Three rules govern the taxation of scrap and waste trade in Turkey: supplies are exempt from VAT but the seller may waive the exemption; where it is waived, the buyer withholds most of the tax; and purchases from door-to-door collectors are documented with an expense voucher and attract income tax withholding. Most errors in practice come from confusing these three rules with one another.
This page covers the scope of the exemption, the decision to waive it, the withholding rates, the documentation and withholding on purchases from collectors, the position of manufacturers selling production scrap, and documentation — the sector’s principal risk.
The VAT Exemption for Scrap in Turkey
Under Article 17/4-g of the VAT Law, supplies of metal, plastic, tyre, rubber, paper and glass scrap and waste are exempt from VAT. The exemption does not depend on how the goods were acquired: a trader buying and selling scrap and a manufacturer selling turnings from its own production are subject to the same rule. What decides the matter is whether the goods can be used as they are or after repair.
Within the exemption
- Metals
- Iron, copper, aluminium, brass, lead, zinc, nickel, bronze and similar, with their alloys and slags
- Manufacturing residues
- Metal trimmings, cuttings and turnings, and off-specification products
- Smelter residues
- Off-specification raw materials, semi-finished goods and rolling defects
- Other waste
- Paper, cardboard, plastic, rubber, tyre and glass waste and trimmings
- Vehicles and vessels
- Vehicles scrapped and deregistered, and parts from dismantled ships
Outside the exemption
- Usable goods
- Anything usable as it is or after repair, such as a repairable vehicle part
- Primary metals
- Electrolytic copper, primary aluminium, refined lead, electrolytic zinc ingot
- Ingots from scrap
- Supplies of ingots produced from scrap metal
- Renewable batteries
- Batteries that can be reused after processing
- Result
- VAT at the standard rate of twenty per cent
Supplies under Article 17/4-g are not among the exemptions that preserve the right to deduct input tax. VAT on purchases, transport, energy and processing attributable to exempt scrap sales can be neither deducted nor refunded; it becomes a cost.
A business with both exempt and taxable supplies first takes the whole period’s input VAT into deduction, then adds back the portion corresponding to the share of exempt sales in total sales. This is the step most often missed in practice, and on audit it leads directly to an assessment.
Waiving the Exemption
Article 18 of the VAT Law allows a business supplying scrap and waste to waive the exemption. The waiver is made by written application to the tax office, takes effect from the date of application and covers every supply within the exemption; it is not possible to keep the exemption for some supplies and waive it for others.
Exemption applied
- VAT on the sale
- None
- Input VAT
- Not deductible; added to cost
- Buyer
- No withholding
- Invoice
- Issued with exemption code 207
- Suits
- A trading business with little input VAT
Exemption waived
- VAT on the sale
- Standard rate, twenty per cent
- Input VAT
- Deductible
- Buyer
- Withholds 7/10 of the VAT calculated
- Invoice
- Issued as a withholding invoice
- Suits
- A business baling, shredding or sorting, with heavy machinery and energy costs
The decision turns on input VAT. At a recycling plant with significant machinery, energy and transport costs, the exemption turns the VAT on those costs into a permanent expense; waiving it restores the deduction. Against that, because the buyer withholds most of the tax, a VAT credit can build up with the seller, which may be reclaimed under the refund procedure for transactions subject to withholding. Before deciding, the two scenarios should be compared on a full year’s input VAT and sales profile.
VAT Withholding Rates on Scrap and Metals
| Supply | Withholding | Note |
|---|---|---|
| Scrap and waste supplied by a business that has waived the exemption | 7/10 | Applies where the buyer is registered for VAT |
| Metal ingots | 7/10 | For ingots produced from scrap, supplies by importers and producers are also covered |
| Copper, zinc, aluminium and lead products | 7/10 | Supplies by importers and by producers from ore are excluded; later changes of hands are covered |
| Products of iron, steel and their alloys | 5/10 | From 1 November 2022; covers supplies to VAT-registered and designated buyers |
The withholding rate on scrap supplied after a waiver has changed over time, and older rulings and examples cite 9/10. The rate to apply is the one in force at the date of the transaction, which is currently 7/10.
Issuing a withholding invoice on a supply where the exemption has not been waived is a separate error: the supply is exempt and there is no tax to withhold.
Purchases from Collectors: Expense Vouchers and Withholding
Article 9 of the Income Tax Law extends the tradesman exemption to people who, to earn their living, collect or buy scrap metal, plastic, nylon, waste paper, glass and bottles door to door, in their own name and without opening a place of business. Carrying on the activity continuously, or using a motor vehicle, does not remove the exemption.
| Seller | Document | VAT | Income tax withholding |
|---|---|---|---|
| Door-to-door collector within the tradesman exemption | Expense voucher, signed by the seller | None | 2% |
| Individual selling their own goods, not a taxpayer | Expense voucher | None | None |
| Scrap dealer or wholesaler registered for tax | Invoice | Exempt, code 207 | None |
| Taxpayer that has waived the exemption | Withholding invoice | Twenty per cent; buyer withholds 7/10 | None |
People who work in dependence on an income or corporate taxpayer, or who buy and resell the waste of commercial businesses regularly or under an agreement, cannot use the exemption. A purchase from such a person documented with an expense voucher may be treated on audit as an undocumented purchase from a supplier who should have been registered.
