VALUE ADDED TAX (VAT) LAW

According to Turkish VAT Law Article 1, all supplies of goods and services within the scope of commercial, industrial, agricultural and independent professional activities and the importation of all kinds of goods and services are subject to VAT, whether the supply is in a business context or otherwise.

History

Application of VAT Law started in 01 January 1985.

With the VAT Law coming into force, all consumption taxes within the scope of Expenditure Tax Law (Nr. 6802) or uncovered by it became dormant.

Value Added Tax Law is the most advanced form of general consumption taxes and applied at several countries including European Union Countries.

How do you define “Added Value“ ?

The difference between output and input at production process.

In other words, the difference between output prices and input costs.

VAT Mechanism

VAT arises on a monthly basis.

VAT on purchases or investments (excluding VAT exempted investments), goods and service supplies is called “input VAT”, whereas VAT on sales of goods and services is called “output VAT”.

VAT amounts on the invoices issued to yourselve (which you are paying) is your input,

VAT amounts on the invoices issued by yourselve (which you are imposing) is your output,

Input VAT is credited against output VAT in each period in the scope of an offset mechanism.

In other words, input VAT is offset against output VAT on the VAT return.

Should the output VAT be greater than the input VAT, the excess is payable to the tax office.

Should the input VAT be greater than the output VAT, the excess is carried forward to the following periods as input VAT.

Input VAT cannot be subject to revaluation and offset against any other tax.

Payable VAT occurs if output VAT is greater than input VAT.

Understanding “VAT Mechanism“ and “Added Value“ Expression:

A retailer is purchasing 100 Euro worth good from a wholesaler.

From this purchase, retailer is paying:

100 Euro for goods

18 Euro VAT [100 x 0,18]

Total Payment is 118 Euro

Input VAT (VAT Receivable) for the retailer is now 18 Euro.

After this transaction, let us assume that same retailer will sell this goods for 150 Euro.

From this sale,

150 Euro for goods sold

27 Euro VAT [150 x 0,18]

Total Sale Value is 177 Euro

Output VAT is 27 Euro.

As explained above, if VAT Output is greater than the input VAT, the excess is payable to the tax office.

27 (VAT generated from sale) - 18 (VAT paid at purchase) = 9 Euro tax to be paid to tax office.

Payment processed to the tax office is the value added tax arising at each stage of production.

Liability Perspective - VAT Tax Payers

Tax Payer subject is explained at the 8th Article of VAT Law.

Legal Tax payer:

Those who carry out deliverioes of goods or performances of service

(…)

At the 9th article of VAT Law, VAT Responsibility is defined as:

In cases where the tax payer has no legal residence, place of work, legal headquarters or place of business in Turkey, Ministry of Finance may hold those who are involved in transactions subject to taxation as responsbile.

Under this circumstances, VAT payment liability on the seller (or service performer) shifts to buyer (service beneficiaire) and those persons are in a position to calculate VAT over sale value and pay it in the capacity as tax responsible.

At this cases, legal tax payer and actual tax payer differs.

Case:

An invoice received from a foreign company without a business place or representative at Turkey related with construction/repair works or deliveries of goods related with consturction will be without VAT as normal.

The company receiving above mentioned service or goods must calculate 18% VAT from the gross amount on the invoice and PAY IT to the tax office via VAT-2 Return (for tax responsibles).

VAT RATES

1. Delivery of Goods subject to 1% VAT

Food

• Wheat flour and breads manufactured by it, wafer, bread (excluded toast, sandwich and hamburger bread; those are subject to 18% VAT)
• Products considered having a high export potentials such as raisins, dried fig, nuts, pistachio, wheat, corn, kidney beans, lentil, potato and olive’s wholesale selling phase.(1% at wholesale phase, 8% at retail)
• Raw fruit,vegetable deliveries to the VAT tax payers subject to actual earnings method by or to wholesale market hall.(At retail sale phase, rate is 8%)

Construction

• Sale of housing having up to 150 sq. Meter net (sold by commercial enterprises)
• Construction contracts performed to housing cooperatives.

Others

• Newspaper and magazine sales, bikes,
• Second hand private car owned by a business firm.
• Mortuary services and blood delivery.

2. Delivery of Goods and Services Subject to 8% VAT

Food

• Fowls and fish and also their meat, bagel, pastry, milk, cheese, eggs, pasta, both granulated and cube sugar, cooking oil, fresh vegetables and fruits, animal feeds,
• Restaurants (restaurants serving alcohol except 1st class of them are subject to 18% VAT)

Health

· Preventive medicine, diagnosis, treatment... for both people and animals, ambulance services, medical devices

· Delivery of medicine

Culture-Education

• Cinema and theatre tickets’ fee
• Sales of books and so forth
• Private education services (foundation universities, private pre-school, primary, secondary and high school)
• Notebooks, rubber, pencil...

Tourism

• Tourism services included hotel accommodation (dating from 01.01.2008) (As part of services except all-inclusive system if they are having alcohol services, the payment belongs to this part is going to be subjected to 18% VAT.)

Textile

• Threads, hosiery, underwear and outerwear, home textile products (curtain...), ahoes, bags, ports, rugs and carpets...

3. Delivery of Goods and Services Subject to 18% VAT

All other deliveries and services not listed above.

i.e. Gas,diesel, fuel-oil,natural gas deliveries, passenger car, busses,trucks, white goods,furnitures,professional services given by engineers, lawyers or like.