VAT Withholding and Its Role in the Turkish Tax System
VAT withholding (KDV Tevkifatı) is a mechanism applied in Turkey to secure tax collection and reduce the risks associated with informal economic activities in specific sectors. Under the Turkish VAT system, a portion of the VAT calculated on certain transactions is withheld by the purchaser and directly declared and paid to the tax authorities instead of the service provider.
Under the current VAT withholding framework, VAT withholding applies where the total invoice amount (including VAT) exceeds the statutory threshold, which is currently set at TRY 9,900, in accordance with the Turkish VAT General Communiqué. This threshold is subject to change through regulatory updates and should be assessed based on the relevant invoicing period.
Below is an overview of the main services subject to VAT withholding in Turkey and the applicable withholding rates under current practice.
VAT Withholding Types and Applicable Rates
Construction Works and Engineering–Architectural Services
Scope:
Construction of buildings, bridges, highways, tunnels, metro systems, dams, power plants, and related engineering, architectural, and project services.
VAT Withholding Rate: 4/10
Construction-related services are subject to VAT withholding to enhance tax compliance and ensure accurate reporting within the construction and infrastructure sectors.
Feasibility, Planning, Consulting, and Audit Services
Scope:
Market research, valuation and appraisal services, technical, financial, legal consultancy, audit services, and project planning.
VAT Withholding Rate: 9/10
Consulting and audit services are subject to a high withholding ratio under the Turkish VAT system due to their intangible nature and the associated compliance risks.
Maintenance and Repair Services for Machinery, Equipment, Fixtures, and Vehicles
Scope:
Maintenance and repair of factory machinery, industrial equipment, elevators, cooling systems, and vehicles.
VAT Withholding Rate: 7/10
VAT withholding applies to these services as part of the regulatory framework governing industrial and technical service providers.
Catering and Event Organization Services
Scope:
Catering services provided to companies, schools, hospitals, and institutions, as well as event organization services.
VAT Withholding Rate: 5/10
These services fall within the VAT withholding regime to ensure proper VAT collection in high-volume service transactions.
Workforce Supply Services (Outsourcing)
Scope:
Provision of subcontracted labor, security personnel, private drivers, and technical support staff.
VAT Withholding Rate: 9/10
Outsourced workforce services are closely monitored under the Turkish VAT system, and VAT withholding applies to prevent underreporting and ensure compliance.
Building Inspection Services
Scope:
Inspection services provided by authorized building inspection firms for construction and infrastructure projects.
VAT Withholding Rate: 9/10
VAT withholding applies to building inspection services due to their regulatory and compliance-sensitive nature.
Cleaning, Environmental, and Landscaping Services
Scope:
Building and facility cleaning, hospital sanitation, waste collection, pest control, park and cemetery maintenance.
VAT Withholding Rate: 7/10
These services are subject to VAT withholding as part of public health, environmental, and municipal service regulations.
Shuttle Transportation Services
Scope:
Transportation services for employees, students, and customers (shuttle services).
VAT Withholding Rate: 5/10 or 9/10, depending on the nature of the service and contractual structure.
Freight Transportation Services
Scope:
Domestic road freight transportation services.
VAT Withholding Rate: 5/10 or 9/10, depending on whether the service qualifies as transportation or labor-dominant service.
Printing and Publishing Services
Scope:
Printing services related to books, brochures, catalogs, magazines, bulletins, and packaging materials.
VAT Withholding Rate: 5/10 or 9/10, depending on the nature and scope of the service provided.
Other Services
Scope:
Services rendered to public institutions that are not explicitly listed under specific VAT withholding categories.
VAT Withholding Rate: 5/10 or 7/10, depending on the classification of the service.
Key Considerations Regarding VAT Withholding in Turkey
- Split invoicing is not permitted: Artificially dividing a transaction into multiple invoices to avoid VAT withholding is prohibited under Turkish tax legislation.
- Legal services: Legal representation services are not subject to VAT withholding; however, consultancy services provided by lawyers are subject to VAT withholding rules.
- Private security services: The installation of security systems is not subject to VAT withholding, whereas the provision of security personnel is subject to withholding.
This overview aims to support businesses in understanding VAT withholding obligations under the Turkish VAT system. Given the technical nature of VAT withholding rules and the frequent regulatory interpretations, professional advisory support is recommended to ensure accurate application and compliance.
For further information or professional assistance regarding VAT withholding and related tax matters in Turkey, ÖzbekCPA provides tailored tax advisory and compliance services.
