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Scope of the VAT Withholding Practice Extended - Kumsay

Scope of the VAT Withholding Practice Extended

While the scope of the VAT withholding was extended and the rates increased significantly, many transactions became subject to VAT withholding. It is possible that some taxpayers will be financially affected by this practice.

As known, VAT taxpayers offset the Value Added Tax shown in relation to the goods and services they purchase from the Value Added Tax included in the documents issued thereby due to the delivery of goods and the execution of services, and transfer the remaining amount to the Treasury. However, in cases where the taxpayer does not hold any domicile, workplace, legal and business headquarters within Turkey and in other cases deemed necessary, the Ministry of Treasury and Finance may hold responsible for the payment of the tax those who act as a party to taxable transactions so as to secure tax receivables. In this context, in order to prevent the VAT loss and evasion caused by the use of false and misleading documents in the service sector, the Ministry introduced the VAT withholding practice regarding the declaration by the buyers involved in the transaction of a portion of VAT calculated by the supplier and the declaration of the remaining amount by the suppliers.

For example, if a shipping company offers a service of shipping at TRY 2,000, 5/10 of the VAT of TRY 360 calculated at the rate of 18% for this service must be declared by the buyer and the remaining 5/10 by the supplier. Moreover, the Ministry has determined which of the “designated buyers”, in addition to the VAT taxpayers, will be charged with the withholding, depending on the type of service and delivery. The latest VAT Communiqué No. 35 adds insurance and reinsurance companies, trade unions and their umbrella organizations, foundation universities and mobile electronic communications operators under designated buyers and they are now obliged to withhold the tax for the deliveries and services stipulated in the communiqué. Besides, the rates of withholding were raised by 30-40% in works, machinery maintenance-repair works, outsourced textile and ready-made clothes works, any and all printing and publishing works and the works, cleaning, environment and gardening works offered during the operational phase with regard to the healthcare facilities commissioned through the public-private partnership model, by 3/10 in commercial advertisement services, by 2/10 in land cargo transport works and by 4/10 in the works with a value of TRY 5 million and higher including VAT and the engineering-architecture and survey-project services performed together with these works.

As another important amendment, an obligation to apply VAT withholding at 5/10 was introduced for buyers in relation to the execution of all other services that are offered to the public institutions and organizations established by a law, institutions with revolving fund, professional organizations with the status of a public institution, banks, insurance and reinsurance companies, the pension and aid funds established by a law or holding the status of a legal entity and development agencies and that are not specifically indicated in the communiqué. Through this amendment, we see that all services rendered by especially banks and insurance companies other than those listed in the communiqué are now subject to withholding.

Moreover, I would also like to state that it is not possible for the taxpayers fulfilling certain conditions specified in the communiqué may be refunded for the VAT that arises out of the said withholding and they cannot recover through a deduction mechanism.

I expect that the most recent regulations concerning withholding will significantly affect in financial terms the taxpayers executing forward transactions or having receivables from the tax office in particular.


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