Turkey introduces 7.5% Digital Service Tax as a Part of ‘Expenditure Taxes Law’

The Turkey Government has enacted it’s Digital Service Tax (DST) of 7.5% on gross revenue from the sales. The new DTS system was introduced as a part of the “Expenditure Taxes Law” under the Turkish tax legislation. The new regime is applicable to companies generating revenue of € 750 million globally and 20 million Turkish Lira within Turkey.

The services subject to DST include:

• Advertisement control and performance measurement services
• Any service which relates to transmission and management of user data
• Digital sale of audio, video or any other digital content
• Services which helps to provide and operate digital environment for interaction

The tax due is computed at 7.5% on the taxable amount and no tax deduction is allowed in this procedure. DST paid is allowed as a deductible expense from the tax base to calculate income tax and corporate tax. The president is authorized to reduce the DST rate to 1% and increase it to 15%, either separately or jointly as per the service type.

The tax period may vary according to the service type which could be a quarterly or one-month taxation period.

Companies earning less than 20 million Turkish Lira within Turkey and € 750 million globally are exempt from DST. The revenue generated from the following are not considered for determining the threshold:

• Services for which Treasury share is paid by mobile phone operators
• Services on which special communication tax are paid
• Certain services which are within the scope of Bank Law
• Goods sold as a part of R&D activities and services provided through these goods
• Payment services within the scope of Law on Payment and Securities settlement System, Payment Services and Electronic Money Institutions

Non-compliance of submitting tax return and payment of tax are subject to monetary penalties and also the taxpayers may be blocked until the necessary legal commitments are complied with.

The impact of the new regime is significant to the corporates as the tax is computed on revenue and not profit. Companies may have to suffer double taxation due to the withholding tax of 15% on digital advertising payments.