Purchases from collectors are the first and weakest link in the chain. An expense voucher that records the seller’s identity, the type and quantity of goods, and is signed by the seller, is what allows the origin of the goods to be proved at every later stage.
For Manufacturers: Selling Production Scrap
Metal turnings, trimmings and off-specification products arising in production and sold as scrap fall within Article 17/4-g. The invoice is issued without VAT, using exemption code 207.
In every period with scrap sales, input VAT is added back in proportion to the share of exempt sales in total sales. Even where scrap revenue is small, periods left without apportionment accumulate and become the subject of an assessment on audit.
The sale as scrap of a machine that has reached the end of its economic life is within the exemption, provided the buyer also treats it as scrap. Writing off the remaining book value and taxing the gain on sale are assessed separately under the Tax Procedure Law.
If a manufacturer waives the exemption, the waiver covers all of its scrap and waste supplies. Where scrap sales are incidental, the administrative burden of the waiver should be weighed against the benefit of no longer apportioning.
Documentation and the Risk of Fictitious Invoices
The scrap sector is one of the areas where the tax administration concentrates its audits. Where documentation breaks down at the first link, the goods have no identity at later stages, and the gap is filled with invoices that do not reflect real transactions. A buyer whose supplier’s invoice proves fictitious faces disallowance of the VAT deduction, a tax loss penalty and assessment under Article 359 of the Tax Procedure Law, even where it was unaware of the problem.
- Verify the seller’s registrationThe tax certificate, registered activity and e-invoice status are checked before the first purchase. A large purchase from a seller whose registered activity is not scrap trading is a warning sign.
- Document the physical movementDispatch note, weighbridge ticket, the registration of the vehicle carrying the goods and a delivery record are filed for every purchase. The first question on audit is whether the goods actually changed hands.
- Pay through a bank, to the seller on the invoiceCash payment and payment to third parties are among the strongest indicators that call the reality of a transaction into question.
- Invoice with the correct codeCode 207 for an exempt supply; a withholding invoice where the exemption has been waived. Confusing the two creates a separate error even where the underlying document is genuine.
- Document collector purchases in fullThe expense voucher records the seller’s identity and the type and quantity of goods, is signed by the seller, and the withholding is declared on the monthly withholding return.
- Track stock by type and weightReconciling inflows and outflows by weight shows that what was sold came from what was bought. Sales quantities without purchase documents are where audits begin.
Imports and Exports
The tax administration’s rulings treat the importation of scrap and waste as within the exemption under Article 17/4-g, while the importation of ingots produced from scrap metal is outside it. Waste imports are also subject to conformity checks under environmental legislation, and the classification applied at customs directly affects the tax outcome; there have been cases in which the customs and tax administrations took different views. The tariff classification and the tax treatment should therefore be confirmed together before an import.
The export of certain metal scrap may be restricted or subject to prior permission under the export regime. The current list should be checked before a contract is concluded.
Common Mistakes
- Treating repairable goods as scrap. Goods usable as they are or after repair are not scrap and attract VAT at the standard rate.
- Keeping in deduction the input VAT on exempt scrap sales. The exemption is partial; the amount must be apportioned and added back.
- Issuing a withholding invoice where the exemption has not been waived. An exempt supply has no tax to withhold.
- Waiving the exemption for only some supplies. A partial waiver is not possible; the decision covers every supply.
- Applying the 9/10 rate from an older source. The rate currently in force is 7/10.
- Not withholding 2% on purchases from collectors. Payments to collectors within the tradesman exemption are subject to withholding.
- Treating a dependent collector as exempt. A person working for one taxpayer cannot use the exemption.
- Paying in cash and not documenting the movement of goods. In a fictitious invoice assessment, these two findings are what defeat the buyer’s defence.
Frequently Asked Questions
Is VAT charged on scrap sales in Turkey?
How is the exemption waived?
What is the withholding rate after a waiver?
Are ingots produced from scrap metal exempt?
Is income tax withheld on purchases from scrap collectors?
Can a manufacturer selling turnings deduct its input VAT?
Is a repairable part treated as scrap?
Which e-invoice code applies to exempt scrap?
As the Ozbek CPA team, we advise companies in scrap trading and recycling, and manufacturers selling production scrap, in Turkey — modelling the choice between the exemption and a waiver on input VAT, apportioning shared costs, setting up withholding and invoicing, documenting collector purchases and withholding, and putting supplier and stock movement controls in place against the risk of fictitious invoices. See also our pages on VAT in Turkey, tax rates in Turkey, tax advisory and fraud examination. Contact us.
