What is the purpose of the Digital Tax?
The preamble to the Draft Law states that its main target is global tech-companies, digital platforms and content providers that do not have a physical presence (such as a subsidiary) in Turkey. Currently international digital services companies can provide services online and generate revenues remotely without paying any tax in Turkey. Thus, the Draft Law's main aim is taxing the revenues of global digital service providers from digital services given in Turkey. However, the Draft Law covers not only foreign companies but also Turkish companies that provide digital services in Turkey.
What services does the Digital Tax cover?
The proposed digital tax under the Draft Law would cover the following service types given by digital service providers in Turkey:
(a) All kinds of advertising services provided on digital platforms;
(b) Sales of any audio, visual or digital content over digital platforms and services submitted to digital platforms for listening, viewing and playing of this content; and
(c) Provision and management of digital media where the users can connect to each other, including platforms that enable or facilitate sales of real goods and services among their users.
Pursuant to Article 2 of the Draft Law, services provided in Turkey shall be defined as those where: (a) the service is benefited from in Turkey, (b) the service is rendered to persons that have a presence in Turkey, or (c) there is a value realised in Turkey such as payment being made through a Turkish bank account or payment being referred to or paid on behalf of a person in Turkey.
Are there any exemptions?
The tax will not apply to digital services companies whose annual revenue is less than TL 20,000,000 in Turkey or EUR 750,000,000 world-wide.
What is the rate of the Digital Tax?
Digital service tax rate is set at a flat rate of 7.5% of the revenue generated under the Draft Law. However, the President is authorized to decrease the rate of digital service tax down to 1% or increase the rate up to double the rate of the digital service tax for each of the digital service types.
Whilst the digital tax has been publicised at aiming to catch the activities of global tech giants that generate revenue without a physical presence in Turkey, the Draft Law would also cover Turkish companies which have an annual revenue exceeding TL 20,000,000 (approx. USD 3,500,000 and EUR 3,150,000). The Draft Digital Tax Law is still being debated with plans for it to be enacted during November 2019. However, please note that the Grand National Assembly may reject or alter certain parts of the Draft Law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.