What is VAT and VAT Withholding? Who Does It Apply To, and How is It Calculated?
📌 Update note: For 2026, the lower threshold for partial VAT withholding has been updated to 12,000 TL (VAT included) by Tax Procedure Law General Communiqué No. 588. Partial withholding does not apply to transactions below this threshold.
When only part of the VAT on an invoice you issued is paid to you instead of the full amount, you may worry that a mistake has been made. In fact, nothing has gone wrong: this is VAT withholding, a practice that comes up often in business. VAT withholding is one of the most common concepts in commercial transactions, yet many business owners have questions about how the mechanism works, which services or goods it applies to and how it is reflected in the tax return process. Understanding this system, which can directly affect both your cash flow and your tax compliance if not managed properly, is not as complicated as it seems. In this guide we go step by step through everything you need to know, from the basic logic of VAT and how withholding is applied to the differences between full and partial withholding and the key points your business should watch.
📌 At a Glance
VAT is an indirect tax collected from the end consumer on supplies of goods and services, with businesses acting as intermediaries for the state.
Withholding means that all or part of the calculated VAT is declared and paid to the tax office by the buyer instead of the seller.
Under full withholding, the buyer declares all of the VAT regardless of the transaction amount; under partial withholding, the set proportion (between 2/10 and 9/10) falls to the buyer and the rest remains with the seller.
For 2026 the lower threshold for partial withholding is 12,000 TL (VAT included), and no withholding applies to transactions below this amount.
What Is VAT and How Does It Work?
VAT (Value Added Tax) is an indirect tax added to the price of every product or service we buy and paid by the end consumer. Businesses collect this tax from customers, deduct the VAT they paid on their own purchases and declare the difference to the state.
To explain with a simple example:
A company sells products worth 10,000 TL.
20% VAT, i.e. 2,000 TL of VAT, is applied to the product.
The total amount collected from the customer is 12,000 TL.
The seller deducts the VAT it paid when buying its own goods or services from the VAT it collected from customers, and pays the difference to the state..
In this way, the same product is taxed at each stage of sale only on the value added at that stage.
VAT Rates
Rate | Applies to |
20% | Most general goods and services |
10% | Some food products, health and tourism services |
1% | Basic necessities and transactions subject to special arrangements |
What Is VAT Withholding?
VAT withholding, put simply, means that the buyer retains part (or all) of the VAT that the seller would normally collect from the customer and pay to the state, and pays it directly to the tax office. With this practice the state aims to prevent tax loss, curb the informal economy and secure tax collection, particularly in sectors seen as high risk.
The Difference Between Full and Partial Withholding
1. Full Withholding
Under full withholding, the buyer declares all of the calculated VAT; no VAT at all is paid to the seller. This usually arises in the following cases:
Services bought from persons or companies not resident in Turkey (such as consultancy, licensing or advertising services from abroad)
Certain imported services
Special transactions specified separately in the law
Transactions subject to full withholding generally have no amount threshold; transactions of any amount fall within the scope of withholding.
2. Partial Withholding
Under partial withholding, only a set proportion of the calculated VAT is declared by the buyer, and the rest by the seller.
To explain with an example:
Service fee: 100,000 TL
VAT (20%): 20,000 TL
Invoice total: 120,000 TL
If the transaction is subject to 5/10 withholding: 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:
Cleaning, gardening and grounds maintenance services: 7/10
Security services: 9/10
Building inspection services: 9/10
Consultancy and audit services: 9/10
Commercial advertising services: 3/10
Freight/transport: varies by transaction type
Summary of Key Differences
Feature | Full Withholding | Partial Withholding |
VAT Withholding Rate | 100% of the VAT is withheld | Withheld at the rate set by the Ministry ($5/10, 9/10$ etc.) |
VAT Paid to the Seller | No VAT is paid to the seller ($0$ TL) | The part of the VAT not withheld is paid to the seller |
Scope | Generally those with no tax liability in Turkey and special legal cases | Specified goods/services supplied to designated institutions and organisations |
Which Transactions Are Subject to Withholding?
Partial withholding applies to purchases made by the "designated buyers" listed in the VAT General Implementation Communiqué (public bodies, state-owned enterprises, companies of a certain size etc.) of the service and supply types also specified in the communiqué. The main transactions in scope are:
Construction works
Cleaning and security services
Consultancy services
Labour supply services
Machinery maintenance and repair services
Shuttle transport
Printing and publishing services
Certain types of advertising services
Supplies of scrap metal
It does not apply automatically to every seller-buyer relationship; both the nature of the buyer and the type of transaction are assessed together.
