Businesses in Türkiye can obtain many services from foreign companies, including consulting, software, licensing, advertising, engineering, design, and training. The fact that a foreign service provider does not have a company or branch in Türkiye does not mean that the transaction will not incur any tax liabilities in Türkiye.

The most common question in these transactions is whether VAT and withholding tax declared in the capacity of responsible party can be applied simultaneously. The short answer is: Yes, VAT and withholding tax can arise together. However, this outcome is not automatic for every foreign service purchase. The two obligations are based on different laws, different taxable events, and different assessment criteria.

Within this scope, we should evaluate the most common applications in two separate categories: Advertising Services and Software Services.

We should also consider software in two separate categories: software rental services such as AWS (Amazon Web Services), Microsoft, Adobe, and Zoom, and software whose copyrights are purchased.

The fundamental mistake here is assuming that all digital services result in the same tax outcome. However, cloud infrastructure usage, standard software subscriptions, software licenses, technical support, and advertising services can all be different in nature. The content of the contract, whether the service is used in Türkiye, and the rights granted to the user are just as important as the description on the invoice.

When will VAT 2 on digital services abroad come into effect?

If a service received from a foreign provider is performed or utilized in Türkiye, taxation under Turkish VAT legislation may arise. If the foreign company providing the service does not have a presence in Türkiye to carry out the relevant transaction, the VAT may be declared by the business receiving the service as the responsible party. In practice, this process is referred to as VAT 2.

The use of AWS servers for the company's operations in Türkiye, the allocation of a Zoom subscription to meetings conducted by the team in Türkiye, or the use of Adobe applications for design activities in Türkiye are examples that support the assessment of usage in Türkiye. The fact that the server is physically located in another country does not, by itself, mean that the service is used abroad.

Whether the credit card is personal or corporate, whether the payment is automated, or whether the invoice is sent by email does not eliminate VAT liability. What matters is the nature of the service, the seller, and where it is used.

It is also possible for foreign electronic service providers to be subject to special VAT regulations for certain transactions in Türkiye. However, in B2B purchases where the business is a VAT taxpayer, simply seeing a foreign country tax or special tax clause on the invoice should not be sufficient. The buyer's status must be correctly defined on the seller's account, and the transaction must be checked in terms of VAT rules by the responsible party in Türkiye.

VAT base and deduction subject

When determining the VAT base to be calculated as the responsible party, the service fee, contract terms, currency conversion, and elements that are part of the price are taken into account. The exchange rate used for transactions in foreign currency and the date of the taxable event must be consistent with the accounting records. VAT declared and duly paid under VAT 2 may be deducted if the general deduction conditions are met and the purchase is related to the company's VAT-taxable activities. Current practices regarding the deduction period and document requirements should be checked. The result may differ in cases of exemption, partial deduction, or no deduction rights.

Why should withholding tax be considered separately from VAT?

The fact that VAT 2 arises does not necessarily mean that withholding tax will be applied to the same payment. The reverse is also possible. While VAT is concerned with the service being consumed or utilized in Türkiye, withholding tax analysis focuses on the legal nature of the income earned by the company abroad. Whether a payment is considered commercial profit, royalties, professional income, or another type of income can change the withholding tax outcome. Furthermore, if there is a double taxation avoidance agreement between the country of residence of the service provider and Türkiye, the provisions of the agreement are also taken into account.

Is it a standard software subscription or an intangible right?

This is one of the most important distinctions in software payments.

With standard services like AWS, Microsoft 365, Zoom, or Adobe Creative Cloud, users often only gain the right to use the system or software.

To the user;

• duplicate software,
• modifying the source code,
• distributing to third parties,
• sublicensing,
• commercially reproduce and sell

Copyright-related rights such as these are not granted.

So the user is actually using an existing product.

According to the Tax Administration's opinions on software payments, if a computer program purchased from abroad is used in the business without any modifications or duplication, the income earned by the foreign company can be considered as commercial income .

In this case, unless there are other circumstances that differentiate the situation, no withholding tax may be applied to the standard software usage fee; however, VAT 2 may be calculated because the service is utilized in Türkiye.

