Controversial Issues - Outbound Service Invoices - Technopark Attendance Fee and Technopark Mass Production

Inbound Outbound Service Invoices

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Corporate Income Tax Application

To consider invoices related to services procured from abroad (consultancy, subscription/monthly usage fees, market research, etc.) as deductible expenses for corporate income tax purposes, the following conditions must be met:

- The service must be provided by a resident firm abroad.

- The company in Turkey must have a genuine and demonstrable need for the service in question.

- The service must be utilized in Turkey.

- The invoice amount must be compatible with the nature of the service provided and comply with the arm's length principle (it should not be excessively low or high).

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VAT Application

If the service procured from abroad is utilized in Turkey, VAT at the rate of 20% is calculated and declared and paid via the No. 2 VAT Return.

This paid VAT can be treated as deductible VAT in the No. 1 VAT Return.

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Withholding Tax Application

The issue of withholding tax on outbound service procurements varies depending on the nature of the service and international treaties:

- If the service is utilized in Turkey:

* If there is a Double Taxation Avoidance Agreement (DTAA) between Turkey and the country where the service provider is resident, the provisions of the relevant agreement are taken into consideration.

* If there is no DTAA, the withholding tax rate is generally 20% under general practice.

- If the service is not utilized in Turkey:

* No withholding tax is applied.

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Withholding Tax Application in Cases Where a DTAA Exists

If the service is utilized in Turkey and a DTAA exists with the relevant country:

- Services in the nature of commercial earnings:

Generally not subject to withholding tax.

- Independent professional services:

It is examined whether the person providing the service stays in Turkey for more than 183 days within a calendar year:

* 0–183 days: Generally no withholding tax.

* 183 days and above: Withholding tax between 5% and 20% may be applied according to the relevant DTAA provisions.

- Royalties (software, patents, etc.):

Depending on the DTAA, withholding tax is generally applied within the range of 5%–20%.

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SaaS (Software as a Service) Payments Withholding Tax Application

For software services procured from abroad (SaaS – subscription-based usage):

- Our opinion: It should be evaluated within the scope of commercial earnings and withholding tax should not be applied.

- The tax administration's approach: Such payments are evaluated as the use of royalties and a 10% withholding tax is generally requested.

Therefore, in order to minimize the risk of dispute, applying a 10% withholding tax on SaaS payments will be a more prudent approach.

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