How Do You Issue an Invoice with Withholding?
An invoice with withholding must show the following information separately:
Service or product amount
VAT rate
Withholding rate and code (601, 602, 612, 624 etc.)
Amount of VAT withheld
Total amount to be collected by the seller
Businesses that issue electronic invoices must also state the withholding details in the relevant fields of the e-Invoice.
How Is Withholding Declared?
In withholding, the seller and buyer have different responsibilities:
Seller: Declares the VAT amount it is responsible for and issues the invoice with withholding.
Buyer: Declares the withheld VAT on its own tax return and pays the amount directly to the tax office.
💡 Üstad Reminder: Forgetting the buyer's filing obligation is a risk regardless of whether the seller issued the invoice correctly — both parties are obliged to file their own share on time.
What Is the Withholding Threshold for 2026?
Partial withholding has a lower threshold: if the VAT-inclusive value of the transaction does not exceed the invoicing threshold set for the relevant year, no withholding applies. For 2026 this threshold has been set at 12,000 TL (VAT included). The threshold is assessed per transaction/invoice — not on a monthly or annual total.
The 12,000 TL lower threshold does not apply to full withholding; transactions of any amount are within the scope of withholding.
Are E-commerce Companies Affected by VAT Withholding?
Not every e-commerce business falls directly within the scope of withholding. However, depending on the line of business, withholding may apply to advertising services, consultancy, software services, logistics/operational services or sales to public bodies. It is therefore important for e-commerce companies to manage their accounting processes and invoicing systems in line with current legislation.
What Happens If You Apply Withholding Incorrectly or Incompletely?
The most common mistakes businesses make are: using the wrong withholding rate, applying withholding to a transaction not subject to it, overlooking the withholding threshold, calculating the tax base incorrectly and keeping incomplete accounting records.
These mistakes lead to VAT being under-declared. The tax office may claim the shortfall from the responsible party together with late payment interest and a tax loss penalty. The safest course is to cancel the incorrect invoice and reissue it at the correct rate.
How Is VAT Calculated? (Practical Calculator)
There are basically two methods of calculating VAT: VAT inclusive and VAT exclusive. To get from a VAT-exclusive amount to the total, the net amount is multiplied by the applicable tax rate (1%, 10% or 20%). To separate the net amount and the tax from a VAT-inclusive amount, the total is divided by the factor determined by the tax rate (for example 1.20 for 20% VAT).
To carry out your calculations quickly and without errors, you can use the practical tool Üstad provides. To get the correct result in seconds from either VAT-inclusive or VAT-exclusive amounts, use our Üstad VAT Calculator page.
How Is VAT Withholding Calculated? (Practical Calculator)
When calculating VAT withholding, the invoice amount, the VAT rate and the withholding rate set for the transaction type (2/10, 5/10, 9/10 etc.) are taken into account together. First the total VAT on the invoice is found; this tax is then split in two according to the set rate. One part is withheld by the buyer and paid directly to the tax office, while the remaining part is paid to the seller.
To determine the amounts quickly and accurately, you can use the practical tool developed by Üstad. To calculate your withholding amounts in seconds by entering your invoice amount and the applicable rates, visit our Üstad VAT Withholding Calculator page.
Conclusion: What Should You Do?
Check whether the party you are dealing with is a "designated buyer".
Determine the correct withholding rate and code for the type of service/goods.
Track the 12,000 TL lower threshold for 2026 on a per-transaction basis.
Issue the invoice with complete withholding details and meet your filing obligation on time.
❓ Frequently Asked Questions
What is the difference between VAT and VAT withholding?
With VAT, the seller collects the tax and pays it to the state. With 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 and partial withholding?
Under full withholding the buyer declares all of the VAT, while under partial withholding only the set proportion falls to the buyer and the rest remains with the seller.
What is the lower threshold for partial withholding in 2026?
For 2026 the lower threshold for partial withholding has been set at 12,000 TL including VAT.
Who issues an invoice with VAT withholding, and who declares the withheld VAT?
The invoice is issued by the seller and the withholding rate is clearly stated on it; however, the withheld VAT is declared by the buyer.
What happens if the wrong withholding rate is applied?
The under-declared VAT is claimed from the responsible party together with late payment interest and a tax loss penalty; the best solution is to cancel the invoice and reissue it at the correct rate.
