From 1 January 2018, VAT rules for sales of electronic services for consideration to non-VAT registered individuals by electronic service providers who do not have residence, business place, legal business center and business centre in Turkey changed. Non-resident electronic service providers have to declare and pay VAT which is charged on electronic services to non-VAT registered individuals.
The change doesn’t affect business to business sale, the reverse charge mechanism will continue to be implemented.
For cross border supplies of electronic services there’s no registration threshold, and VAT is charged at the rate on subject to electronic services.
It has been approved that taxpayers who registered as “Special VAT Registration for Electronic Service Providers” should declare their supplies made in 2018/January, February and March, on VAT Return in the first day of April 2018 to 24 th of April 2018.
According to Article 1 of the Law No. 3065 in order for a service to be subject to VAT, it must be performed in Turkey. Article 6/b of the same Law states that if services are performed or their benefits are consumed in Turkey, they are considered to have been performed in Turkey.
Thus, services performed in Turkey by those that have no residence, business place, legal center and business center in Turkey and services performed by them abroad are subject to VAT on condition that benefit is consumed in Turkey.
As a basic rule for such services, taxpayer is the performer of the service however, because the performer has no residence, business place, legal center and business center in Turkey, VAT shall be reverse charged, declared and paid by the party in Turkey that benefited from the service.
In cases where the service is exempt from tax and service is performed and benefit is consumed abroad, no tax shall be reverse charged and declared.
For declaring the VAT with reverse charge mechanism, it is not necessary for the party benefiting from the service in Turkey to be a VAT taxpayer. Those who are not VAT taxpayers shall withhold the VAT in such transactions and declare it with VAT Declaration No. 2 and make the payment.
Below are some examples of services provided from abroad and should be subject to reverse charge:
- Architectural project service drawn abroad and sent to Turkey for a shopping mall that will be constructed in Turkey;
- Consultancy service provided from abroad for the management of an energy generating station operating in Turkey;
- Computer software service provided from abroad to a non-VAT taxpayer government institution that is included in the general budget;
- The service of providing information from abroad about legal developments in the world to a non-VAT taxpayer non-government organization
By firms that have no residence, business place, legal center and business center in Turkey.
In cases where services that are in the scope of this section are also in the scope of partial reverse charge application, the rules in this section shall prevail.
Supply of goods that are in the scope of Article 1 of the Law No. 3065 made by those that have no residence, business place, legal center and business center in Turkey shall also be subject to rules in this section.
In cases where supply of goods is exempt from tax, no tax shall be declared by taxpayer or other reverse charge party.
Source: Revenue Administration of Turkey / link: https://www.digitalservice.gib.gov.tr/kdv3_side/main.jsp?token=d1078f5e3dc646b78d5d4e5842f21e97feb48d366bc7617458b6679dec12675154a01fccc42292bb04d926bc259dbc75e39dd8e202535fd70a7098396c74a6f7
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