Temporary Article 17 Scope Domestic Processing Permit Certificate (DİİB) VAT Refund

In order to make Turkish export products competitive in world markets and to diversify our export products; without being subject to trade policy measures, without being subject to trade policy measures, an economically effective customs regime is applied that allows the import of raw materials, auxiliary materials, and packaging materials necessary for the production of export products that cannot be obtained from domestic markets in terms of price and/or quality.

The most important issue here is whether products manufactured with raw materials purchased VAT-free with a DİİB certificate can be sold with VAT in the domestic market and, if sold with VAT, whether those exporting these goods can receive a VAT refund. Let’s address the issue in detail and explain the results in bullet points.

Legal Basis

• VAT General Application Circular (II/A-9. 1.); Article 17 of the Provisional Law No. 3065 authorizes the Council of Ministers to take action in accordance with Article (11/1-c) of Law No. 3065 regarding the delivery of materials to be used in the production of goods to be exported under the inward processing regime, based on regions, sectors, or product groups.
• Based on this authority, the Council of Ministers Decision No. 2001/2325 dated 16/4/2001 was published, stipulating that, without any sectoral distinction, the delivery of materials to be used in the manufacture of products to be exported under the DIIB to DIIB-holding taxpayers may be processed under the deferment-cancellation provisions of Article (11/1-c) of Law No. 3065.
• In practice, the periods specified in these regimes are taken as the basis instead of the period referred to in the aforementioned clause as the export period. If the export is not carried out in accordance with the conditions, the tax not collected on time, the tax penalty, and the interest on arrears are collected from the buyer.

Regulations Made by Communiqués

• Article 11 of the Communiqué on Amendments to the 7th Series VAT General Application Communiqué amended the first paragraph of section (IV/A-1.5.) of the Communiqué and stated that it is not possible to deliver goods produced under the scope of the DIIB with VAT calculated. Nevertheless, it has been stipulated that if delivery is made with VAT calculated, the VAT borne by exporters cannot be refunded.
• Circular No. 8 introduced an exception to these regulations, stating that the limit would not apply to deliveries made with export records to foreign trade capital companies and sectoral foreign trade companies.
• Circular No. 11 repealed the regulations made in Circulars No. 7 and No. 8 and accepted that the VAT borne on the export of goods purchased with VAT paid by taxpayers holding a DIB could be refunded.

Principles of Application

• For the delivery of materials to be used in the manufacture of products to be exported under the DİİB to DİİB-holding taxpayers, the deferral-cancellation application regulated in Article 11/1-c of Law No. 3065 shall be taken as a basis.
• It has been accepted that DİİB holders may export the goods they produce under the certificate and deliver them by applying deferral-cancellation under the temporary Article 17 and Article 11/1-c of the VAT Law.
• For products manufactured by DIB holders using inputs purchased domestically without paying VAT, any tax not collected at the time of sale will be collected from the taxpayer.

Important Points Regarding VAT Refunds Under DIB

1. Taxpayers holding a DIB may export goods produced under the certificate.
2. Taxpayers holding a DIB may deliver goods produced under the certificate by applying deferral-cancellation under Article 11/1-c.
3. Taxpayers holding a DIB may deliver goods produced using goods procured under the temporary Article 17 of Law No. 3065 to DIB-holding buyers again under the temporary Article 17. These transactions are declared in the No. 1 VAT Return under the code “702-Provisional Article 17”.
4. Taxpayers holding a DİİB may sell the goods they produce under the certificate within the country with VAT. However, the refund to the exporter exporting these goods can only take place after the assessments to be made to the DİİB holder taxpayer have been finalized. Therefore, the indirect sale of products covered by the certificate by DİİB holder taxpayers within the country with VAT is prevented.
5. As of the date of entry into force of Circular No. 11, the refund of VAT incurred on the export of goods purchased from DİİB-holding taxpayers by paying VAT is only possible once the tax assessments made to DİİB-holding taxpayers have been finalized.

Note:

• All VAT Refund Claims Any type of refund arising from VAT must be claimed by the end of the second year following the refund claim period.
• For example, if a taxpayer’s VAT refund is calculated in the January 2024 period and their VAT refund is also calculated in the July 2024 period, the final application date is December 31, 2026, which is valid for both periods.
• Consequently, the final application date for taxpayers with VAT refunds related to the 2023 accounting period is December 31, 2025.
• Applications made after these dates are RED and transferred to the treasury.

Under the scope of Provisional Article 17, DIIB applications require sensitivity in the VAT refund processes of exporters and manufacturing companies. Incorrect applications may result in the rejection of VAT refund requests or penalties.

For professional support in VAT refund processes under the scope of DIIB, you can contact us at OzbekCPA via contact.

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