Ministry of Treasury and Finance
Revenue Administration
Bursa Tax Office Directorate
Date: July 12, 2024
Reference Number: E-17192610-125[KV-22-957]-
Subject: Tax Exemption for Profits from Software Sold to Foreign Entities
In your request:
- Your company signed a contract with a company in [Country] for the development of computer software.
- The software was developed by another firm in Turkey and then exported to the foreign company.
You are seeking clarification on whether the profit from this transaction qualifies for tax exemption under Article 10(1)(ğ) of the Corporate Tax Law.
Corporate Tax Law Perspective:
According to Article 6 of the Corporate Tax Law No. 5520, corporate tax is calculated based on net corporate profit earned within an accounting period. Net corporate profit is determined using the principles outlined in the Income Tax Law related to commercial earnings. Expenses listed in Article 8 of the Corporate Tax Law and Article 40 of the Income Tax Law can be deducted from the determined corporate profit.
Article 10(1)(ğ) of the Corporate Tax Law provides a tax deduction for profits earned from services such as architecture, engineering, design, software, medical reporting, accounting, call centers, product testing, certification, data storage, data processing, data analysis, and professional training, provided these services are rendered exclusively to non-resident individuals or entities, and the income is transferred to Turkey by the deadline for filing the corporate tax return. The invoice or equivalent document must be issued in the name of the foreign client.
General Tax Communiqué Perspective:
According to Section 10.5 of the General Communiqué, services must be actually provided, and services such as assistance, consultancy, and brokerage are not considered eligible for this tax exemption.
Since the software was developed by another company and merely exported, this does not meet the condition of providing the service directly, and thus, the profit cannot be exempted under Article 10(1)(ğ).
Value Added Tax (VAT) Law Perspective:
- Article 1/1 of VAT Law No. 3065 states that VAT applies to deliveries and services within Turkey.
- Article 6/b specifies that operations performed in Turkey are considered as services rendered or used in Turkey.
- Article 11/1-a provides VAT exemption for services rendered to foreign customers.
- Article 12/2 requires that for VAT exemption, the service must be provided for a foreign customer and utilized abroad.
The VAT General Application Communiqué explains that to benefit from VAT exemption for exported services, the service must be for a foreign customer, and the service must be used abroad. Documentation of the service provided to a foreign customer is necessary.
Therefore, if the software service provided to foreign customers meets these conditions and is used abroad, it can be exempt from VAT. However, VAT refunds for services exported with invoices showing amounts in Turkish Lira are subject to certain conditions, including evidence that the payment has been received in Turkey.
If the foreign customers utilize the software service in Turkey, VAT will apply according to general provisions.
Source: Revenue Administration
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