Optional Full Withholding Application

Optional Full Withholding Application and Refund Application Based on Export Price Introduced

1. The new applications introduced by the amendment made to the General Communiqué on the Implementation of Value Added Tax are summarized below.
2. In calculating the fair market value for the delivery of apartments and land under a land-for-flat construction contract, for the invoice the contractor will issue to a landowner who is not a VAT taxpayer, the fair value will be calculated as cost price + 10%; where the landowner is a VAT taxpayer, the fair value for the land price will be calculated as cost price + 5%.
3. An optional full withholding application has been introduced for services and deliveries within the scope of partial VAT withholding.
4. A refund application based on the export price has been introduced for goods exports made by manufacturers.
5. A 4/10 VAT withholding rate has been introduced for the delivery of iron and steel products. 5) Deliveries of iron and steel ingots have been brought within the scope of VAT withholding.
6. Throughout the General Communiqué on the Implementation of Value Added Tax, the threshold amount of TL 5,000 set as the refund limit that can be carried out by offset or in cash without requiring a Tax Inspection Report or a Certified Public Accountant (YMM) Report has been raised to TL 10,000.

With the Communiqué Amending the General Communiqué on the Implementation of Value Added Tax (Serial No: 41), dated 21.04.2022 and numbered 31816, certain amendments were made to the General Communiqué on the Implementation of Value Added Tax and new applications were introduced.

The amendments made are set out below under their main headings.

1-) In calculating the fair market value for the delivery of apartments and land under a land-for-flat construction contract, for the invoice the contractor will issue to a landowner who is not a VAT taxpayer, the fair value will be calculated as cost price + 10%; where the landowner is a VAT taxpayer, the fair value for the land price will be calculated as cost price + 5%.

Example 1 and Example 2 in Section (I/B-8.2.) of the General Communiqué on the Implementation of Value Added Tax, published in the Official Gazette dated 26/4/2014 and numbered 28983, have been amended as follows.

"Example 1: Mr. (A), who is not registered as a VAT taxpayer, signed a land-share (flat)-for-construction contract with contractor (B) Inc. on 20/5/2020 for his land in Kastamonu, and the building permit for this contract was obtained on 27/5/2020. According to the contract, the landowner Mr. (A) took delivery of 8 of the 20 residences and 2 of the 5 workplaces constructed, on 20/5/2022.

(B) Inc., applying the second method (cost price basis) set out in the second paragraph of Article 267 of Law No. 213, calculated a value of TL 4,400,000 and TL 1,650,000 respectively — totaling TL 6,050,000 — for the 8 residences and 2 workplaces it would deliver to the landowner, by adding 10% to the cost price since these constitute a retail sale.

Assuming the residences constructed are under 150 m², VAT of TL 44,000 (4,400,000 x 1%) will be calculated on the residences delivered by (B) Inc. to the landowner, and VAT of TL 297,000 (1,650,000 x 18%) on the workplaces, for a total of TL 341,000 in VAT.

No VAT will be calculated on Mr. (A)'s delivery of the land to contractor (B) Inc. If the land in question belonged not to Mr. (A), who is not a VAT taxpayer, but to (C) Ltd. Co., then on 20/5/2022 — the date the residences and workplaces given in exchange for the land share were delivered to the landowner — (C) Ltd. Co. would be required to calculate VAT at 8% on the land share, based on the value (B) Inc. determines for the independent sections by adding 5% to the cost price under the second method of the second paragraph of Article 267 of Law No. 213 (4,200,000 + 1,575,000 = TL 5,775,000).

Example 2: For the land recorded on the balance sheet of (D) Inc., a land-share (flat)-for-construction contract was signed with contractor (B) Inc. on 17/5/2022, and the building permit for this contract was obtained on 24/5/2022. Under this contract, the landowner (D) Inc. will receive 8 of the 20 residences to be constructed (4 with a net area of 140 m² and 4 with a net area of 160 m²) and 2 of the 5 workplaces. (B) Inc., applying the second method (cost price basis) set out in the second paragraph of Article 267 of Law No. 213, calculated a total value of TL 5,400,000 for the 8 residences and 2 workplaces it would deliver to the landowner, by adding 5% to the cost price since these constitute a wholesale sale — TL 2,000,000 and TL 2,400,000 respectively for the residences, and TL 1,000,000 for the workplaces.

In this case, for the residences and workplaces delivered by (B) Inc. to the landowner;

• For the 4 residences of 140 m²: (2,000,000 x 8%) = TL 160,000,
• For the 4 residences of 160 m² (8% VAT on the portion of the price corresponding to each residence's 150 m² and 18% VAT on the portion exceeding 150 m²): (2,400,000 x 150/160 x 8%) + (2,400,000 x 10/160 x 18%) = 180,000 + 27,000 = TL 207,000,
• For the 2 workplaces: (1,000,000 x 18%) = TL 180,000; thus, for the total value of TL 5,400,000, total VAT of (160,000 + 207,000 + 180,000) = TL 547,000 will be calculated.

