Subject 20- Digital Tax Law
- Being a Taxpayer
- Unlimited liability to tax
Legal or business entities located in Turkey will be taxed on their entire income, whether obtained within Turkey or abroad.
- Limited liability to tax
Those with neither legal nor business centers in Turkey will only be taxed on the income they obtain in Turkey.
- Digital Advertising Tax
The paragraph added to Article 11 of the Tax Procedure Law with Law on the Support of Investments on a Project Basis and Amendments to Some Laws and Decree-Laws No. 6745, published in the Official Gazette dated September 7, 2016, and numbered 29824, is as follows:
“The President is authorized to impose tax deductions on those who are parties or intermediaries to taxable transactions, regardless of whether the payees are taxpayers, whether there is an obligation for those making or facilitating the payment to make tax deductions according to tax laws, whether the subject of the payment is the purchase and sale of goods or services, whether the transaction is conducted electronically, and whether the payee includes this amount as a deduction in determining the tax base, without prejudice to the lower and upper limits specified in the tax laws for different business groups, types of transactions, sectors, and commodity groups.”
With the Presidential Decree No. 476 published in the Official Gazette dated December 19, 2018, as of January 1, 2019, payments made for advertising services provided in the online environment or for intermediaries facilitating the provision of advertising services in the online environment have been included within the scope of income/corporate tax withholding. The following clause is included in the first article of the relevant decree:
According to the seventh paragraph of Article 11 of the Tax Procedure Law No. 213, an expression has been added to Articles 94 of the Income Tax Law No. 193 and Article 15 of the Corporate Tax Law No. 5520, which includes those specified therein, stating that “income tax withholding shall be applied to advertising services provided in the online environment, and tax withholding shall be made regardless of whether the payers are taxpayers for payments made to those providing these services or facilitating the provision of advertising services in the online environment.”
- The Ratio of Internet Advertising Tax.
According to the Tax Circulars regarding “Tax Withholding on Advertising Services Provided in the Online Environment” published by Presidential Decree No. 476 in the Official Gazette dated December 19, 2018, With the said Decree, advertising services provided in the online environment were brought under the scope of tax withholding. Starting from January 1, 2019, tax withholding will be applied to payments made to those providing these services or facilitating the provision of advertising services in the online environment, regardless of whether the payers are taxpayers.
According to this;
From January 1, 2019, for those who provide advertising services in the online environment or act as intermediaries in the provision of advertising services in the online environment;
- Payments to individuals, regardless of their taxpayer status, will be subject to a 15% withholding tax.
- Payments to limited taxpayers corporations will also have a 15% withholding tax.
- Payments to corporations with corporate tax liability in Turkey will be subject to a 0% withholding tax rate.
- Digital Service Tax
The tax type referred to as “Digital Service Tax” was published in the Official Gazette with the “Law on Amending Certain Laws and Decree-Law No. 375 with the Digital Service Tax Law No. 7194” in 2019.
According to this, the liability for Digital Service Tax is not affected by whether the taxpayer is a full taxpayer or a limited taxpayer, whether they have a business establishment in Turkey, or whether they are domestic or foreign.
Those providing the services specified in the law, both Turkish and foreigners, are obliged to declare and pay Digital Service Tax. The sole criterion for this is that the revenue generated in Turkey exceeds 20 million Turkish liras or the worldwide revenue exceeds 750 million euros or the equivalent in foreign currency converted to Turkish liras.Nevertheless, the subject is of particular importance for companies operating in Turkey, such as Apple, Google, Netflix, Spotify, and those acting as intermediaries for these companies.
- The Subject of the Tax
According to the relevant amendment, the subject of the tax is explained in the first article as follows:
Revenue derived from the following services provided in Turkey is subject to Digital Service Tax:
a)The revenue generated from all kinds of advertising services provided in the digital environment (including advertising control and performance measurement services, data transmission and management related to users, and technical services related to advertising delivery) is subject to Digital Service Tax.
