New VAT liability on Non-Residents Supplying Services Electronically
As you may remember from our legal alert dated 12 December 2017, a new VAT provision was introduced into the VAT Code and pursuant to this provision VAT arising from services provided electronically by those without a residence, workplace, headquarters or business center in Turkey to individuals who are not VAT taxpayers must be declared and paid by the service providers.
The Ministry of Finance prepared a draft communiqué (Draft Communiqué) which contains a further explanation of these services and declaration and payment processes regarding this new VAT practice.
The Draft Communiqué was published on the Revenue Administration's official website on 22 December 2017. According to the Draft Communiqué, it will enter into force on 1 January 2018.
What are the amendments?
According to the Draft Communiqué, the scope of services provided electronically in return for an amount by those without a residence, workplace, headquarters or business center in Turkey to individuals who are not VAT taxpayers as well as the VAT declaration and payment process will be as set forth below. That said, if the services are supplied electronically through a permanent establishment in Turkey, taxes arising from these services should be declared and paid in line with general rules (through VAT return No. 1).
1. Scope of services supplied electronically
The services within the scope of the Draft Communiqué include services supplied through the internet or an electronic network. The main services supplied electronically are listed below.
1. The supply of a website or webpage, domain name, web hosting or other services related to a website or webpage.
2. Distance maintenance of computer software and equipment, distance system management and online data storage services.
3. The sale of software and all digitalized products including accessing, downloading and updating (including products such as antivirus programs, ad blocker programs, device drivers, filters relating to websites and firewalls).
4. Supply of images, texts and information as well as the preparation of databases and similar services. The main services falling within this scope are listed below:
- Services automatically generated from a computer via the internet or an electronic network, in response to specific data input by the recipient (financial data, legal data, etc.)
- All services related to goods and services sales through markets where sellers and buyers come together via the internet or any electronic network and carry out transactions (including the sale of rights to put goods or services up for sale on a website)
- Internet service packages of information in which the telecommunications component forms an ancillary and subordinate part (ie, packages going beyond mere internet access and including other elements such as content pages giving access to news, weather or travel reports, playgrounds, website hosting and access to online debates, etc.)
- Services providing or supporting a business or personal presence on an electronic network such as a website or a webpage
- Accessing or downloading photographic or pictorial images, screensavers or desktop themes
- Accessing or downloading electronic books and other electronic publications
- Subscription to online newspapers and journals
- Weblogs and website statistics
- Online news, traffic information and weather reports
- Online information generated automatically by software from specific data input by the customer, such as legal and financial data (in particular data such as continually updated stock market data in real time)
- Provision of advertising space including banner ads on a website or webpage
- Use of search engines and internet directories
5. Supply of images, texts and information as well as the preparation of databases and similar services. The main services falling within this scope are listed below:
- Accessing or downloading of music, films and other sounds
- Accessing or downloading of games, services related to games where players are geographically remote from one another and in-game purchases
- Broadcasting services for listening to or viewing programs at the moment chosen by the user and at the user's individual request on the basis of a catalog of programs selected by the media service provider
- Receiving radio or TV programs via the internet or similar electronic network unless the programs are broadcast simultaneously over traditional radio and TV networks
6. Supply of distance teaching
- Automated distance teaching dependent on the internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the internet or a similar electronic network is used as a tool simply for communication between the teacher and student
- Workbooks completed by pupils online and marked in an automated fashion without human intervention
- Teaching services, where the course content is delivered by a teacher over the internet or an electronic network do not fall within this scope
7. Radio and TV broadcasting services
- Audio or audio-visual radio and TV broadcasting services for the purpose of simultaneous viewing or listening of programs based on a broadcasting schedule for the general public by electronic communications networks under the editorial responsibility of a media service provider
- Delivery of radio and TV broadcasting services through cable infrastructure as well as simultaneous live broadcasting on the internet fall within this scope
8. Other services supplied via the internet or other electronic network that are of a similar nature to the abovementioned services.
2. VAT registration for electronic service providers
Electronic service providers falling within the scope of the Draft Communiqué declare the VAT arising from these services by way of a "Special VAT Registration for Electronic Service Providers."
These electronic service providers that fall within the scope of this Special VAT Registration calculate the VAT arising from their services supplied electronically to individuals who are not VAT taxpayers by applying the relevant VAT rate for these services. VAT arising from these services is declared electronically through VAT Return No. 3.
Before submitting VAT Return No. 3 for the first time, these electronic service providers should fill out the form available on the Revenue Administration's website, here. After this form is filled out and approved, a "Special VAT Registration for Electronic Service Providers" will be made on behalf of the non-resident service provider before the Large Taxpayers Tax Office. Upon registration, the taxpayer will be provided with a user code and password to be able to operate in the internet tax office.
Those who made a Special VAT Registration for Electronic Service Providers are not required to make a separate work declaration.
Those who made a Special VAT Registration for Electronic Service Providers are not obligated to keep legal books under Article 172 of the Tax Procedure Code.
Those who made a Special VAT Registration for Electronic Service Providers cannot benefit from rights to VAT deduction under Article 29/1 of the VAT Code. In this sense, they cannot offset the VAT paid through VAT return No. 3 from the VAT paid for the deliveries of goods and services they have received in Turkey.
In cases where services are supplied electronically through a telecommunication network, an interface or a portal, if the electronic service provider is not explicitly indicated as the supplier and this is not reflected in the contractual arrangement between the parties, the invoices and similar documents issued do not explicitly identify the electronically supplied services and the supplier thereof, the VAT arising from these services supplied electronically will be declared and paid by those who operate the telecommunication network, interface or portal.
Those who are authorized to request payment from or set the general terms and conditions of the service or who are liable to supply these services are deemed to be electronic service providers.
3. Declaration and payment
Electronic service providers falling within the scope of the Draft Communiqué will declare the VAT arising from their services supplied electronically to individuals who are not VAT taxpayers in Turkish Lira on a monthly basis by the 24th day of the month following the taxation period through VAT Return No. 3 via the internet tax office.
There is no requirement to submit a tax return for the periods where there is no service supplied electronically.
VAT will be paid by the end of the 26th day of the same month of the declaration. This payment can be made to tax offices, banks authorized for tax collection or via the Revenue Administration's official website with bank cards of banks authorized to collect.
VAT return No. 3 is not required to be signed by certified public accountants without being subject to any limit.
4. Obligation to provide information
Banks that act as intermediary and electronic money payment institutions operating within the scope of Law No. 6493 on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions, will declare the payments which are made to electronic service providers related to their services within the scope of the communiqué to the Revenue Administration quarterly and until the end of the month following each quarter in accordance with the format and transmission method determined by the Revenue Administration under Articles 149 and Repeated 257/4 of the Tax Procedure Code.
Those who do not comply with the provisions of this Draft Communiqué related to the declaration obligation related to services supplied electronically under Article 9/1 of the VAT Code and obligation to provide information under Article 149 of the Tax Procedure Code will be subject to tax penalties regulated under the Tax Procedure Code.