On the delivery of the land share made by the VAT-taxpayer landowner (D) Inc. to (B) Inc. in exchange for the residences and workplaces it received, VAT of TL 432,000 will be calculated at a rate of 8% (5,400,000 x 8%) on the amount of TL 5,400,000, found by adding 5% to the cost price of the residences and workplaces under the second method of the second paragraph of Article 267 of Law No. 213."

2-) An Optional Full Withholding Application Has Been Introduced for Services and Deliveries Within the Scope of Partial VAT Withholding

Taxpayers, by drawing up a written contract with the selling taxpayers with whom they agree for a one-year period, may declare and pay the entire calculated VAT in their capacity as the party responsible for withholding, on purchases relating to the transactions specified in Sections (I/C-2.1.3.2.) and (I/C-2.1.3.3.) of the Communiqué (excluding the transactions in Section (I/C-2.1.3.2.13) and Section (I/C-2.1.3.3.7) of the Communiqué), regardless of whether they otherwise have withholding responsibility.

If it is desired to continue the application in the years following the expiry of the one-year period, the contract must be renewed for the same period. It is not possible to withdraw from this application before the one-year period expires.

1 2.1.3.2.13. Services Other Than Those Specified Above For all other services rendered by VAT taxpayers to the administrations, institutions and organizations within the scope of the schedules annexed to Law No. 5018 that are not specified above, VAT withholding is applied by the said administrations, institutions and organizations at a rate of (5/10).

2 2.1.3.3.7. Other Deliveries For all other deliveries made by VAT taxpayers to the General Directorate of the State Supply Office that are not specifically determined in the Communiqué (excluding water, electricity, gas, heating, cooling and similar energy uses), VAT withholding is applied by the said institution at a rate of (2/10).

Purchasing taxpayers must submit a copy of the relevant contracts, together with information on the selling taxpayers who will transact within this scope (name/title, tax office, tax identification number, contract application period), in list form to their affiliated tax office before filing the VAT return relating to the transaction. Situations such as the termination or amendment of contracts must also be notified to the affiliated tax office before the VAT return relating to the transaction is filed.

For transactions between buyers and sellers with whom they have not entered into a contract under the optional full withholding application, the transaction will be carried out in accordance with the general provisions.

VAT withheld by the buyer under the optional full withholding application is declared in the "Declaration of Transactions Subject to Optional Full Withholding" table on the "Tax Declaration" tab of VAT Return No. 2. The "Transaction Type" field of the table is filled in by selecting from the transaction type list for this field. The VAT-exclusive price of the transaction is entered in the "Tax Base" field, and the VAT rate applicable to the transaction is entered in the "Rate" field. The "Tax" field, which shows the amount of VAT withheld by the buyer, is calculated automatically by the e-declaration software.

Selling taxpayers who carry out transactions within the scope of the optional full withholding application make entries in two separate sections of VAT Return No. 1 for the relevant period. The first entry is made in the "Transactions Subject to Optional Full Withholding" table on the "Tax Base" tab; the second entry is made in the "Transactions Within the Scope of Optional Full Withholding" table on the "Exemptions - Other Transactions Giving Rise to a Refund Right" tab.

A VAT refund may be made to the seller, limited to the VAT subjected to optional full withholding. VAT refund claims arising from this application are fulfilled, for each transaction, within the framework of the procedures and principles set out in Section (I/C-2.1.5.) of the Communiqué. In fulfilling refund claims, the tax office requires that the VAT declared and assessed by the buyer via VAT Return No. 2 has been paid.

Those who have transactions within the scope of this application are subject to the explanations in Section (I/C-2.1.4.) of the Communiqué with regard to correction transactions, Section (I/C-2.1.5.) with regard to the refund of the withheld tax, and Section (I/C-2.1.6.) with regard to notification and joint and several liability.

3-) A Refund Application Based on the Export Price Has Been Introduced for Goods Exports Made by Manufacturers.

Manufacturers who directly export the goods they produce, regardless of sector, may claim a refund limited to the carried-forward VAT amount up to 10% of the export price, irrespective of the amount of VAT they incurred in relation to their export deliveries.

This application is optional, and the manufacturers defined in Section (II/A-8.3.) of the Communiqué may benefit from it.

Manufacturers declare their transactions within the scope of this application by using code 338, "Manufacturers' Goods Exports [VAT General Application Communiqué-(II/A-1.1.4.2.)]," in the "Transactions Within the Scope of Full Exemption" table on the "Exemptions - Other Transactions Giving Rise to a Refund Right" tab of the VAT return for the relevant period.

