VAT Withholding Rates in Turkey and Partial Withholding

VAT withholding rates (KDV tevkifat oranları) are fractions showing how much of the VAT calculated on the invoice in a transaction subject to partial withholding the buyer will withhold and pay through its own return. The rates range from 2/10 to 9/10 and are determined by the type of transaction and sometimes by who the buyer is. For example, for consulting services provided to a bank, the bank pays 9/10 of the VAT; when you provide the same service to a limited liability company, no withholding may apply at all.

In this article, we have gathered the rates into two tables, one for services and one for supplies of goods. We also explain with examples which buyers must apply withholding, how the invoice is issued and when the rate does not apply. Recovering the VAT that accumulates on sales subject to withholding is left for a separate article.

What is VAT withholding, and what does the rate show?

The short answer to the question "what is VAT withholding?" is this: part of the tax is declared and paid by the buyer, as the party responsible, instead of the seller. The seller calculates the full VAT on the invoice. The buyer withholds the portion at the rate in the Communiqué and pays it to the tax office with VAT Return No. 2.

The rate is a fraction and is applied to the calculated VAT, not to the transaction price. If 10,000 TL of VAT is calculated on a transaction with a 7/10 rate, the buyer declares 7,000 TL and the seller 3,000 TL. The seller shows the portion not withheld as output VAT on its Return No. 1. We covered the tables and lines on the return side separately in our VAT return guide.

The Communiqué also sets a limit. The transactions subject to partial withholding are limited to those listed in the Communiqué. For a transaction not on the list, the buyer cannot decide to “withhold this as well”; tax withheld without basis requires a later correction.

Designated buyers and VAT taxpayers: who applies withholding?

The Communiqué divides the buyers that must apply withholding into two groups and specifies separately which group is responsible for each transaction. When reading the rate table, the first column to check is therefore the buyer column.

The first group is VAT taxpayers. Those who pay VAT only as the responsible party are not included in this group. The second group consists of institutions listed as designated buyers, whether or not they are VAT taxpayers.

Who is on the list of designated buyers?

The list of designated buyers is broad. The main ones are:

• Public administrations in the schedules annexed to Law No. 5018, special provincial administrations, municipal unions and village service unions
• Public institutions established by law or Presidential Decree, revolving-fund organizations and professional organizations in the nature of public institutions
• Banks, insurance, reinsurance and pension companies, and retirement and assistance funds established by law
• Trade unions, foundation universities, mobile electronic communications operators, state economic enterprises and entities within the scope of privatization
• Organized industrial zones, exchanges, companies whose shares are traded on Borsa İstanbul, and development agencies
• Companies more than half of whose shares belong to these institutions

School-parent associations and family medicine practices are not included in this group. No withholding applies to supplies and services between designated buyers either, except for professional sports clubs. If the publicly listed parent of a foreign-owned company is listed on an exchange abroad rather than in Turkey, we recommend checking the “Borsa İstanbul” condition on the list separately.

VAT withholding rates for services: 10 examples

The table below shows the rate for the ten types of service we encounter most often in practice and the buyer group that must apply withholding. All rates are taken from the partial withholding section of the current text of the VAT General Implementation Communiqué published by the Revenue Administration (GİB).

According to the Revenue Administration (GİB), in road freight transport the buyer pays 20% of the calculated VAT; for consulting and cleaning services, this share rises to 90%. The difference directly affects the VAT the seller will collect and therefore its cash flow.

