What Is VAT in Turkey, How Is It Calculated and When Is It Filed?

The short answer to “what is VAT?”: it is a consumption tax added to the price of almost every good and service you buy, which the seller collects from you and pays to the state. VAT (katma değer vergisi, value added tax) is an indirect tax charged each time a good or service changes hands on its way from production to the final consumer, only on the value added at that stage. For a company, VAT is not an expense but an amount held in trust. It is collected from customers, the VAT paid on purchases is deducted, and the difference is paid to the tax office every month.

In this article we cover how VAT works, who the taxpayer is, the current rates, calculating VAT-inclusive and VAT-exclusive amounts, the filing date, exemptions and withholding in 7 points. At the end there is also a separate note for foreign-owned companies operating in Turkey.

What is VAT, and what does KDV mean?

For those asking what KDV means, the simplest definition is this: KDV is the abbreviation of “katma değer vergisi” (value added tax), and at each commercial stage the portion added to the value of the goods is taxed. The final consumer pays the tax on the invoice, but it is the seller who declares and remits it to the state. That is why VAT is called an indirect tax: the person who bears the tax and the person who declares it are different.

The legal basis of VAT in Turkey is Value Added Tax Law No. 3065. The Law was published in Official Gazette No. 18563 dated 2 November 1984, and its main provisions entered into force on 1 January 1985. Under Article 1 of the Law, deliveries and services performed in Turkey within the scope of commercial, industrial, agricultural and self-employment activities, as well as all imports of goods and services, are subject to VAT.

To put it with an analogy: VAT takes a share only of the value added by each link in the chain. Every business that sells the raw material, processes it and puts the product on the shelf pays its own share. At the end of the chain, the total VAT collected by the state equals the VAT paid by the final consumer.

How does value added tax work inside a company?

Looking at “what is VAT?” from the accounting side, value added tax is tracked in two separate accounts in the company’s books. The VAT you invoice to customers on your sales is recorded as “output VAT” (hesaplanan KDV), and the VAT you pay to suppliers on your purchases as “input VAT” (indirilecek KDV). Article 29 of the Law allows taxpayers to deduct the VAT paid on purchases related to their activities from the VAT they calculate on their taxable transactions.

The formula is simple: output VAT minus input VAT. If the result is positive, that amount becomes “VAT payable” and is paid with that month’s return. If the result is negative, the difference is called “VAT carried forward” (devreden KDV) and is carried to the next month’s calculation.

Consider a fictitious example. A limited liability company operating in Ankara makes sales of 400,000 TL excluding VAT in March and calculates 80,000 TL of VAT at the 20% rate. In the same month it pays 50,000 TL of VAT on purchases of 250,000 TL excluding VAT. The VAT the company will pay for the March period is 30,000 TL.

If output VAT in April is 40,000 TL and input VAT is 55,000 TL, the picture is reversed. The company pays no VAT that month and carries 15,000 TL forward to May.

7 key points for understanding VAT

In practice, the answer to “what is VAT?” comes down to the seven headings below; together they give the framework a company manager needs to know. Each point is based on the relevant provision of the Law.

1. Taxable event: when does VAT arise?

Under Article 10 of the Law, VAT arises upon the delivery of goods or the performance of a service. If an invoice is issued before the delivery or service, the tax is deemed to arise on the invoice date, limited to the amount shown on the invoice. For partial deliveries, the delivery of each part is the basis; for energy use such as electricity, water and natural gas, the accrual of the price; and for imports, the start of the obligation to pay customs duty.

This distinction matters in practice. Delivering at the end of the month and issuing the invoice the following month does not move the tax to the following month. The tax is included in the return for the period in which the delivery was made.

2. Who is the VAT taxpayer?

Under Article 8 of the Law, the VAT taxpayers are those who deliver goods or perform services, and, for imports, those who import goods and services. In other words, your limited liability or joint stock company becomes a VAT taxpayer the moment it makes a sale. The type of company does not matter; what is decisive is that a delivery or service is made within the scope of a commercial activity.

The same article also contains a warning. A person who shows VAT on an invoice although there is no taxable transaction, or who writes more VAT than legally owed, is liable to pay the tax shown. An invoice issued at the wrong rate should therefore not be left uncorrected.

3. VAT rates: 1%, 10% and 20%

VAT rates are set not in the Law but by Presidential Decree. Article 28 of the Law sets the base rate at 10% and gives the President the authority to increase this rate up to four times or reduce it to as low as 1%. The rates applied in practice are set by the lists annexed to Decree No. 2007/13033.

According to the current VAT rates table of the Revenue Administration (GİB), three rates apply today. All transactions not included in the lists are subject to the general rate, i.e. 20%. A rate of 1% applies to goods and services on List (I), and 10% to those on List (II). Which product falls on which list is set out item by item in the annexes to the Decree.

The rates last changed in 2023. With Presidential Decree No. 7346 published in Official Gazette No. 32241 dated 7 July 2023, the general rate was raised from 18% to 20% and the List (II) rate from 8% to 10%. The change entered into force on 10 July 2023; the 1% rate was not changed.

4. Calculating VAT: VAT-inclusive and VAT-exclusive amounts

VAT is calculated in two directions. If you start from a VAT-exclusive amount, you multiply the amount by the rate and add the result to the amount. If you work back from a VAT-inclusive price, you divide the price by (1 + rate); this gives you first the VAT-exclusive amount and then, from the difference, the VAT.

The most common mistake we see in the field is trying to find the VAT by multiplying a VAT-inclusive price directly by the rate. 20% of a VAT-inclusive price of 12,000 TL is 2,400 TL, whereas the VAT contained in that price is 2,000 TL. The table below shows the two-way calculation side by side for the three rates; the amounts are fictitious.