In the "VAT Incurred" column of this line, the amount of VAT subject to refund is entered, without calculating the VAT incurred in relation to the exported goods, provided it does not exceed 10% of the export price.

On the other hand, if the exported goods are returned, in order to benefit from the import exemption, the amounts refunded under this application must be paid to the customs administration, or a guarantee equal to that amount must be provided.

Within this section, manufacturers may claim a refund in relation to the goods they manufacture and export within the production capacity specified in the manufacturer certificates referred to in Section (II/A-8.3.) of the Communiqué.

This application may be used for goods that can be manufactured according to the production capacity stated in the manufacturer certificate, as well as for goods manufactured on a subcontract (fason) basis within this scope. Accordingly, having the entirety of the goods covered by the manufacturer certificate produced on a subcontract basis does not prevent the application of the refund under this scope.

While manufacturers cannot benefit from this application for goods they purchase ready-made from the market and export, they may claim a refund of the VAT incurred on such goods under Section (II/A-1.1.4.1.) of the Communiqué.

The fact that manufacturers also have deliveries with the intent to export under Article 11/1-c or Provisional Article 17 of Law No. 3065 in the same period does not prevent them from benefiting from this application in respect of the goods they directly export.

Where the goods manufacturers directly export contain goods procured without paying VAT, whether domestically or from abroad, the price of the goods procured in this way is deducted from the export price when calculating the refund related to the export price. The VAT to be refunded is determined based on the remaining amount.

Manufacturers who claim a refund under this section cannot additionally claim a refund based on the amount of VAT incurred, for the amount they were unable to obtain a refund for in relation to the same export delivery. However, instead of this application, manufacturers may claim a refund of the VAT incurred in relation to the export of the products they manufacture, under Section (II/A-1.1.4.1.) of the Communiqué.

In addition, taxpayers who benefit from this application in one period may benefit from the refund-of-incurred-VAT application in other periods.

The regulation entered into force on its publication date, to be applied to refund claims relating to transactions carried out on or after 1.5.2022.,

4-) A 4/10 VAT Withholding Rate Has Been Introduced for the Delivery of Iron and Steel Products.

VAT withholding at a rate of (4/10) will be applied to deliveries, to those listed in Sections (I/C-2.1.3.1/a and b) of the Communiqué, of products made of iron, steel and their alloys as specified in Section (I/C-2.1.3.3.8.2.) of the Communiqué.

Withholding is not applied to deliveries of products made of iron, steel and their alloys made by importers, nor to the first delivery by producers of products manufactured exclusively from ore; withholding is applied to subsequent changes of ownership after these stages. However, where products made of iron, steel and their alloys are produced from scrap, from other raw materials, or from a combination of scrap, ore and other raw materials, withholding is applied to deliveries at every stage, including the delivery by the initial producers of these products.

On invoices issued for deliveries made by importers, the statement "Withholding has not been applied since the goods delivered were procured directly through importation" is included, along with the import invoice and customs declaration details. Producers who manufacture from ore, on the other hand, carry out the transaction without applying withholding, including the statement "Withholding has not been applied since the goods delivered were produced exclusively from ore by our company" on the invoice issued.

The scope of withholding covers all kinds of long (bar, rebar, profile, wire rod coil, wire rod, wire, rope, wire mesh, pipe, flat bar, etc.) or flat (plate, hot-rolled flat products, cold-rolled flat products, coated flat products, etc.) iron, steel and alloy products manufactured from ore, scrap or other raw materials. Withholding is not applied to deliveries of articles made of iron, steel and their alloys (doors, door handles, angle brackets, screws, nuts, screw sockets, dowels, locks, nails, flanges, sleeves, elbows, hooks, hinges, springs, balls, bearings, chains, etc.).

The regulation will enter into force as of 1.5.2022.

1-) Deliveries of Iron and Steel Ingots Have Been Brought Within the Scope of VAT Withholding.

Deliveries of iron and steel ingots will be subject to 7/10 VAT withholding as of 1.5.2022.

2-) The Refund Threshold Amount of TL 5,000 Has Been Raised to TL 10,000.

Throughout the General Communiqué on the Implementation of Value Added Tax, the threshold amount of TL 5,000 set as the refund limit that can be carried out by offset or in cash without requiring a Tax Inspection Report or a Certified Public Accountant (YMM) Report has been raised to TL 10,000.

The regulation entered into force on its publication date, to be applied to refund claims relating to transactions carried out on or after 01.05.2022.

"Communiqué Amending the General Communiqué on the Implementation of Value Added Tax (Serial No: 41)"...>>>