Other services not in the table

Beyond these ten services, the Communiqué lists five more items:

• Building inspection services: 9/10, VAT taxpayers and designated buyers
• Contract textile and apparel manufacturing, contract bag and shoe stitching and brokerage of such work: 7/10, VAT taxpayers and designated buyers
• Customer referral services provided by travel agencies and guides to tourist shops: 9/10, VAT taxpayers
• Broadcasting, advertising and naming rights income of professional sports clubs: 9/10, VAT taxpayers and designated buyers
• Other services: 5/10 for services not separately specified in the Communiqué and provided to public institutions, banks and insurance companies

Services whose scope is most often confused

The consulting item includes advisory and inspection services in technical, economic, financial and legal fields; training provided as a continuation of a supply or service and priced separately is also treated as consulting. There is no withholding on services lawyers provide before judicial authorities under a power of attorney agreement, but there is withholding on their consulting services. Media monitoring, announcement and advertising services are not treated as consulting; advertising is subject to a 3/10 rate as a separate item.

In construction works, the cost of materials is not separated from the service price. If the contractor also supplies the materials, withholding applies to the VAT calculated on the total price, even if materials and labor are shown separately on the invoice. If the buyer purchases consumables such as cleaning detergent from the market itself, no withholding applies to that purchase.

VAT withholding rates for supplies of goods

Partial withholding applies not only to services but also to certain supplies of goods. For almost all of these supplies, withholding is applied by both VAT taxpayers and designated buyers.

Pay attention to the details of the iron and steel item. There is no withholding on the first supply of a product produced exclusively from ore. If the product was produced from scrap or from a combination of scrap and ore, withholding applies at every change of hands, including the first producer's supply.

How is an invoice subject to withholding issued?

For the seller, the invoice subject to withholding is the document proving that withholding was applied, and it must show separately the fields listed in the Communiqué. The invoice includes the following items:

• The transaction price and the VAT calculated on that price
• The withholding rate and the amount of VAT to be withheld by the buyer
• Total amount including withholding
• Total amount to be collected after withholding

As the amount owed, the amount remaining after withholding is written on the invoice in figures and in words. If you use e-Invoice, you need to issue the invoice subject to withholding with the withholding code corresponding to the transaction type. If the wrong code is chosen, the rate is calculated incorrectly and the buyer's Return No. 2 will not match your invoice.

Example calculation: consulting provided to a bank

Consider a fictional example. A consulting firm issues an invoice to a bank for services of 100,000 TL excluding VAT, and in this example we assume a VAT rate of 20%. The calculated VAT is 20,000 TL.

Since the bank is a designated buyer, it withholds at the 9/10 rate, that is, 18,000 TL, and pays this amount with Return No. 2. The consulting firm collects from the bank the price of 100,000 TL plus 2,000 TL of VAT, a total of 102,000 TL. If the same service had been provided to a limited liability company, the full 120,000 TL would have been collected, since only designated buyers apply withholding on consulting.

When do VAT withholding rates not apply?

Even if a transaction is on the list in the Communiqué, there are cases where withholding does not apply. Knowing these reduces the risk of unnecessary withholding and amended returns.

• Invoicing threshold: No withholding applies if the VAT-inclusive price of the transaction does not exceed the invoicing threshold set under Article 232 of VUK for the year in which the transaction takes place. If the threshold is exceeded, withholding applies to the full amount, and the price cannot be split into several invoices for this purpose.
• If the seller is a designated buyer: No withholding applies to the supplies and services of the institutions on the designated buyers list, whoever the buyer is. Professional sports clubs are an exception to this rule.
• Exempt transactions: Since no tax is calculated on a supply or service exempt from VAT, no amount arises to be withheld either.
• Buyer that is not a VAT taxpayer: Buyers that are not on the designated buyers list and are not VAT taxpayers do not apply partial withholding. For example, there is no withholding on private security services provided to an apartment building management that is not a VAT taxpayer.
• Force majeure: Buyers whose filing obligations are postponed due to force majeure do not apply withholding on their purchases during that period. If the seller is also covered by force majeure, the general provisions apply.

The 5 million TL threshold for construction works is monitored separately. If the work for a buyer that is a VAT taxpayer is initially below this amount, no withholding applies. If the contract price is updated and exceeds 5 million TL, withholding starts from the date this situation arises.

What is the difference between full and partial withholding?

