VAT is the tax businesses file most often and get wrong most often. Most errors come not from choosing the rate but from withholding and the right of deduction. This page covers the critical points and the refund process.
Rates
| Rate | Scope (summary) |
|---|---|
| 20% | General rate; everything not on the lists, including imports |
| 10% | List (II): many foods, medicines and medical products, accommodation, some health and textile products, restaurant services |
| 1% | List (I): basic foods, newspapers and magazines, some agricultural products, certain residential deliveries |
Lists are set by Presidential Decision and may change during the year. If a product is not clearly on a list, the general rate applies. There is no 0% rate; exports are exempt with the right of deduction.
Two kinds of exemption
| Exemptions with right of deduction | Exemptions without right of deduction |
|---|---|
| Export of goods | Banking and insurance (subject to BSMV) |
| Export of services (customer abroad and benefit abroad) | Some education, culture and health services |
| International transport | Certain sales of real estate and participation shares |
| Machinery under an investment incentive certificate | Certain leases outside a business |
| Port and airport services |
With deduction rights, VAT paid on purchases can be refunded; without them it is added to cost.
Withholding
- Full withholding (reverse charge): services from persons with no residence, workplace, seat or management in Türkiye (foreign software licences, group consultancy, advertising). The Turkish buyer declares VAT on return No. 2 and deducts it in the same period. Foreign advertising
- Partial withholding: listed transactions such as construction, cleaning, labour supply, consultancy, catering, transport and scrap; the buyer withholds a set share. VAT withholding rates
- Paying the full VAT to the seller does not remove the buyer's withholding duty; unwithheld VAT and penalties are claimed from the buyer.
Non-deductible VAT
- VAT on non-deductible expenses
- VAT on passenger car purchases (except rental and trading businesses)
- VAT on lost goods (with certain exceptions)
- VAT related to exemptions without deduction rights
- VAT on documents not recorded within the calendar year
- VAT on paper documents issued where e-documents were mandatory
Foreign companies
A foreign company without a Turkish workplace is generally not a VAT payer; Turkish business customers declare VAT by reverse charge. Exception: foreign companies supplying electronic services to consumers in Türkiye pay VAT themselves under a special registration (return No. 3).
Preparing a VAT refund file
- Identify the qualifying transaction: exports, reduced rate, withholding, incentive deliveries.
- Calculate refundable VAT: directly attributable input VAT + a share of overheads; annual limits for reduced-rate refunds.
- Lists: sales invoices, input VAT list, customs declarations, withholding lists; automatically matched with counterparties in the GİB system.
- Type: offset (against tax and SGK debts) or cash. Cash refunds above a threshold require a sworn CPA report or a guarantee.
- Follow-up: answering deficiency letters, counterparty findings, refund result.
A refund claim is a real asset but is often left waiting. How much of carried-forward VAT is refundable is checked every quarter. Details: VAT refund guide.
Filing and payment
VAT returns No. 1 and No. 2 are filed and paid by the 28th of the following month. Additional lists are required for related-party, exempt and refund transactions. Exchange differences on foreign-currency sales: FX difference invoice.
Common mistakes
- Assuming a similar product's rate without checking the lists.
- Forgetting reverse-charge VAT on foreign software and advertising invoices.
- Invoicing designated buyers without withholding.
- Not documenting "benefit abroad" for service exports.
- Accumulating VAT carried forward for years without considering a refund.
Sources
VAT Law No. 3065 (art. 9 liability, arts. 11–12 exports, art. 13 other exemptions, art. 28 rates, arts. 29–30 deduction, art. 32 refunds); VAT General Implementation Communiqué; Presidential Decisions on VAT rates.