What is KDV (VAT) in Turkish Tax Law?

In the complex landscape of Turkish tax law, one significant aspect that businesses and individuals need to comprehend is “KDV” or “Katma Değer Vergisi,” corresponding to Value Added Tax regulated under Value Added Tax Law No. 3065. 

In this essay, As Viridis Legal Partners, we aim to shed light on the intricacies of KDV (VAT), providing valuable insights for businesses navigating the Turkish tax system.

Key Points Of The Article

1. Understanding KDV (VAT) in Turkish Tax Law:
   • KDV, or Value Added Tax, is a crucial aspect of Turkish tax law (Law No. 3065) paid by goods or services providers but borne by recipients.
2. KDV Rates and Modifications:
   • KDV rates in Turkey range from 1% to 20%, with specific rates applicable to various goods and services.
   • Article 28 grants the President authority to modify rates, allowing adjustments up to four times and specifying different rates for goods and services.
3. KDV Exemptions:
   • Various exemptions exist, including those for exports, diplomatic services, and specific transactions related to social, military, and cultural activities.
   • Exceptions extend to specific deliveries and services, such as those provided by state institutions, military facilities, and transactions related to precious metals.
4. Import/Export Taxation and Other Areas:
   • KDV applies to imported goods and services by default, but exemptions exist for goods subject to customs warehouse regimes and transit/free zone provisions.
   • Specific exemptions cover transactions related to social and military purposes, international transport, and diplomatic representations.
5. Importance of Professional Guidance:
   • Given the complexity of Turkish Tax Law, businesses are advised to seek tailored advice on KDV, especially in import/export taxation.
   • Viridis Legal Partners offers expert tax advice and comprehensive support to ensure compliance and informed decision-making in the intricate Turkish regulatory landscape.

What Is KDV (VAT)? 

KDV (VAT), like many other similar ones in the world, is an expenditure tax that is paid by the deliverer of the goods or services but is abode by the recipient, upon the delivery of the goods or services produced. 

Tax can be defined as the money that the state collects from citizens directly or indirectly by adding it to the prices of some items and services, in accordance with the law, in order to spend on public services. According to this definition, tax can be divided into two groups: indirect tax and direct tax. Since KDV (VAT) is a tax on goods and services, it remains within the scope of indirect taxes.

KDV Rates In Turkey 

KDV (VAT)rates in Turkey vary from 1% to 20%. The rates of %1, %10, and %20 are currently applicable to the goods and services related. 

Article 28 of the aforementioned Law sets forth the KDV (VAT) rate as %10 and how to modify it. With reference to the mentioned article President has the authority to increase the rate up to four times, to reduce it to 1%, and to determine different tax rates for various goods and services within these rates, as well as for the retail phase of some goods and for housing deliveries based on the tax value and location of the land or house on which the construction is made.

In Turkey, in accordance with the Decision of the Council of Ministers no. 2007/13033, KDV (VAT) is applied at the rates of 1%, 8% and 18% on various products, while with the Presidential Decision no. 7346 published in the Official Gazette dated July 7, 2023, the rate of 8% is updated as 10%, the rate of 18% is updated as 20%.

The 1% KDV (VAT)applies mostly to essential foodstuffs, such as wheat and bread, and essential services, such as funeral services. The 10% KDV (VAT) applies mostly to general consumer goods and services that cannot be considered luxuries. For example, products and services ranging from toothpaste to theatre tickets, from food and beverages including acidic drinks to clothing and accommodation services fall within this scope. KDV (VAT) is applied at a rate of 20% on various products such as alcoholic beverages and cigarettes, soap, shampoo, napkins, feminine hygiene pads, electronic goods and furniture, which are considered to be luxuries by the public administration. 

We would like to point out that this information on KDV (VAT) rates is of a general nature and we recommend that you conduct particular research to find out the KDV (VAT) rate for each product and service. You may contact us for KDV (VAT) and other tax law services. 

