Tax Status of Cross-Border Service Invoices and Rimuut Invoices
Hello,
Types of invoices received from abroad:
Service and consultancy invoices (Rimuut, etc.)
Online advertising and sponsorship invoices (Google, Facebook, Instagram, Snap, AppLovin, etc.)
SaaS invoices (LinkedIn, Slack, Pipedrive, Mailchimp, Zendesk, DocuSign, Adobe, Zoom, etc.)
Software invoices (SAP, Oracle, Unity, etc.)
Cloud storage and hosting (AWS, Google Cloud)
Royalty and intangible rights invoices (licensing, know-how, royalties, etc.)
Commission invoices
Cross-border invoices involve two jurisdictions (the foreign country and Turkey).
Because the tax laws of both countries differ, each country seeks to levy tax on this invoice.
In our scenario, the foreign jurisdiction will levy corporate income tax on the issuing company for the invoice issued, while the Turkish tax administration will seek to collect tax as withholding tax from the company making the payment.
To overcome this double taxation issue, countries enter into “Double Taxation Avoidance Agreements” (DTAA).
In this context, two key issues arise:
The jurisdiction where the invoicing entity is incorporated and where its headquarters are located (tax residency certificate) (essential to determine which treaty applies).
Which article/paragraph of the DTAA signed between the two countries covers the service subject to the invoice (once we determine the classification of income, we can assess which jurisdiction has taxing rights and at what rate).
To clarify the tax treatment, the following steps must be followed:
In which country is the service provider incorporated? (Tax residency certificate)
Is there an active DTAA between that country and Turkey? (If no treaty exists, there is no need to examine further; you may directly apply a 20% withholding tax.)
Under which article of this treaty does the invoiced service fall?
Was the service utilized/benefited from in Turkey, or was it used for a project abroad? (If not utilized in Turkey, neither VAT nor withholding tax will apply.)
Once definitive answers are established for these four questions, a clear assessment regarding the tax treatment can be made.
Naturally, other questions will also come into play, but these concern whether the invoiced service is deductible as a business expense, rather than direct tax withholding:
Was the service genuinely received and utilized?
Did your company require this service for its business operations?
Was the service procured at a lower or higher price compared to arm's-length market equivalents?
Service, SaaS, and Cloud/Storage Invoices (Where utilized in Turkey and a DTAA exists between the two countries)
VAT calculation will be required (Reverse Charge VAT / VAT-2); regarding corporate income tax assessment (i.e., withholding tax):
The Turkish Revenue Administration tends to treat invoices from abroad under the scope of “royalties/intangible rights” and demands that withholding tax be calculated on all software and service invoices.
We do not share this view.
In particular, we believe that SaaS, hosting/cloud storage, and recurring monthly subscription invoices should be evaluated under “business profits (commercial income)”, and therefore withholding tax should not be required.
Software Invoices (Where utilized in Turkey and a DTAA exists between the two countries)
VAT calculation will be required (Reverse Charge VAT / VAT-2); regarding corporate income tax assessment (i.e., withholding tax):
The Revenue Administration assesses invoices coming from abroad within the scope of “royalties/intangible rights” and demands that withholding tax be calculated on all software invoices.
We do not share this view.
If no rights to modify, reproduce, or copy the software are acquired, we believe it should be evaluated under “business profits”, and therefore withholding tax is not required.
However, if the incoming invoice includes a license fee for the software, withholding tax must be calculated.
For this reason, incoming foreign invoices must be clearly itemized, breaking down the software fee, consultancy/support fees, and customization fees separately.
If itemized separately, withholding tax calculations will be determined according to these distinctions.
Consultancy and Professional Independent Personal Services Invoices (Where utilized in Turkey and a DTAA exists between the two countries)
VAT calculation will be required (Reverse Charge VAT / VAT-2); regarding corporate income tax assessment (i.e., withholding tax):
This service will be evaluated under the scope of “independent personal services / professional services”, and if the individual(s) providing the service remain in Turkey for more than 183 days, withholding tax must be calculated. If the individual(s) providing the service do not stay in Turkey for more than 183 days, there will be no withholding tax.
The Rimuut Issue
If you have procured services from an individual residing in Turkey but this service is invoiced via Rimuut, the situation becomes complicated.
In other words, Rimuut issues the invoice to you in return for the service, and you pay the service fee to Rimuut. Rimuut then makes the payment to the freelancer from abroad.
Theoretically, this service falls under “independent personal services” and the service provider resides in Turkey for more than 183 days; under this circumstance, withholding tax must be calculated.
However, in form, the invoice originates from Estonia, and Rimuut claims it should be treated under “business profits”, asserting that no withholding tax should be applied.
Recently, we have begun hearing that freelancers receiving payments through Rimuut are being summoned to the tax offices.
Conclusion
If you have incoming invoices from abroad, let us evaluate the matter together in detail.
If your view on tax treatment differs from ours, please make sure to inform us so that we can calculate the taxes accordingly.
If you have invoices issued via Rimuut, our recommendation is to calculate withholding tax on these invoices, as the economic substance of the transaction is taxable; however, the final decision rests with you.
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