How to Establish a Foreign-Partnered Company in Turkey: The 2026 Guide

📌 Update Note: For the year 2026, the lower limit for partial VAT withholding (tevkifat) has been updated to 12,000 TL (including VAT) by the Tax Procedure Law General Communiqué No. 588. Partial withholding is not applied to transactions falling below this limit.

When you are paid only a part of the VAT of an invoice you issued instead of the full amount, you might feel anxious thinking an error has occurred; however, there is actually no mistake, but rather the VAT withholding application which we frequently encounter in commercial life. As one of the most common concepts in commercial transactions, VAT withholding can raise questions in many business owners' minds regarding how the mechanism works, which goods or services it applies to, and how it is reflected in tax return processes. Understanding this system, which can directly affect both your cash flow and tax compliance when not managed correctly, is not as complex as it seems. In this guide, we cover all the details you need to know step-by-step, from the basic logic of VAT to how withholding is applied, and the differences between full and partial withholding to the critical points your business needs to pay attention to.

📌 Quick Look

• VAT is an indirect tax collected from the final consumer in the delivery of goods and services, where businesses act as intermediaries for the government.

• Withholding (Tevkifat) is the declaration and payment of all or part of the calculated VAT to the tax office by the buyer instead of the seller.

• In full withholding, the entire VAT is declared by the buyer regardless of the transaction amount; in partial withholding, only the designated ratio (between 2/10 and 9/10) goes to the buyer, and the rest remains with the seller.

• The partial withholding lower limit for 2026 is 12,000 TL (including VAT), and withholding is not applied to transactions below this amount.

What is VAT, How Does It Work?

VAT (Value Added Tax) is an indirect tax added to the price of every product or service we purchase and paid by the final consumer. Businesses collect this tax from the customer, deduct the VAT they paid on their own purchases, and declare the difference to the government. 

To explain with a simple example:

• A company sells products worth 10,000 TL.

• A 20% VAT, meaning 2,000 TL VAT, is applied to the product.

• The total amount collected from the customer becomes 12,000 TL.

• The seller deducts the VAT paid while purchasing their own goods or services from the VAT collected from their customers; and pays the difference to the state.

This way, the same product is taxed only by the amount of value added created at each stage of sale.

VAT Rates

What is VAT Withholding?

VAT withholding, in its simplest terms, is when the buyer retains a portion (or all) of the VAT that the seller would normally collect from the customer and pay to the government, and pays it directly to the tax office instead. With this application, the government aims to prevent tax loss, block the informal economy, and secure tax collection, especially in sectors deemed risky.

Difference Between Full and Partial Withholding

1. Full Withholding

In full withholding, the entire calculated VAT is declared by the buyer; no VAT is paid to the seller. This practice generally occurs in the following cases:

• Services received from individuals or companies not residing in Turkey (such as overseas consultancy, licensing, advertising services)

• Some imported services

• Special transactions specifically specified in the law

In transactions subject to full withholding, generally no amount limit is required; transactions of any amount fall within the scope of withholding.

2. Partial Withholding

In partial withholding, only a certain ratio of the calculated VAT is declared by the buyer, and the rest is declared by the seller.

To explain with an example:

• Service fee: 100,000 TL

• VAT (20%): 20,000 TL

• Total invoice: 120,000 TL

• If the transaction is subject to withholding at a rate of 5/10: the seller collects 110,000 TL from the customer, the buyer pays 10,000 TL of VAT to the tax office, and the seller declares the remaining 10,000 TL.

The most common rates are as follows:

• Cleaning, garden, and environmental maintenance services: 7/10

• Security services: 9/10

• Building inspection services: 9/10

• Consultancy and auditing services: 9/10

• Commercial advertising services: 3/10

• Shipping/transportation: variable depending on the transaction type

Summary of Key Differences

Which Transactions Are Subject to Withholding?

Partial withholding is applied to purchases made by "designated buyers" (public institutions, State Economic Enterprises, companies of a certain size, etc.) listed in the VAT General Application Communiqué, for the types of services and deliveries also specified in the communiqué. Key transactions within scope:

• Construction works

• Cleaning and security services

• Consulting services

• Labor procurement services

• Machinery maintenance and repair services

• Shuttle transportation

• Printing and publishing services

• Certain types of advertising services

• Metal scrap deliveries

It does not automatically kick in for every seller-buyer relationship; both the characteristics of the buyer and the transaction type are evaluated together.

How to Issue an Invoice with Withholding?