Exceptions and Exemptions On KDV (VAT) In Turkish Tax Law

In Turkish Tax Law, the concepts of exception and exemption are directly related to the tax subject and the taxpayer. The tax subject can be defined as the economic item on which tax is collected. Excluding these from tax constitutes an exception. The taxpayer is the natural or legal person upon whom tax duties are imposed. Tax exemption means that real or legal persons or groups of persons who are liable to tax are excluded from tax.

Exceptions mostly referred to as exemptions on KDV (VAT) are listed between Articles 11 and 17 of the aforementioned Law. 

KDV (VAT) Exemptions in Exports 

All exports of goods and services are exempt from KDV (VAT). This exemption covers services provided to customers abroad as well as roaming services provided in Turkey in case of reciprocity and contract services provided to customers in free zones. In addition to all these, the delivery of goods purchased by non-resident passengers in Turkey to take them abroad, the goods and services purchased by transport companies not headquartered in Turkey from places such as fairs and fairs, and the purchase of cinematographic works approved by the Ministry of Culture and Tourism within the scope of Law No. 5224 by foreign producers are also exempt from KDV (VAT). 

Exemption for Vehicles, Petroleum Exploration and Investments with Investment Incentive Certificate

Floating facility and vehicle leasing, operation, repair-maintenance operations of sea, air, and railway transport vehicles, services provided to these vehicles at ports and airports, and construction, renovation and expansion of railway lines, ports and airfields connecting to ports taxpayers who actually carry out or have carried out the works themselves and general budget administrations regarding these works and deliveries of goods and construction contracting works are exempt from KDV (VAT).

The deliveries and services made to those who carry out these activities in relation to gold, silver, platinum exploration, operation, enrichment, refining and petroleum exploration activities in accordance with the provisions of the Turkish Petroleum Law and the deliveries and services made to those who carry out pipeline transportation in accordance with the provisions of the same Law in relation to the construction and modernisation of these lines are also exempt from KDV (VAT). 

Deliveries of machinery and equipment within the scope of the certificate to taxpayers holding Investment Incentive Certificate (buna link verilecek) and sales of software and intangible rights within the scope of the certificate and leases, and the Ministry of National Defence, the Ministry of Justice, the Ministry of Interior, the Presidency of Defence Industries, the Presidency of the National Intelligence Organisation and the General Directorate of Customs Enforcement for their national defence and internal security needs, aircraft, helicopters, ships, submarines, tanks, panzers, armoured personnel carriers, rockets, missiles and similar vehicles, weapons, ammunition, weapon materials, equipment and systems, and their research and development, software, production, assembly and installation, Deliveries and services made in relation to spare parts, maintenance-repair and modernisation, and deliveries and services made to these institutions within the scope of the relevant projects in relation to the defence industry projects carried out by the Ministry of National Defence or the Presidency of Defence Industries, and deliveries and services to be made within this scope to those who perform these deliveries and services, the quantity and qualifications of which are approved by the above-mentioned institutions, are also exempted from KDV (VAT). 

Provided that it is applied in the first delivery of the buildings constructed as residential or business premises and the price is brought to Turkey in foreign currency, the deliveries of residential or business premises made to Turkish citizens living abroad for more than six months by obtaining a work or residence permit, except for those specified in Article 3/1-2 of the Income Tax Law, real persons of foreign nationality who are not resident in Turkey, and institutions whose legal and business centre is not in Turkey and which do not earn income in Turkey through a workplace or permanent representative, are also exempted from KDV (VAT) together with other tax issues. 

Transport Exemption

Transit and international transport works carried out by land, sea, air or railway between Turkey and foreign countries, starting in Turkey and ending in a foreign country or starting in a foreign country and ending in Turkey or transit through Turkey are exempt from KDV (VAT).

This exemption is granted to taxpayers whose domicile, legal centre and business centre are not located in Turkey, provided that they are reciprocal with respect to the relevant countries.

Diplomatic Exception

Deliveries and services to diplomatic representations and consulates of foreign states in Turkey and their members with diplomatic rights, and deliveries and services to international organisations granted tax exemption in accordance with international agreements and their members are exempt from KDV (VAT), provided that they are reciprocal. 

