Turkish Law Blog
New VAT Filing Obligation for B2B Sales of Non-Resident Electronic Service Providers
Article 9 the Turkish Value Added Tax (VAT) Law on the “Party Liable for Tax” was amended in 2017. New amendment stipulated that VAT arising from services provided electronically by those without a residence, workplace, headquarters, or business centre in Turkey to individuals in Turkey who are not VAT taxpayers must be declared and paid by the non-resident electronic service providers.
Accordingly, new regulation became effective for cross-border B2C transactions of non-resident electronic service providers as of 1st January 2018. However, no amendment was made on the existing VAT legislation on the B2B transactions.
What Types of B2C Electronic Services are Subject to VAT in Turkey?
Services supplied through the internet or an electronic network is subject to VAT and VAT rate is determined based on the type of goods or services. In Turkey, Standard VAT rate is 18%; reduced rates are 1% (e.g. newspapers and magazines, basic foodstuff) and 8% (e.g. e-books, pharmaceuticals, medical products). In this context, reduced tax rates for the digital goods and services are also applicable. Electronic services include online services like streaming music, films, gaming services, domain names, hosting, website and webpage support etc.
Who is Responsible for VAT Declaration for Cross-Border B2C Sales?
Non-resident electronic service providers falling within the scope of the VAT regulation are obliged to declare the VAT arising from these services by way of a "Special VAT Registration for Electronic Service Providers”. The VAT return of B2C transactions is electronically submitted through VAT Return No. 3 via the internet tax office web portal.
VAT Declaration and Payment Obligation for B2C Sales
Under the existing legislation, the VAT return period of taxpayers who registered as “Special VAT Registration for Electronic Service Providers” is monthly. Filing deadline is by the 26th day of the month following the taxation period. There is no requirement to submit a tax return for the periods where there is no service supplied electronically.
VAT due is also paid in Turkish Liras by the end of the 26th day of the declaration period. VAT return must be filled in Turkish Lira, as well, and mandatory FX rate is the daily exchange rate (BUYING) of the relevant currency which is announced by the Central Bank of Republic of Turkey.
What is the New VAT Filing Obligation for B2B Sales of Non-Resident Service Providers?
For B2B transactions, Turkish VAT legislation gives responsibility to the consumer that is a Turkish business person. This is also applicable for B2B sales of cross-border electronic services by non-residents. Thus, Turkish business person must withhold, declare and remit the VAT Turkish Tax Authorities on behalf of non-resident suppliers through VAT Return No. 2.
In terms of B2B cross-border sales of non-resident electronic service providers, Turkish Tax Authorities have recently made a new announcement on their website.
Based on this, the new VAT filing obligation applicable from 1 January 2019 has been introduced for the B2B cross-border electronic services. Under the new filing obligation, taxpayers who registered as “Special VAT Registration for Electronic Service Providers” should also declare their sales of electronic services to businesses (B2B). Declaration should be prepared as a list and uploaded to the system of Turkish Tax Authorities.
This new obligation, however, doesn’t affect B2B sales; the reverse charge mechanism will continue to be implemented for those sorts of transactions.
Details of New Filing Obligation
Non-resident electronic service providers should prepare the lists that contain the information in XML format. The respected non-resident suppliers can use the “KDV3LISTE_1.xsd” file (available at https://www.digitalservice.gib.gov.tr) for the XML structure. The size of one XML file should be up to 10 MB. Multiple files can be loaded if needed.
The lists should contain the following information in XML format:
- Purchaser-Tax Registration Number
- Purchaser-Name and Surname/Trade name (Mandatory)
- Purchaser- Address
- Currency of Payment (Mandatory)
- Price of Service (Mandatory)
- Payment Method (Mandatory)
- Issued Invoice- Date (Mandatory)
- Issued Invoice-Number (Mandatory)
How to Load the Lists
The lists should be submitted by the non-resident electronic service providers for their B2B sales in the same period as the VAT return period. The related period is selected from the “Upload List” menu. The prepared lists should be selected with the "Dosyaları Seç (Select the files)" button and uploaded to the system with the "Upload" button as shown below.
Uploaded files should be approved using the "Approve List" button. All lists must be loaded before approval.
If non-resident service providers need to make changes to the lists after approval, non-resident service providers should re-install all lists. When non-resident service providers select a period to change approved lists, they will receive the following message: Please choose “Evet (Yes)” button to cancel approved lists.
In the first year of new VAT practice, non-resident electronic service providers did not have any obligation to submit a list for their B2B sales. Except for new filing obligation, non-resident service providers have still no VAT obligations as Turkish business should collect and remit VAT on behalf of the non-resident suppliers with VAT Return No. 2 under the reverse charge mechanism.
With this new obligation, we understand that Turkish Tax Authorities aim to cross-check the electronic service sales of non-residents to Turkish business in the B2B transactions and request a list of B2B transaction submitted. Consequently, we recommend that non-resident electronic service providers take the necessary actions to comply with the new VAT filing obligation in Turkey and file their sales lists for B2B sales on time.