Under full withholding, the buyer declares all of the VAT; under partial withholding, only the portion at the rate in the Communiqué. The transactions subject to full withholding are also limited to those set out in the Communiqué.

The main cases of full withholding are: services obtained from persons with no residence, place of business or legal seat in Turkey and used in Turkey; certain leases by a VAT-registered tenant from a lessor that is not a VAT taxpayer; advertising given to outlets such as amateur sports clubs and magazines that are not VAT taxpayers; and, under certain conditions, self-employment transactions. For services obtained from abroad, the buyer does not even need to be a VAT taxpayer. At foreign-owned companies using such services, a management service invoice from the parent company is the most common example of full withholding.

Optional full withholding

Buyers may declare all of the VAT themselves on purchases subject to partial withholding from sellers with whom they have agreed for one year under a written contract. Survey-design and consulting, other services not separately specified in the Communiqué and supplies made to the State Supply Office are excluded from this practice. The buyer submits a copy of the contract and the list of sellers to the tax office before filing the relevant VAT return. Under this route, refunds can be made to the seller limited to the VAT withheld.

How have the rates changed in recent years?

Some of the rates in force today were set by amendments to the Communiqué. The amendment notes the Revenue Administration (GİB) has added to the text of the Communiqué show this history.

• From 1 April 2020, the rate for metal ingots, copper, zinc, aluminum and lead products and supplies of scrap and waste became 7/10; the previous rate for scrap was 5/10.
• From 1 March 2021, rates of 7/10 for maintenance and repair, 9/10 for cleaning and environmental maintenance, 7/10 for contract textile work and 7/10 for printing and publishing began to apply.
• From 1 November 2022, the rate for iron and steel products rose from 4/10 to 5/10, and supplies by companies traded on Borsa İstanbul were also brought within scope.

A rate left over in an old contract template or accounting program means incorrect withholding today. We therefore recommend comparing the rates with the current text of the Communiqué at least once a year.

Common rate mistakes we see in the field

Most of the errors we encounter in withholding files arise not from the rate itself but from wrongly determining which item the transaction falls under:

• Applying 9/10 withholding on a consulting invoice issued to a private-sector client when the buyer is not a designated buyer
• Applying withholding only to the labor amount in construction works where the contractor supplies the materials
• Treating transport by a company holding a cargo operator license as freight transport and withholding 2/10
• Calculating the 5 million TL threshold for construction works on the amount excluding VAT
• Applying withholding to finished iron and steel articles such as screws and hinges

These errors lead the buyer to apply withholding without basis or to under-withhold. Correcting tax withheld without basis requires touching both parties' returns.

Fictional scenario: three different rates in the same month

Consider a fictional example. A limited liability company providing facility management in Ankara, in the same month, provides building cleaning to a bank, air-conditioning maintenance to a public institution and staff shuttle transport to a private logistics company.

For cleaning, the bank withholds at 9/10; for maintenance and repair, the public institution withholds at 7/10; and for shuttle transport, the logistics company withholds at 5/10. Although the logistics company is not a designated buyer, the rate does not change, because VAT taxpayers also apply withholding on shuttle transport. Issuing each invoice with the correct code is essential for the three buyers' Returns No. 2 to match the company's own Return No. 1. This scenario was constructed only to show how the rates work together.

When planning your sales subject to withholding

Although the rates seem fixed, finding the right rate requires answering two questions for every invoice: which item does the transaction fall under, and which group is the buyer in? For work with a high withholding share, carried-forward VAT accumulates for the seller over time. We explained the route and limits for recovering this accumulated amount in detail in our article VAT withholding refund ; other guides on VAT and tax returns are available in Tax Legislation category.

The official basis for the rates and scope is the current text of the VAT General Implementation Communiquépublished by the Revenue Administration (GİB). At Akal CPA, we work with companies making sales subject to withholding to check invoice codes and run the refund process for accumulated VAT; our scope of services is set out on the VAT refund services page.