Should a Turkish Contractor Charge VAT to a US Company? When the Export Exemption Applies
A US company does not charge Turkish VAT when it hires a contractor in Turkey — the contractor decides whether its invoice to you carries 20% VAT. The answer depends on who uses the service, not on where you are incorporated or which currency you pay in.
The short version
A Turkish contractor can invoice a US company without VAT only if the service is an export: the customer is abroad and the benefit is used abroad (VAT Law Art. 11/1-a, 12/2). Engineering for your global product usually qualifies. Support, onboarding, customer success, sales help or market research for your customers in Turkey usually does not — those invoices should carry 20% Turkish VAT, which a US company without a Turkish VAT number cannot recover.
Key facts
| Point | Position (October 2026) | Basis |
|---|---|---|
| Who charges the VAT | The Turkish contractor, on its invoice to you | VAT Law Art. 1, 8 |
| Standard rate | 20% | VAT Law Art. 28; Presidential Decision |
| Export exemption conditions | (1) service performed for a customer abroad, (2) benefit used abroad | VAT Law Art. 11/1-a, 12/2 |
| Meaning of “benefit abroad” | Relates to the customer’s business abroad, no connection with its activities in Turkey | VAT General Communiqué II.A.2.1 |
| Services expressly outside the exemption | Consultancy, intermediation, customer-finding, market research, supervision for goods or services the foreign firm supplies into Turkey | VAT General Communiqué II.A.2.1 |
| Currency or payment from abroad | Does not decide the VAT question | Benefit test governs |
| Can the US company recover Turkish VAT? | Not without a Turkish VAT registration — it is a cost | VAT Law Art. 29 |
| Contractor’s income-tax deduction | 100% service-export deduction (from 2026) uses the same benefit-abroad logic | Income Tax Law Art. 89/13; Presidential Decision No. 11257 |
Do I have to pay Turkish VAT when I hire a contractor in Turkey?
There is no reverse charge on your side: a US company that is not registered in Turkey does not self-assess Turkish VAT. Reverse charge under VAT Law Art. 9/1 applies the other way round — when a Turkish business buys services from abroad.
Exempt service export vs domestic service: the benefit test
Turkey’s test is stricter than the EU or UK place-of-supply rules. The contractor’s invoice is VAT-free only when the foreign customer uses the service in its business abroad. The question the tax office asks is simple: whose activity in which country does this work support?
| Contractor’s work for the US company | Benefit used | VAT on the invoice |
|---|---|---|
| Software development for the product sold worldwide | Abroad | Exempt (code 302) |
| QA, DevOps, data analysis for the US business | Abroad | Exempt |
| Design or content for the US or global market | Abroad | Exempt |
| Customer support for customers outside Turkey | Abroad | Exempt |
| Customer support or onboarding for customers in Turkey | Turkey | 20% VAT |
| Customer success, renewals, account management for Turkish accounts | Turkey | 20% VAT |
| Lead generation, demos, partner search in Turkey | Turkey (customer-finding) | 20% VAT |
| Turkish localisation used only for Turkish sales | Turkey — arguable | Document or seek a ruling |
| Mix of the above | Split | Separate invoice lines with evidence |
Does paying in dollars or invoicing a US entity make the service an export?
Turkey vs EU and UK: why your Polish contractor’s rule does not work here
| Contractor based in | General B2B rule | End-customer location relevant? |
|---|---|---|
| Turkey | Exempt only if customer abroad and benefit abroad (VAT Law 11/1-a, 12/2) | Yes |
| EU (Poland, Portugal, Romania…) | Supply taxed where the business customer is established (Directive 2006/112/EC Art. 44) | Generally no |
| United Kingdom | Supply where the business customer belongs (VATA 1994 s.7A) | Generally no |
| Ukraine, Georgia and others | Varies — check local rules | Varies |
Finance teams that run contractors in several countries often apply the EU rule globally. Turkey is the exception where the contractor’s work serving the local market is taxed locally even though the client is foreign.
Who bears the VAT if the invoice was wrong?
The contractor is the taxpayer. If the tax office reclassifies past invoices, the contractor is assessed the VAT, a tax loss penalty (Tax Procedure Law Art. 344) and late-payment interest. Whether the contractor can pass the VAT to you depends on your contract. Most templates state fees “exclusive of VAT and other taxes”, which makes the client liable for VAT properly chargeable — including retroactively. If your contract is silent, expect a commercial negotiation.
Two clauses prevent most disputes:
- Scope by workstream: separate statements of work for global work and Turkey-market work, so the invoice can split exempt and taxable lines.
- Tax responsibility: fees exclusive of VAT; contractor responsible for applying the correct VAT treatment and for its own penalties where the error is its own.
How the VAT position affects the contractor’s 100% income-tax deduction
Turkish freelancers and sole traders who export services can deduct 100% of the resulting profit from taxable income for periods from 1 January 2026 (Income Tax Law Art. 89/13, rate raised from 80% by Presidential Decision No. 11257; companies use Corporate Tax Law Art. 10/1-ğ). The deduction also requires a customer abroad and benefit used abroad. A contractor who invoices VAT-free for Turkish-market support is usually also over-claiming the deduction — a tax audit of one tends to open the other. A careful contractor will raise this with you; that is not a negotiating tactic.
Anonymised case analyses
Facts. US SaaS company with about 60 Turkish customers. Istanbul contractor handled Turkish-language tickets and onboarding calls, invoicing USD with VAT exemption code 302 for two years.
The obvious answer. “US client, paid in dollars — it is a service export.”
Why it failed. The service supported the US company’s Turkish sales; the benefit was in Turkey. The contractor’s own adviser flagged the exemption and the matching 89/13 deduction.
