Our topic today is an important topic that often causes confusion: VAT WITHDRAWAL . If you have any financial advisors registered to the Istanbul Financial Advisory Chamber, they would provide you with detailed information on this subject, but we wanted to mention it here as the subject of a frequently asked question to financial advisors. Before establishing a company, a sole proprietorship or a limited company, it will be beneficial for you to know the VAT withholding from your official accounting transactions. First of all, the meaning of the word withholding is deductions for money-related matters.The logic in the deduction made for VAT is that the VAT is deducted at the source, that is, during the transaction. So, who should apply withholding VAT and who needs to be implemented? While this list is very long and exhaustive, let’s talk about that briefly. Those who should apply withholding are VAT taxpayers, and the parties to which the withholding will be applied are also all VAT taxpayers in some cases, , depending on the recipients and sectors determined as specified in the communiqué, and in some cases non-VAT taxpayers (Non-taxpayer means companies residing abroad).
Let’s continue by giving a few examples of works where withholding is applied:
- Organization services, food services
- Contract workmanship (textile, ready-made garments, shoe sewing, bag sewing)
- Garden care, environment and cleaning jobs
- Transportation Services
- All printing services
- Commercial ads
- Lead, zinc, aluminum and copper
- Forest products deliveries and tree deliveries.
While making VAT Withholding, certain rates should be applied depending on the nature of the business. For example, the withholding on copper deliveries is 70%, the VAT withholding on receipts issued by lawyers to Public Institutions within the scope of the Code of Criminal Procedure is 50%, and the VAT withholding on commercial advertising services is 30%.
Now let’s try to understand what this means, how the calculation is done, through examples. For example, a X company that sells copper plate has delivered copper to its customer Y and is issuing an invoice. In case of issuing an invoice of 10.000 TL excluding VAT, let’s examine how seller X and buyer Y will show it in their declarations and the taxes they will pay: (The one who applies VAT withholding will show it in the VAT-1 declaration, the buyer to whom the withholding will be applied will show it in the VAT-2 declaration)
The information on the invoice to be issued by the copper company will be as follows:
Goods/Services Total Amount 10.000 TL
Calculated VAT 1.800 TL
Amount Subject to Withholding 10.000 TL
VAT Amount Calculated on the Transaction Subject to Withholding 1.800 TL
Calculated VAT Withholding 1.260 TL
Total Amount Including Taxes 11.800 TL
Payable Amount 10.540 TL
If the selling Copper company was not within the scope of VAT withholding, it would have declared the VAT of 1800 TL directly in VAT-1 and shown and paid in the VAT section that must be paid. However, with the withholding, 70% of this 1800 TL will be shared with the other party. Namely, 70% of 1.800 TL is 1,260 TL and this amount should be paid by the buyer to whom the withholding applied, not the Bakır firm. It will subtract 1,260 TL from 1.800 TL and declare and pay the remaining 540 TL with VAT-1 Declaration. As a result, the amount to be collected from the buyer will consist of the tax base + this tax.
If the buyer company Y had not received an invoice with withholding, it would have shown the entire amount of 1,800 TL in the VAT amount section for domestic purchases and made it a discount subject in the VAT-1 declaration. However, since it makes purchases with withholding, 1260 TL of 1800 TL (the amount equal to the calculated withholding VAT) will be subject to deduction by declaring it as responsible, and the remaining 540 TL will be the subject of a discount in the VAT line for domestic purchases. There is one more declaration to be submitted by Buyer Y, and don’t worry, the matter is over after that : ) Buyer Y will declare and pay the calculated VAT withholding amount by showing it in the VAT-2 declaration.
As can be seen in these practices, the meaning in the withholding system is to facilitate the follow-up of some VAT transactions for the state through mutual declarations and to offer a solution to the difficulties in VAT collection for the state.
If you would like to talk, consult or think about withholding or other issues, I would be pleased to welcome you at my financial advisory office in Fatih Istanbul. You can send an e-mail, call or write from the contact information section at any time. I would like to conclude my article with respect and love, wishing to meet you on the Establishment of a Limited Company, the Establishment of a Sole Company, Residence Permit, Work Permit, Turkish Citizenship for the Investor and all your Official Accounting transactions or any other complex issue.
