Introduction

Two distinct tax regimes are of particular relevance to services supplied by Turkish-resident businesses to customers abroad: the VAT exemption for exported services and the income and corporate tax deduction available in respect of qualifying profits. Although both regimes concern income derived from foreign customers, their purposes, scope and conditions of application differ.

Accordingly, the issuance of an invoice to a foreign customer does not, in itself, mean that the transaction is either exempt from VAT or eligible for an income or corporate tax deduction. The nature of the service, the place where the service is used, the status of the customer, and the invoicing and payment arrangements must be assessed in light of the facts of each case

VAT Exemption for Exported Services

Under Articles 11/1-a and 12/2 of the Turkish Value Added Tax Law, services supplied to customers abroad and used abroad are exempt from VAT. Where the relevant conditions are met, no VAT is charged on the service fee.

The exemption for exported services is subject to two principal requirements. First, the service must be supplied for customers abroad. This is generally evidenced by an invoice or similar document issued in the name of the foreign customer. Secondly -and often more importantly- the service must be used abroad.

Use abroad means that the economic benefit of the service is utilized in the customer’s business or activities outside Türkiye. Consequently, the fact that an invoice is issued to a foreign customer, or that payment is received from abroad, is not in itself sufficient to secure the exemption.

For example, where market research, customer-acquisition, consultancy, supervision or intermediary services are provided for a foreign company’s sales activities in Türkiye, imports into Türkiye or customer network in Türkiye, the economic benefit may be regarded as arising in Türkiye. In such cases, the conditions for the VAT exemption may not be satisfied, even though the service is supplied to a foreign company.

The VAT exemption for exported services is a full exemption. Accordingly, where its conditions are fulfilled, VAT input attributable to the service that cannot be offset through deduction may also be claimed as a refund. In a refund claim, it is important to substantiate, through bank records, that the service fee has been brought into Türkiye.

Where a service is performed entirely outside Türkiye and is also used outside Türkiye, the transaction may, depending on the circumstances, fall outside the scope of Turkish VAT altogether. This is a different tax characterization from the VAT exemption and may have distinct consequences, particularly in relation to input VAT refunds.

Income and Corporate Tax Deduction for Qualifying Profits

The regime set out in Article 89/1-13 of the Income Tax Law and Article 10/1-ğ of the Corporate Tax Law is not, technically speaking, a tax exemption. Rather, it permits qualifying profits to be deducted in income or corporate tax return.

The deduction applies to profits derived from specified services provided in Türkiye to non-resident individuals and to entities whose place of business, legal seat and place of effective management are located abroad. The services listed in the legislation include architectural, engineering, design, software, medical reporting, bookkeeping, call-center, product-testing, certification, data-storage, data-processing and data-analysis services.

In relation to these services, the service must be performed in Türkiye and used exclusively abroad. In addition, the invoice or equivalent document must be issued in the name of the foreign customer, and the relevant income must be transferred to Türkiye by the deadline for filing the relevant tax return.

The legislation also provides a separate deduction for income derived from education and healthcare services supplied in Türkiye to non-resident individuals, provided that the services are subject to the authorization and supervision of the relevant Ministry. The fact that education or healthcare services are physically received in Türkiye does not preclude the application of this specific deduction.

Pursuant to Presidential Decision No. 11257, published in the Official Gazette on 30 April 2026, the deduction rate has been set at 100% for taxable periods commencing on or after 1 January 2026. The deduction is, however, calculated not on gross revenue but on the net profit generated by the relevant activity. In other words, direct expenses attributable to the service, as well as shared expenses allocated on reasonable and supportable bases, must first be deducted from the relevant service revenue.

No deduction is available where the activity results in a loss. Nor may any portion of the deduction that cannot be utilized due to insufficient taxable income be carried forward to subsequent years.

Particular care is required in relation to general consultancy, marketing consultancy, customer-acquisition and intermediary activities. Even where such services are supplied to foreign customers, they do not automatically qualify for the deduction unless they fall within one of the categories specified by law. For tax purposes, the substance and economic function of the service prevail over the title used in the contract.

Key Practical Considerations

Access to these tax benefits requires more than issuing an invoice in the name of a foreign customer. The nature of the service must first be identified correctly. For VAT purposes, it is necessary to determine where the service is used; for income and corporate tax purposes, it must be assessed whether the activity falls within the services listed in the legislation.

A frequent area of risk arises where a service is supplied to a foreign customer, but its economic result is used in activities carried on in Türkiye. This is particularly relevant for consultancy, market research, customer-acquisition, intermediary and intra-group services. In such cases, the actual content of the service, the place of use and the arm’s-length nature of the fee may be examined by the tax authorities.

Contracts should therefore clearly define the scope of the service, the deliverables and the country in which the relevant business activity will use the service. Invoices, bank payment records, technical reports, electronic delivery or access records, time sheets and cost-allocation schedules should consistently support that assessment. For the profit deduction in particular, the allocation of income and expenses, including shared expenses, should be based on reasonable and verifiable criteria.

The VAT exemption and the income or corporate tax deduction for exported services are subject to different legal conditions, documentation requirements and calculation methods. Obtaining professional advice before the transaction is implemented, and establishing the contractual and documentary framework, accordingly, is important in mitigating potential tax assessments, penalties and refund-related risks.