Which exchange rate will be taken into account in purchases and sales within the scope of transit trade?

Which exchange rate will be taken into account in purchases and sales within the scope of transit trade?

If the price is collected or paid in foreign currency and a special exchange rate is not determined, the Central Bank of the Republic of Turkey Foreign Exchange purchase rate should be used in the purchase invoices within the scope of transit trade and in the recording of the sales invoice issued by the business in Turkey.

TRANSIT trade is the sale of the purchased goods to a customer abroad without bringing them to Turkey. The received invoice and the issued invoice are reported in the form of being recorded. NOT declared in the VAT declaration.

***

REPUBLIC OF TÜRKİYE

REVENUE ADMINISTRATION DIRECTORATE

Istanbul Tax Office Directorate

Revenue Laws Procedure Group Directorate

In the special circular request, it was inquired whether the goods you purchase from abroad and export to another country without entering the domestic market (i.e., without being nationalized) should be included in the BA/BS forms in accordance with the provisions of the Tax Procedure Law, and how you will be taxed under the Corporate Tax Law and Value Added Tax (VAT) Law. Below is the opinion of our Presidency on these matters:

I- REGARDING THE CORPORATE TAX LAW:

Under the provisions of the Corporate Tax Law No. 5520:

• Article 1 lists the entities subject to corporate tax, while Article 3(1) stipulates that institutions whose legal or business center is in Turkey are taxed on their entire income, both domestic and foreign.
• Article 6(1) specifies that corporate tax is calculated based on the net corporate income earned during a fiscal period. It also states that commercial income provisions of the Income Tax Law apply when determining net corporate income.
• Article 32(2) requires the payment of provisional tax by corporate taxpayers based on the principles specified in the Income Tax Law, which will be deducted from the corporate tax for the current period.

In addition, Article 37 of the Income Tax Law No. 193 defines income from all kinds of commercial and industrial activities as commercial income. Article 38 states that commercial income determined according to the balance sheet method is the positive difference between the values of the net equity at the beginning and end of the fiscal period, and other adjustments are applied as necessary.

According to these provisions, the entire income earned by your company from exporting goods to another country through customs without entering the domestic market must be included in the relevant period’s corporate income and provisional tax declaration and be taxed accordingly.

II- REGARDING THE VALUE ADDED TAX LAW:

According to the Value Added Tax Law No. 3065:

• Article 1(1) subjects deliveries and services performed within Turkey as part of commercial, industrial, agricultural, and professional activities, as well as imports, to VAT.
• Article 6 defines that a transaction is considered to take place in Turkey if the goods are located in Turkey at the time of delivery or the services are performed or utilized in Turkey.
• Article 16(1-c) exempts goods subject to customs transit and warehousing regimes, as well as temporary storage and free zone provisions, from VAT.

Furthermore, explanations regarding transit trade can be found in the “Transit Trade Communiqué” published in the Official Gazette dated 6/6/2006. According to this, your company’s sale of goods purchased abroad and sold to another country without nationalization is not subject to VAT.

III- REGARDING THE TAX PROCEDURE LAW:

Under Article 227 of the Tax Procedure Law No. 213, it is required to substantiate transactions with third parties with records unless otherwise stated in the law. Such records should be substantiated with documents prescribed by the law, or those deemed appropriate by our Ministry.

The law further provides:

• In Article 229, a commercial document called an invoice must be issued by the seller to the customer, indicating the amount the customer owes for the sold goods or services.
• Article 231(5) states that an invoice must be issued within seven days of the delivery of the goods or services, and invoices not issued within this period will be considered as not issued at all.
• Article 232 stipulates that certain taxpayers must issue and request invoices for sales exceeding specific limits (e.g., 1,200 TL for 2019).

Additionally, based on the authority granted by Articles 148, 149, and 257 of the Tax Procedure Law:

• General Communique No. 350 introduces an obligation for taxpayers keeping records on a balance sheet basis to report purchases and sales exceeding a certain threshold using “Form Ba” and “Form Bs.”
• General Communique No. 396 outlines the reporting procedures and limits for 2010 and subsequent years.

For transactions subject to the 5,000 TL reporting threshold, both purchases and sales must be reported using the respective forms, including any foreign transactions if applicable documents meet local legal standards.

Therefore, any invoices exceeding 5,000 TL issued by your company under transit trade, as well as invoices issued by foreign companies in the name of your company, should be included in the Form Ba and Form Bs notifications in accordance with the procedures outlined in General Communique No. 396.

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 Karen Audit 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.