VAT Withholding in Employee Transportation

What is withholding? How is it calculated?

Before turning to VAT withholding in employee transportation, it is worth understanding what withholding actually is.

According to the Turkish Language Association, the word "tevkifat" means deductions in matters of money. It refers to apportioning and deducting on taxes. Withholding is where, instead of collecting the VAT it is owed from the seller alone, the state apportions it between both buyer and seller and collects from both, so that payment is made properly and regularly. 

There are two kinds of withholding:

1- VAT withholding:  the VAT calculated on the price of goods or services is declared and paid to the tax office by the buyer in the capacity of tax responsible party, rather than to the seller —
sometimes in full (full withholding) and sometimes with a deduction at the rate set out in law
(partial withholding). The Ministry of Finance operates this scheme in order to secure
the tax receivable.

2- Income tax withholding: deductions made at the rates set by the Council of Ministers on the types of income
listed in Article 94 of the income tax law.

How Much Is VAT Withholding in Employee Transportation?

The buyers who must apply VAT withholding under the partial withholding scheme are set out in section (3.1.2) of VAT
General Communiqué Serial No. 117, and employee shuttle
transportation is subject to partial withholding.

This section covers purchases of transportation services relating to shuttle services established for the purpose of carrying staff, students, customers and the like along a defined route.
For a transportation job to be treated as a shuttle transportation service subject to withholding, the following are taken into account:

• that it is carried out along defined routes,
• that it continues for a certain period under an agreement between the buyer and the seller of the service,
• and that it is actually performed.

Those listed in sections (I/C-2.1.3.1/a and b) of the VAT general application communiqué apply VAT withholding (partial withholding) at a rate of (5/10)
on purchases of transportation services falling within section
(I/C-2.1.3.2.11.2.) of the Communiqué.

Where the shuttle service is arranged by the staff agreeing among themselves and contracting directly with the carrier, withholding is not applied, since the invoices for the service should as a rule be issued in the name of the staff using it. However, where the invoice is issued in the name of those responsible for applying withholding, the transaction will be handled under the withholding scheme.

Sources:
Revenue Administration, Value Added Tax Circular