Subject: VAT and Corporate Tax Treatment of Design, Software, and Consulting Services Provided to Foreign Companies
The inquiry concerns whether design, software, and consulting services provided to foreign companies, through commissions received for architectural projects, qualify for VAT exemption and corporate tax deductions.
Corporate Tax Perspective:
- Corporate Tax Law: Corporate income is taxed on all earnings, both domestic and international. Article 10(1)(ğ) allows a 80% deduction from corporate income for services provided to non-resident persons or entities, if the income is fully transferred to Turkey by the declaration deadline.
- Conditions for Deduction: Services must be listed in the company’s main activity and invoices must be issued to foreign clients. The deduction applies if the services are used exclusively outside Turkey and the income is transferred to Turkey.
- Application: If the design and software services provided align with these criteria, an 80% deduction is applicable. However, independent consulting services not related to the design services are not eligible for this deduction.
VAT Perspective:
- VAT Law: Services rendered to foreign clients and utilized abroad are exempt from VAT under Article 11/1-a. To qualify, services must be provided for foreign clients and used outside Turkey.
- Conditions for Exemption: The service must be specifically related to the client’s activities abroad and not to their domestic operations. Services such as consulting for goods and services shipped to Turkey do not qualify for VAT exemption.
- Application: Design, software, and consulting services for foreign clients that meet these conditions can be exempt from VAT under Article 11/1-a, provided the services are utilized abroad.
In summary, both corporate tax deductions and VAT exemptions are possible for services provided to foreign companies, provided that the services meet specific criteria regarding their use and the handling of income.
Source: Revenue Administration
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