Example 1: The revenue obtained by business (A) from (B) hotel for displaying the (B) hotel’s website link at the top position in the search results when users search for keywords related to the hotel industry on the search engine page operated by business (A) is subject to Digital Service Tax.
Example 2: The revenue obtained from the display of product promotion videos related to business (D) by business (C) on the digital platform where users can share videos and photos, either before, during, or after users view shared videos by other users, is subject to Digital Service Tax.
Example 3: The revenue obtained from (F) business for the display of (F) business’s products’ advertisements within the application while online games provided by business (E) are being played, on a per-view basis, is subject to Digital Service Tax.
- b) The provision of services in the digital environment related to the sale of any audio, visual, or digital content (including computer programs, applications, music, videos, games, in-game applications, and the like), as well as services related to listening, viewing, playing, recording on electronic devices, or using these contents on such devices in the digital environment.
- c) Providing and operating digital environments where users can interact with each other (including services offered to facilitate the sale of goods or services between users.)
(2) The revenue obtained from intermediary services provided in the digital environment by digital service providers for the services listed in the first paragraph is also subject to Digital Service Tax.
- Taxpayer and Tax Responsible Party
In accordance with Article 3 of the law, regarding taxpayers and tax responsible party;
(1) The taxpayer for Digital Service Tax is the digital service providers. Whether they are full taxpayers under the Income Tax Law No. 193 dated 31/12/1960 and the Corporate Tax Law No. 5520 dated 13/6/2006, or whether they conduct these activities in Turkey through a place of business or permanent representatives in the case of limited taxation, does not affect the liability for Digital Service Tax.
(2) In cases where the taxpayer does not have a residence, place of business, legal, or business headquarters within Turkey, as well as in other necessary cases, the Ministry of Treasury and Finance may hold those involved in taxable transactions, as well as intermediaries in the transaction and payment process, responsible for the payment of the tax to ensure the security of the tax revenue.
- Exemptions and Exceptions
According to Article 4 of the law, the exemptions and exceptions arising from the law are explained as follows:
Those whose revenue from the services listed in Article 1, as of the previous accounting period before the relevant accounting period, is less than 20 million Turkish liras in Turkey or less than 750 million euros worldwide or the equivalent in foreign currency converted to Turkish lira are exempt from Digital Service Tax. If the taxpayer is a member of a consolidated group for financial accounting purposes, the total revenue of the group related to the services falling within the scope of taxation is taken into account in the application of these thresholds.
- Tax base, Tax Ratio and Calculation
(1) The base for Digital Service Tax is the revenue obtained due to the services falling within the scope of taxation during the relevant taxation period. If the revenue is calculated in foreign currency, the foreign currency is converted into Turkish currency at the Turkish Republic Central Bank’s buying exchange rate valid on the date of revenue generation.
(2) There are no deductions for expenses, costs, or taxes from the tax base. Digital Service Tax is not separately shown on invoices and equivalent documents.
(3) The Digital Service Tax rate is 7.5%.
(4) Digital Service Tax is calculated by applying the rate to the base. No discounts are applied to the tax calculated in this manner.
(5) The President is authorized to reduce the rate specified in the third paragraph by up to 1% separately or together based on the types of services, or increase it up to twice the rate.
- The Taxation Period, Tax Declaration, Assessment, and Payment
According to Article 6 of the law, the details of the taxation period, tax declaration, assessment, and payment are as follows:
(1) In Digital Service Tax, the taxation period is one-month periods of the calendar year. However, the Ministry of Treasury and Finance is authorized to determine quarterly taxation periods instead of monthly taxation periods based on the types of services and the business volumes of the taxpayers.
(2) Digital Service Tax is assessed based on the taxpayer’s declaration. In cases where the second paragraph of Article 3 is applied, this declaration is made by those responsible for withholding tax.
(3) Taxpayers and those responsible for withholding tax are obligated to submit their Digital Service Tax declarations to the relevant tax office by the end of the month following the taxation period.
(4) Digital Service Tax is assessed by the tax office to which service providers with value-added tax liability are affiliated. For those without such affiliation, it is assessed by the tax office determined by the Ministry of Treasury and Finance.