Well:

VAT 2: Yes

Withholding tax: None

This may result in...

The situation changes if the software is acquired under copyright protection.

If what is purchased is not merely the use of the program, but also includes copyright-related rights such as reproduction, modification, public distribution, display, and sublicensing of the software, then it is no longer considered standard software usage but rather a fee for intangible rights . According to domestic legislation, payments for intangible rights made to limited liability companies are generally subject to a 20% corporate tax withholding . Therefore, in such a transaction:

The result might be: VAT 2: Yes - Withholding Tax: Yes . However, the investigation doesn't end there. Because if there is a Double Taxation Avoidance Agreement between the country where the payment is made and Turkey, the "Intangible Rights Fees" clause in the agreement must also be taken into consideration. For example, in some agreements, the tax rate that Turkey can apply may be set lower than the 20% rate in domestic legislation.

Therefore, before directly applying the 20% rate;

1. whether the payment is truly in the nature of intangible rights fees,
2. the country where the service provider is located
3. Whether there is a Double Taxation Agreement between Türkiye and the country in question.
4. the rate stipulated in the agreement,
5. whether or not there is a valid residency certificate

It should be checked.

The mere mention of "License," "Subscription," or "Cloud Service" on the invoice is not sufficient to determine whether an intangible rights fee applies. What truly matters is which rights are transferred under the contract.

The effect of the double taxation avoidance agreement

Even if it is concluded that the payment may be subject to withholding tax according to domestic legislation, the investigation does not end there. The tax treaty in force with the country where the service provider is resident may affect which category the income falls into, Türkiye's right to tax, and the applicable limits.

To benefit from the terms of the agreement, it is important to obtain a residency certificate for the foreign company, ensure that the certificate covers the relevant period, and, if necessary, be duly translated or certified. Applying the agreement advantage directly without valid documentation may create tax risks. Consult your financial advisor regarding the applicable withholding tax rate, as rates vary depending on the country, type of income, and current legislation.

Why is a residency certificate important?

To benefit from the advantages provided by a Double Taxation Avoidance Agreement, the residency status of the foreign company must be properly documented. In practice, the primary tool for this is the certificate of residency.

The residency certificate must cover the relevant period and meet the necessary translation or certification requirements. Applying the lower withholding tax rate stipulated in the agreement directly without a valid residency certificate can create tax risks. Therefore, it is important to obtain the residency certificate before making payments, especially for high-value foreign payments such as software, licenses, and consulting services.

The contract should be checked to see who is responsible for the tax.

Another important issue is the tax provisions in the contract. With large international companies like Google, Microsoft, and Adobe, service fees are usually collected automatically by the system. In many cases, it's not possible to actually deduct the withholding tax calculated in Turkey from the payment to the foreign company. The contract may also contain provisions stating that the net amount will be paid to the seller and that local taxes are the responsibility of the customer. In this case, the withholding tax becomes the responsibility of the buyer, and the payment is grossed up . This can significantly increase the actual cost of the service.

Purchasing advertising services from platforms like Google, Meta, and TikTok.

Internet advertising has a different and specific regulation compared to software services. According to Presidential Decree No. 476, which came into effect on January 1, 2019, certain payments made to those providing or facilitating internet advertising services are subject to tax withholding.

For payments made to limited liability companies for advertising services provided online, a withholding tax rate of 15% is applied.

Therefore, for a company that uses advertising services from foreign platforms such as Google, Meta, TikTok, and similar platforms to advertise its operations in Türkiye, the general 15% advertising withholding tax needs to be evaluated separately. The withholding tax rate here is based on a different regulation than the withholding tax on software or intangible rights payments discussed earlier.