Structure adopted. 20% VAT on future invoices, a negotiated split of the historical VAT, and — because the volume was growing — a plan to move the role into a Turkish subsidiary where the VAT becomes deductible.
Facts. Engineer spent roughly 80% on core product development and 20% supporting two Turkish enterprise customers.
The obvious answer. “Mostly engineering, so the whole invoice is exempt.”
Why it failed. The exemption is applied per service, not by majority. The 20% support element was a domestic service.
Structure adopted. Two SOWs and two invoice lines; Jira and ticket exports retained monthly as evidence of the split; engineering line exempt, support line with VAT. The VAT cost fell to the support portion only.
What happens if…
What happens if my contractor refuses to add VAT and keeps invoicing exempt?
The exposure sits first with the contractor, but you are exposed commercially if the contract makes you bear VAT. Document that you asked for the correct treatment, and consider whether the contract needs a tax clause. Continuing knowingly also weakens your position in any later dispute.
What happens if the contractor adds VAT and we refuse to pay it?
If the VAT is legally due, the contractor must still declare it. Unless your contract says fees are VAT-inclusive, refusing usually leads to a dispute you are likely to lose and a contractor who leaves.
What happens if we set up a Turkish subsidiary later?
Once the work is performed for the subsidiary, VAT charged to the subsidiary becomes deductible input VAT. That is the main VAT reason teams move into an entity once Turkish customer work becomes material.
What happens if the contractor also works for other foreign clients?
Each client relationship is assessed separately. Several clients help on employment status, but they do not change the VAT treatment of the work done for you.
Common mistakes
- Treating “foreign client + foreign currency” as the full export test.
- Applying the EU B2B place-of-supply rule to a Turkish contractor.
- One blended invoice for global and Turkish-market work.
- Assuming the US company can reclaim Turkish VAT.
- Ignoring that the VAT question often signals a permanent establishment question — see customer success managers and PE risk.
What drives the cost of fixing it
Fees are confirmed privately. The scope depends on the number of contractors and statements of work, how many past years need correction, whether invoices can be split from existing ticket or time data, whether a ruling (özelge) request is justified, and whether the review is combined with a permanent establishment analysis.
Frequently asked questions
Does a US company need to charge Turkish VAT when hiring a contractor in Turkey?
No. A US company does not charge Turkish VAT. The Turkish contractor decides whether its invoice to you carries 20% VAT. It may invoice VAT-free only if the service is an export: performed for a customer abroad and used abroad.
When can a Turkish contractor invoice a foreign company without VAT?
When both conditions of VAT Law Art. 11/1-a and 12/2 are met: the customer is abroad and the benefit of the service is used abroad. The VAT General Communiqué requires the service to relate to the customer’s business abroad and have no connection with its activities in Turkey.
Is customer support for Turkish customers a service export?
Usually not. Support, onboarding, customer success or account management for a foreign company’s customers in Turkey relates to that company’s activities in Turkey, so the benefit is used in Turkey and 20% Turkish VAT applies to the contractor’s invoice.
Can a US company reclaim Turkish VAT charged by a contractor?
Generally not. Turkish input VAT is deductible only by Turkish VAT taxpayers. A US company without a Turkish registration bears the VAT as a cost; a Turkish subsidiary or branch could deduct it.
Does invoicing in USD make a Turkish service VAT-exempt?
No. Currency and payment from abroad do not decide the VAT treatment. The benefit test does: if the work supports the foreign company’s activities in Turkey, it is taxable even if invoiced in dollars to a US entity.
What VAT exemption code does a Turkish contractor use for a service export?
On Turkish e-invoices and e-archive invoices, the service export exemption under VAT Law Art. 11/1-a is reported with exemption code 302. The code should be used only for work whose benefit is genuinely used abroad.
Does the VAT treatment affect the contractor’s 100% service-export deduction?
Yes. The income-tax deduction under Income Tax Law Art. 89/13, 100% from 2026, also requires a customer abroad and benefit used abroad. Work that fails the VAT export test usually fails the deduction too.
Not sure whether your Turkish contractor’s invoices should carry VAT?
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To scope the review, send us five facts: country of incorporation · number of customers in Turkey · what the Turkey-based people do day to day · the current contract model · whether anyone in Turkey negotiates price or renewals.
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The full service — VAT, permanent establishment and contractor status for foreign companies serving Turkish customers — is described on Foreign Companies Serving Turkish Customers: VAT, PE & Contractor Risk.
Related reading
- Customer success managers in Turkey: tax and PE risk for US companies
- How to pay contractors in Turkey
- VAT registration in Turkey for non-resident companies
- Can a US company hire developers in Turkey without a legal entity?
Primary sources
- VAT Law No. 3065 — Art. 1, 9, 11/1-a, 12/2, 28
- GİB — VAT General Implementation Communiqué, section II.A.2 (service export) and published rulings (özelge)
- Tax Procedure Law No. 213 — Art. 156, 157, 344
- Corporate Tax Law No. 5520 — Art. 3, 30, 32
- Income Tax Law No. 193 — Art. 89/13
- Labour Law No. 4857 — Art. 8 · Social Security Law No. 5510
- Official Gazette (Resmî Gazete) — treaty texts and Presidential Decisions
- OECD Model Tax Convention 2025 Update (19 Nov 2025) — home-office PE guidance, summary
General information on Turkish law as of October 2026, not a tax opinion on your facts.
Turn Turkey compliance into certainty
SYSTEMS CPA supports foreign-owned companies with company formation, accounting, tax compliance and payroll in Turkey — one accountable local partner. Reviewed by Evren Özmen, SMMM (Certified Public Accountant), TÜRMOB Reg. No. 35675.