Import Exemption on KDV (VAT)

According to Article 1 of the KDV (VAT) Law, as a rule, all imported goods and services are subject to KDV (VAT), while the import of goods and services exempted from KDV (VAT) is also exempt from KDV (VAT). However, the customs warehouse regimes mentioned in the Customs Law and the goods to which the transit and free zone temporary storage provisions are applied and the value difference gained by the return of these goods and the processing of these goods outside are also exempted from KDV (VAT). 

Exceptions for Social and Military Purposes 

The delivery of some services such as the services provided by state institutions, and foundations for the purposes of promoting fine arts, science, science, agriculture; cultural activities such as theatre, concert, and sports facility management; and the services provided by military factories, shipyards and workshops, army houses and affiliated branches, military casinos, barracks casinos, shift dormitories and their outbuildings, private, local and winter training centres, military canteens and military museums in accordance with their establishment purposes are exempted from KDV (VAT). 

Other Exemptions 

Deliveries and services made by taxpayers such as tradesmen exempt from tax under the Income Tax Law, self-employed persons whose earnings are determined in simple procedure and farmers, roaming services received from abroad within the framework of international roaming agreements and the reflection of these services to customers in Turkey, transactions falling within the scope of bank and insurance transactions tax and transactions related to insurance transactions made by insurance intermediaries to insurance companies, gold bullion and silver bullion deliveries and the import of precious stones (such as diamond, ruby, emerald, topaz, sapphire, chrysolite, pearl) to be traded in the stock exchanges established in Turkey according to the Capital Markets Law No. 6362 dated 6/12/2012, delivery to the stock exchange and exchange between the members of the stock exchange, foreign currency, money, stamp stamps, valuable papers, stocks, bonds, lease certificates issued by asset leasing companies (including financing services provided by purchasing bonds limited to the interest income obtained), the delivery of capital market instruments traded on stock exchanges established in Turkey and the delivery of metal, plastic, tyre, rubber, paper, glass scrap and waste and garment trimmings and , such many goods or services and lease deliveries are exempted from KDV (VAT) under the title of other exemptions in the aforementioned law. 

Since Turkish Tax Law is an elaborate area of law, it would be convenient for businesses to seek particular advice on the KDV (VAT)at import/export taxation and other specific areas they conduct business. You may contact us for KDV (VAT) and other tax law services. 

Conclusion 

In navigating the intricate landscape of Turkish tax law, understanding the nuances of Value Added Tax (VAT) or “KDV” is crucial for businesses and individuals alike. Our exploration of KDV in this essay has provided valuable insights into its fundamental principles, varying rates, and exceptions in Turkish Tax Law. 

As Viridis Legal Partners, we emphasize the importance of personalized research to determine specific KDV (VAT) rates for each product and service. Our team of expert tax lawyers in İstanbul are here to assist you with expert advice and tailored solutions in navigating KDV matters and other aspects of tax law. Seeking professional guidance is key to ensuring compliance and making informed decisions in this complex regulatory environment. 

Contact us for comprehensive support that aligns with your business needs, as we remain committed to providing clarity and expertise in the realm of Turkish taxation.

FAQ’s

What is KDV in Turkish Tax Law?

KDV, or Value Added Tax, is an expenditure tax paid by goods or services providers but ultimately borne by recipients in Turkey.

How are KDV rates determined in Turkey?

KDV rates range from 1% to 20%, with the President having the authority to modify rates based on Article 28 of the law.

What goods and services are exempt from KDV?

Exemptions cover exports, diplomatic services, social and military purposes, and specific cultural and scientific activities, among others.

Are there exemptions for imports in Turkish Tax Law?

Generally, all imported goods and services are subject to KDV, but exemptions exist for specific categories, such as those under customs warehouse regimes.

Why is professional guidance recommended for KDV matters?

Given the intricacies of Turkish Tax Law, seeking professional advice is crucial to understanding specific KDV rates, exemptions, and ensuring compliance with complex regulations. Viridis Legal Partners offers expert assistance in navigating these complexities.

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