The following details must be shown separately on an invoice where withholding is applied:

• Service or product amount

• VAT rate

• Withholding rate and code (601, 602, 612, 624 etc.)

• Withheld VAT amount

• Total amount to be collected by the seller

For businesses issuing electronic invoices, withholding details must also be specified in the relevant fields of the e-Invoice.

How to Declare Withholding?

In the withholding application, the seller and buyer have different responsibilities:

Seller: Declares the VAT amount under their responsibility and issues the invoice with withholding.

Buyer: Declares the withheld VAT in their own tax return and pays the relevant amount directly to the tax office.

💡 Expert Reminder: Forgetting the declaration obligation on the buyer's side is a risk independent of whether the seller issued a correct invoice — both parties are obliged to file their share of the declaration on time.

What is the 2026 Withholding Limit?

There is a lower limit in the partial withholding application: if the transaction amount including VAT does not exceed the invoice issuance limit determined for the relevant year, withholding is not applied. For the year 2026, this limit is set at 12,000 TL (including VAT). The limit is evaluated on a transaction/invoice basis — not on monthly or annual totals.

In full withholding, this 12,000 TL lower limit is not applied; transactions of any amount are subject to withholding.

Are E-Commerce Companies Affected by VAT Withholding?

Not every e-commerce business is directly subject to withholding. However, depending on their field of activity, withholding can be applied to advertising services, consultancy, software services, logistics/operational services, or sales made to public institutions. Therefore, it is important for e-commerce firms to manage their accounting processes and invoicing systems in accordance with current regulations.

What Happens if You Apply Withholding Incorrectly or Incompletely?

The most common mistakes businesses make: using the wrong withholding rate, applying withholding to a transaction not subject to withholding, ignoring the withholding limit, incorrectly calculating the tax base, and making incomplete accounting records.

These errors lead to underdeclaration of VAT. The tax office may request the missing amount from the liable party, along with late payment interest and tax loss penalties. The safest way is to cancel the incorrect invoice and reissue it with the correct rate.

How is VAT Calculated? (Practical Calculation Tool)

Two different methods are basically used when calculating VAT: VAT Included and VAT Excluded calculations. To reach the total amount from the VAT excluded amount, the net amount is multiplied by the applicable tax rate (1%, 10%, or 20%). To separate the net amount and the tax share from an amount including VAT, the total amount is divided by the coefficient determined according to the tax rate (for example, by 1.20 for 20% VAT).

To perform your transactions without losing time and with zero errors, you can choose the practical solution offered by Üstad. You can use our Üstad VAT Calculation Tool page to get the correct result within seconds, whether on amounts including or excluding VAT.

How to Calculate VAT Withholding? (Practical Calculation Tool)

When calculating VAT withholding, the invoice amount, VAT rate, and the withholding rate (2/10, 5/10, 9/10 etc.) determined according to the transaction type are considered together. In the calculation, first the total VAT of the invoice is found; then this tax is divided into two based on the determined rate. A portion is deducted by the buyer and paid directly to the tax office, while the remaining portion is paid to the seller.

You can use the practical tool developed by Üstad to determine the amounts error-free and quickly. You can visit our Üstad VAT Withholding Calculation Tool page to calculate your withholding amounts in seconds by entering your invoice amount and applicable rates.

Conclusion: What Should You Do?

• Check whether the party you are transacting with is within the scope of "designated buyers."

• Determine the correct withholding rate and code according to the type of service/goods.

• Track the lower limit of 12,000 TL for 2026 on a transaction basis.

• Issue the invoice completely with withholding details and fulfill your declaration obligation on time.

❓ Frequently Asked Questions

What is the difference between VAT and VAT withholding? 

In VAT, the seller collects the tax and pays it to the state. In withholding, all or part of the calculated VAT is paid directly to the tax office by the buyer.

What is the main difference between full withholding and partial withholding? 

In full withholding, all of the VAT is declared by the buyer, while in partial withholding, only the designated rate remains with the buyer and the rest stays with the seller.

What is the lower limit for partial withholding in 2026? 

For the year 2026, the partial withholding lower limit is set at 12,000 TL, including VAT.

Who issues the VAT withholding invoice, and who declares the withheld VAT? 

The invoice is issued by the seller and the withholding rate is clearly indicated on it; however, the declaration of the withheld VAT is done by the buyer.

What happens if the wrong withholding rate is applied? 

The underdeclared VAT is requested from the responsible party, along with late payment interest and tax loss penalties; the most accurate solution is to cancel the invoice and reissue it with the correct rate.