REVENUE ADMINISTRATION of TÜRKİYE
Izmir Tax Office
Directorate of Income Taxes
Date: 03.01.2024
No: E-84098128-120[89-2022/16]-3211
Subject: Whether the profit obtained from software services provided to the free zone can be deducted under Article 89 of the Income Tax Law
Upon examining your request for a private ruling, it has been understood that you provide software and software update services to the … Free Zone, and you are inquiring whether 50% of the profit obtained from this activity can be deducted under Article 89, paragraph 1, item (13) of the Income Tax Law. The opinion of our Administration is provided below.
In Article 89 of the Income Tax Law titled “Other Deductions,” item (13) states: “Fifty percent of the profit obtained from services provided in Turkey to persons not resident in Turkey, whose workplace, legal, and business centers are located abroad, in areas such as architecture, engineering, design, software, medical reporting, accounting, call centers, product testing, certification, data storage, data processing, data analysis, and vocational training areas specified by the Ministry of Finance with the approval of the relevant ministries, provided that the service is performed under the supervision of the relevant ministry, shall be deductible. To benefit from this deduction, the invoice or similar document must be issued in the name of the customer located abroad. The President is authorized to reduce or increase this rate and amounts specified in this paragraph to zero or up to 100% and to determine the procedures and principles regarding the application and supervision of this paragraph with the opinion of the relevant ministries.”
Detailed explanations related to the issue can be found in the Corporate Tax General Communiqué No. 1:
- In the section titled “10.5. Services provided to foreign residents from Turkey,” it is stated that “… the profit obtained from services provided in Turkey to persons not resident in Turkey, whose workplace, legal, and business centers are located abroad, in areas such as architecture, engineering, design, software, medical reporting, accounting, call centers, and data storage can be deducted from the declared corporate profit by 50%.”
- In the section titled “10.5.2.1. Main activity stated in the company’s articles of association,” it indicates that “… services such as architecture, engineering, design, software, medical reporting, accounting, call center, product testing, certification, data storage, data processing, data analysis, and vocational training services determined by the Ministry of Finance with the approval of the Ministry of National Education and Ministry of Health are not prohibited from serving persons residing in Turkey, and a 50% deduction will be applied to the profits obtained from services provided to persons not resident in Turkey, whose workplace, legal, and business centers are abroad.”
- In the section titled “10.5.2.2. The service must be provided for a foreign resident person and/or institution from Turkey,” it states: “The services provided must be exclusively for persons not resident in Turkey, whose workplace, legal, and business centers are abroad.”
- In the section titled “10.5.2.3. The invoice must be issued in the name of the foreign resident person and/or institution,” it is required that the invoice issued for the services provided must be in the name of the foreign resident person and/or institution mentioned above.
- In the section titled “10.5.2.4. Use of services provided from Turkey,” it states that “the service provided must be utilized abroad. In other words, the services provided for the foreign resident person and/or institution must not be related to their activities in Turkey.”
Furthermore, in Article 6 of the Free Zones Law No. 3218, it is stated that “Free zones are considered parts of the Turkish Customs Territory; however, they are accepted as being outside the Turkish Customs Territory for the purposes of customs regimes, provided they are not used or consumed except as specified in the customs legislation, and that the normal benefits arising from the exportation of goods are utilized.”
- In the Temporary Article 6, it states that “Free zones, until the date of full membership in the European Union, are considered outside the Turkish Customs Territory for customs regimes, but for the purposes of origin rules, they are considered part of the Turkish Customs Territory.”
Based on these provisions and explanations, the profit you obtain from the software or software update services provided by you to the … Free Zone as part of your computer programming activities must be taxed according to the general provisions, and due to the lack of fulfillment of the conditions that the service must be provided to persons not resident in Turkey, and that the service must be exclusively utilized abroad according to the provisions of the Income Tax Law No. 193, it is not possible to deduct 50% of the profit from the tax return under Article 89, paragraph 1, item (13) of that Law.
Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