For example, let's say Mindback SMMM Ltd. Şti. runs a Google ad to increase brand awareness by mentioning the services we provide, and we pay Google Ireland Limited 5,000 TL per month for this service. Our calculation would be as follows:

5,000.00 TL / 0.85 = 5,882.35 TL Gross Amount (Taxable Base)

5,882.35 TL * 15% Withholding Tax = 882.35 TL (Code No. 279)

5.882,35 TL * 20% VAT2 = 1.176,47 TL (VAT2)

Net payment = 5,000.00 TL

The accounting entry is:

--------------------------///----------------------------------------

740 Service Production Cost

740.03 Externally Provided Benefits and Services

740.03.010 Advertising Activities Provided from Abroad (debt) 5,882.35 TL

191 Deductible Value Added Tax

191.109 VAT to be Deducted in the Capacity of Responsible Party

191.108.20 VAT to be deducted 20% (debit) 1,176.47 TL

360 Taxes and Funds Payable

360.01 Deductions related to the Summary Declaration

360.01.010 Overseas Advertising Withholding Tax 15% (receivable) 882.35 TL

360.02 Value Added Tax Payments

360.02.002 VAT2 Payments (receivable) 1,176.47 TL

329 Other Miscellaneous Liabilities

3290.02 Payments Made Abroad

329.02.001 Google Ireland Limited (receivable) 5,000.00 TL

--------------------------///----------------------------------------

What if the advertisement is aimed at an international audience?

There's another important aspect to consider when advertising online: who the ad is for, which market it's targeting, and where it's being published.

According to the rulings issued by the Revenue Administration on this matter, different results can be obtained when a business in Türkiye receives advertising services from platforms such as Google, solely for overseas customers and for publication abroad.

For example, advertisements placed to promote a mobile application developed in Türkiye only to users in countries such as the US, Canada, the UK, or Germany;

• broadcast abroad,
• using the service abroad,
• advertising activities not being carried out through a business establishment or permanent representative in Türkiye

After evaluating the conditions together, the opinion given in the aforementioned private ruling is that neither internet advertising withholding tax nor VAT as the responsible party will arise.

Therefore, this also applies automatically in advertising services:

“Google invoice arrived = 15% withholding tax + 20% VAT”

This may not yield the correct result for every situation.

First, it must be determined whether the advertisement is intended for operations in Turkey or entirely for operations and customers abroad . This distinction is particularly important for companies that export, develop mobile applications, sell SaaS services, or run advertising campaigns targeting overseas customers.

Practical checklist

When you receive a service bill from abroad, it's best to proceed in this order:

1. The service provider's country and tax status must be determined.
2. The true nature of the service received must be determined.
3. The location where the service is provided must be determined.
4. It should be analyzed whether the service is being used in Türkiye or abroad.
5. It must be determined whether the payment is from commercial income, self-employment income, royalties, advertising services, or another type of income.
6. Domestic legislation provisions should be reviewed.
7. It should be examined whether a Double Taxation Avoidance Agreement exists with the country in question.
8. The residency certificate should be checked.
9. It must be determined whether the contract includes net payment and whether grossing up is necessary.
10. VAT 2, withholding tax, expense recording, and deduction periods should be accounted for in a consistent manner.

How can the possible outcomes be classified?

**This table provides a general framework for decision-making. A definitive conclusion should not be reached without examining the service agreement, the description on the invoice, the actual usage, and the activities of the parties.**

Conclusion

In the case of services received from abroad, VAT and withholding tax are not alternatives to each other. Both may arise in the same transaction, only one may be applicable, or neither may arise depending on the circumstances of the transaction. Therefore, my approach is as follows:

First, from a VAT perspective, it is necessary to examine where the service was provided and where it was utilized, and then, from a withholding tax perspective, the nature of the payment.

Especially in software payments, instead of immediately calculating withholding tax upon seeing the word "license," it should be examined what rights the user is actually purchasing. Purchasing the right to reproduce, modify, or distribute under copyright law is not the same as purchasing a standard SaaS or software subscription.

In internet advertising, the 15% withholding tax is particularly important due to Presidential Decree No. 476. However, if the advertisement is entirely directed towards customers and activities abroad, the location of service acquisition and whether the limited liability company earns income in Turkey should be evaluated separately. Therefore, instead of applying the same tax procedure to every invoice from a foreign company such as Google, Meta, TikTok, AWS, Microsoft, Adobe, or similar , the transaction should be evaluated within its own true context .

Two seemingly similar invoices can have completely different tax implications depending on the usage and the contract. In international service purchases, the real issue isn't what's written on the invoice, but what you actually purchased and where you received the service.