(5) Digital Service Tax is assessed in the name of the real or legal person who is the taxpayer or tax liability holder. In general partnerships, tax assessment is made in the name of any of the partners, who are jointly responsible for the payment of the tax.
(6) Taxpayers are required to submit a declaration and those responsible for withholding tax must pay Digital Service Tax for a taxation period within the declaration submission period.
(7) Digital Service Tax paid by Digital Service Tax taxpayers can be deducted as an expense when determining the net income for income and corporate tax purposes.
(8) The Ministry of Treasury and Finance is authorized to determine the format and content of the Digital Service Tax declaration and its attachments, to determine the place of assessment, either upon the taxpayer’s application or ex officio, taking into account the nature of the activity, to require taxpayers or tax liability holders to submit declarations only for the periods in which taxable services are provided, to establish the procedures and principles regarding the timing of tax declaration and payment, and to impose notification and documentation obligations, as well as to determine the procedures and principles related to them.
- Tax Security
Article 7 of the law introduces measures related to securing tax, including the prevention of access. According to this article:
Digital Service Providers, who fall under the scope of this law and fail to fulfill their declaration and payment obligations for taxes covered by Law No. 213 dated 4/1/1961, in a timely manner may be warned and notified by the authorized tax office for the assessment of Digital Service Tax through the methods of notification specified in Law No. 213, as well as via electronic mail or other communication tools using information obtained through communication tools, domain names, IP addresses, and similar sources on their websites or through their authorized representatives in Turkey. This situation will also be announced on the website of the Revenue Administration Presidency.
(2) If these obligations are not fulfilled within thirty days from the announcement, the Ministry of Treasury and Finance may decide to block access to the services provided by digital service providers until these obligations are met. This decision is then sent to the Information Technologies and Communication Institution to be conveyed to access providers. Access blocking decisions must be implemented by access providers within twenty-four hours of the notification.
(3) The procedures and principles for the implementation of this article are determined by the Ministry of Treasury and Finance, taking into account the opinion of the Ministry of Transport and Infrastructure.
- The Connection Between Internet Advertising Tax and Digital Service Tax:
By the Presidential Decree No. 476 published in the Official Gazette dated December 19, 2018,numbered 30630, payments made as of January 1, 2019, for advertising services provided in the online environment or for intermediaries of such services, were included in the scope of income/corporate tax withholding. Those providing internet advertising services are subject to both digital service tax and internet advertising tax.
- Tax Exemptions for Social Content Creators and Mobile Devices
- Income Tax Exemption
The income tax exemption for social content creators and application developers for mobile devices was regulated in the “Law Amending Certain Laws with the Law No. 7338 on Tax Procedure Law” published in the Official Gazette on October 26, 2021. The procedures and principles of this exemption were outlined in the General Income Tax Communique published in the Official Gazette on January 12, 2022.
According to Article 2 of the law, the following article has been added to the numbered 193 law after the duplicate 20th article.
Profit Exemption for Social Content Creation and Mobile App Development: Income generated by social content creators who share content such as text, images, sound, and videos through social network providers on the internet, and income generated by those who develop applications for mobile devices such as smartphones or tablets through electronic application sharing and sales platforms, is exempt from income tax.
To benefit from this exemption, it is a requirement to open an account with banks established in Turkey and exclusively collect all revenue related to these activities through this account.
Banks are required to withhold a 15% income tax on the revenue amount transferred to the accounts opened within this scope, as of the transfer date, and declare and pay it in accordance with the principles outlined in Articles 98 and 119 of the Law. No additional withholding is made on this amount under Article 94.
The presence of income or earnings arising from activities outside the scope of the first paragraph of taxpayers does not prevent them from benefiting from the exemption.
Those whose total income falls under the fourth income bracket specified in the tariff listed in Article 103, which exceeds the specified amount (880,000 Turkish Liras for the year 2022), and those who do not collect all of their income related to the activity under the conditions specified in the second paragraph cannot benefit from this exemption. In this case, those affected do not have an obligation to withhold tax under the first paragraph of Article 94.
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