Under Article 20 of the Law, the tax base (the amount on which the tax is calculated) for deliveries and services is the consideration for the transaction. The consideration includes money, goods and other benefits received from the buyer under any name whatsoever. Article 24 of the Law also includes in the tax base the transport, packaging, insurance and commission costs incurred by the seller; a freight charge added separately to the invoice therefore cannot be kept outside VAT.

5. When to file and pay: the 28th of the following month

Article 39 of the Law sets the tax period as quarterly, but authorizes the Ministry to set monthly periods based on turnover. In practice, most companies file on a monthly basis. The text of the Law still states the 24th of the month for filing; the Revenue Administration (GİB), however, extended this deadline with Tax Procedure Law (VUK) Circular No. 149.

The current rule is this: the VAT return is filed by 23:59 on the 28th day of the month following the tax period, and the tax is paid within the filing period. VAT for the March period is declared and paid by 28 April, and VAT for the April period by 28 May. If the last day falls on a weekend or public holiday, the deadline moves to the next business day.

One point deserves a separate note: under Article 40 of the Law, a taxpayer that has no taxable transactions in a period must still file a return. A month without sales does not mean a month without a return.

6. Exemptions and withholding

Not every delivery is subject to VAT. Article 11 of the Law exempts exports of goods and services, Article 13 certain deliveries of means of transport, ports and investment goods, and Article 17 transactions for cultural, educational, social and military purposes as well as certain other transactions. Under a full exemption, the sale is made without VAT, but the VAT paid for that sale can be deducted. Under a partial exemption, however, Article 30 of the Law provides that the VAT paid on the related purchases cannot be deducted.

Withholding (tevkifat, a VAT deduction at source), on the other hand, is when the buyer pays the tax instead of the seller. Article 9 of the Law grants the authority to hold the parties to a transaction responsible for paying the tax in order to secure the tax receivable. Under partial withholding, the buyer declares a certain share of the VAT itself; for example, according to the withholding table of the Revenue Administration (GİB), this share is 4/10 for construction works. Since VAT withholding rates vary by type of work, they should be checked separately for each contract.

7. VAT carried forward and the link to refunds

Under Article 29/2 of the Law, if input VAT exceeds output VAT, the difference is carried forward to subsequent periods and, as a rule, is not refunded. VAT carried forward is a receivable waiting to be offset against tax the company will calculate in the future. However, in cases listed in the Law, such as full exemptions like exports, sales at reduced rates and partial withholding, a refund of this amount may be requested.

We have explained in detail which transactions give rise to a refund right and the refund by offset and cash refund routes in our What is a VAT refund guide. What you need to know here is that the right to a refund depends not on the size of the amount carried forward but on its source.

Foreign companies and VAT as the responsible party

When a firm that has no domicile, place of business, legal seat or business center in Turkey provides a service to a company in Turkey, that firm does not declare the VAT. In this case Article 9 of the Law places the tax on the Turkish company receiving the service; the company calculates the VAT as the responsible party and declares it with VAT Return No. 2. Consulting, license or software services received from a parent company abroad are typical examples.

According to the Revenue Administration (GİB) table of filing and payment deadlines, VAT Return No. 2 is filed by 23:59 on the 25th day of the month following the tax period, and the tax is paid by the evening of the same day. This deadline was set by Tax Procedure Law (VUK) Circular No. 164. Under Article 29 of the Law, this VAT paid as the responsible party can be deducted in the company’s own Return No. 1.

In foreign-owned companies, the VAT on payments made to the parent company is often overlooked, because the invoice is issued by the company abroad and does not show Turkish VAT. Our team of experts tracks such payments on a single checklist together with the withholding tax in the withholding return (muhtasar beyanname). This way, the two separate filing obligations for the same payment are each followed up.

What is the difference between VAT and corporate income tax?

VAT is levied on transactions, corporate income tax on profits. Even if a company makes a loss, it calculates VAT on its sales; corporate income tax arises only if there is a profit at year end. The two taxes are different obligations of the same company and do not replace each other.

For the tax base and exemptions of corporate income tax and its relationship with advance tax, see our what is corporate income tax article.

Common VAT mistakes we see in the field

Most of the VAT problems we encounter with our clients stem not from complex legislation but from day-to-day bookkeeping habits. The most common are:

• Issuing invoices at the wrong rate. Using the general rate without checking which list the product is on requires corrections on both the buyer’s and the seller’s side.
• Separating VAT incorrectly from a VAT-inclusive price. You need to divide by (1 + rate) instead of multiplying by the rate.
• Leaving the invoice to the month after delivery. The taxable event occurs upon delivery; the VAT goes into that month’s return.
• Overlooking services purchased from abroad. VAT not declared as the responsible party both creates a penalty risk and delays the right to deduct.
• Not filing a return in a month without transactions. As long as the tax liability continues, a nil return must also be filed.

The common solution to these mistakes is a monthly closing discipline. Having invoices reach accounting within the month and checking the rate at the time of issue reduces the workload on the filing day.

Where to start with VAT?

The answer to “what is VAT?” can be given in one sentence, but correct application requires a bookkeeping routine repeated every month. You can find the other guides in our Tax Legislation section on the Tax Legislation knowledge base page. For the current text of the Law, Value Added Tax Law No. 3065, and for the rate lists, the Revenue Administration’s current VAT rates table are the official reference sources.

At Akal CPA, we handle companies’ VAT obligations together with rate checks, filings as the responsible party and planning for VAT carried forward. You can find the scope of our work in this area on our tax, audit and advisory services page.