabilities on time about submitting declarations and payments, with notification methods mentioned in Law No.213, electronic mail or all other means of communication by using information obtained from means of communication, domain name, IP address and similar information on their websites in order that they fulfill their liabilities.
In the event that these obligations are not fulfilled within thirty days after the notification, the Ministry of Treasury and Finance shall decide to block access of the services provided by the digital service providers until these obligations are fulfilled and this decision is sent to the Information and Communication Technologies Authority to be notified to the access providers. Access providers fulfill the requirement of blocking decision within twenty-four hours as of notification.
In particular, the issue of taxation of the services offered by software technology is a phenomenon that tax regulators worldwide try to control. The fact that the service can be provided independent of the physical place and without being subject to customs regimes like physical products makes the situation difficult for the tax authorities to monitor and tax the income of the companies in which they are a resident and each independent country where the income is obtained from the service.
The fact that the companies moving their headquarters for taxation to another country where it deems more advantageous in terms of earnings tax, profit distribution and other indirect taxes causes the countries in which the Company established and is actually produced to be deprived of the specified taxes.
Likewise, many countries lose tax due to the fact that no company is established in many countries in the world that generate revenue from service and income tax, profit distribution tax and other indirect taxes are not collected in the countries where income obtained from services.
Lawmakers have offered for so long foreign companies operating in the field of software technology to submit their declarations in Turkey for their services provided in Turkey and their income especially obtained from advertisement services and to become taxpayers in Turkey, but they did not do these.
Thereupon 15% of withholding obligation was imposed on the enterprises benefiting from the service in Turkey in February 2019. (Communiqué -Serial No: 17 Amending the General Communiqué on Corporate Tax (Serial No: 1)). With Law No. 7149 published on 7 December 2019, 7.5% Digital Service Tax was imposed on the companies providing services or those receiving services.
It can be said that the digital service tax is a cost to be reflected directly or indirectly to the advertisers giving ads in Turkey and benefiting from newly formed 7.5% Digital Service Tax, like 15% withholding obligation previously issued.
1- Digital Service Tax has come into our commercial life and tax applications with the Law No. 7194 published in the Official Gazette dated 07.12.2019.
2- The Digital Service Tax will start in March 2020. The first declaration of March 2020 will be submitted by the end of April 2020 and will be paid within the same period.
3- All kinds of advertising services offered in digital environment are covered by the tax.
4- Revenue from intermediary services provided by digital service providers in a digital environment is also subject to digital service tax.
5- Digital service taxpayers are digital service providers. In the event that they are fully liable or not in terms of the Income Tax Law and the Corporate Tax Law or it carries out activities or not in limited liability through business or permanent representatives in Turkey, these do not affect digital service tax liability.
6- Parties that become a party of transaction subject to tax and intermediaries for processing and payment can hold responsible for the payment of the tax.
7- Those of which revenue obtained in Turkey is lower than 20 million Turkish Lira or worldwide revenue is lower than EUR 750 million or its equivalent foreign currency is lower than Turkish Lira, are exempt from the digital service tax. If the taxpayer is a member of a consolidated group in terms of financial accounting, the total revenue obtained by the group regarding the services subject to tax is taken into account in the application of these limits.
8- Digital service tax rate is 7.5%.
9- Taxpayers and those charged with tax deduction are obliged to submit their digital service tax declaration to the relevant tax office by the end of the month following the taxation period. The taxation period in digital service tax is one-month periods of the calendar year. However, the Ministry of Treasury and Finance of the Republic of Turkey is authorized to determine a quarterly taxation period instead of a one-month taxation period according to the types of services and the activity volume of the taxpayers.
10- Digital service tax will be paid within the period of submitting the declaration.
11- The digital service tax paid by the digital service taxpayers can be deducted by these taxpayers as expense in the determination of the actual net profit based on the corporate tax.
12- If the obligations are not fulfilled, the Ministry of Treasury and Finance of the Republic of Turkey decides to block access to the services provided by digital service providers until these obligations are fulfilled.
Source: Law No. 7194 on Making Amendments in Digital Service Tax and Certain Laws and Decree-Law No. 375” – Official Gazette dated December 7, 2019 and numbered 30971.
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