VAT refund available on construction works in Turkey

VAT taxpayers can qualify for a VAT refund on their investment expenditures under article 13-d of the Value Added Tax Act No. 3065. The VAT refund is only applicable for machinery and equipment expenditure made under an investment incentive certificate for the manufacturing industry.

Temporary Article 37 of the Value Added Tax Act No. 3065, however, has made a VAT refund possible if it was incurred as a result of new investments in construction works made under an investment incentive certificate for the manufacturing industry in 2017, 2018 and 2019, if a fixed investment of a minimum amount of 50 million Turkish lira in any semi-annual term of 2017, 2018 and 2019 was made. The refund is made to the certificate-holding taxpayer upon request within one year of such semi-annual terms.

Refund may only be made to the taxpayer on request, warn the Ecovis experts. Any amounts which cannot be compensated by way of reduction as of the above semi-annual terms shall be refunded to the holder of the investment incentive certificate as per the following dates:

• VAT as contained in the invoices issued between 01.01.2018 and 30.06.2018 which cannot be compensated by way of reduction during such period must be requested to be refunded in the July 2018 tax return at the earliest and in the May 2019 tax return at the latest between 01.07.2018 and 30.06.2019.
• VAT as contained in the invoices issued between 01.07.2018 and 31.12.2019 which cannot be compensated by way of reduction during such period must be requested to be refunded in the January 2019 tax return at the earliest or in the November 2019 tax return at the latest between 01.01.2019 and 31.12.2019.

In paragraph (b) of the same article, it is prescribed that when a fixed investment up to the amount of 50 million Turkish lira in investments in any construction works are made under an investment incentive certificate for the manufacturing industry, any amount borne in 2017, 2018 and 2019 which could not be compensated by way of reduction by the end of 2017, 2018 and 2019 should be refunded to the certificate-holding taxpayer upon request within the following one year period.

In this respect, any amounts which cannot be compensated by way of reduction as of the semi-annual terms shall be refunded to the holder of the investment incentive certificate as per the following dates provided a refund is requested:

• VAT as contained in the invoices issued between 01.01.2018 and 31.12.2018 which cannot be compensated by way of reduction during such period must be requested to be refunded in the January 2019 tax return at the earliest or in the November 2019 tax return the latest between 01.01.2019 and 31.12.2019.

Such exemption covers such works as construction contracting, excavation, transport and the like. Any materials used in construction works by those taxpayers who hold an investment incentive certificate are also subject to such exemption. It covers the purchase of both goods and services, provided that they are related to the construction works in question.

It is natural that the amount of VAT requested to be refunded shall not exceed the amount of VAT carried forward to the subsequent term in the last term’s tax return related to semi-annual or annual terms. Requests for refunds on account are fulfilled without a tax inspection report, guarantee or CPA report if the documents as required by the administration are complete.

In the case of cash refunds, refunds not exceeding TRL 5,000 are fulfilled without requiring the submission of a tax inspection report, CPA report and guarantee. Any amounts exceeding TRL 5,000 may be collected upon presentation of a tax inspection report or CPA report. If a guarantee is provided, the taxpayer’s refund is fulfilled and the guarantee is released by the outcome of the CPA report or tax inspection report.

Author:

Dr. Mustafa Bulut, partner, sworn in CPA, chief auditor, ECOVIS DIPLOMAT DENETIM VE YMM A.S., Izmir, Turkey