Buying Software and Services From Abroad: Turkish VAT Reverse Charge (KDV2) and Bookkeeping

When a company based outside Turkey sells you software development, consulting or cloud services that you use in Turkey, the VAT liability moves to you. In Turkish tax language this is “KDV2”: the buyer reports the VAT as the “responsible party” (sorumlu sıfatıyla) on a separate Return No. 2, which works like a reverse charge. This article walks through the tax base, the advance-payment trap and the journal entries with a worked example. For Google and Meta ad spend specifically, see our article on VAT on Google and Meta ads.

When Does KDV2 Apply?

KDV2 applies when the service provider has no residence, workplace, legal seat or business centre in Turkey. Under Article 6(b) of the VAT Law (No. 3065), a service is treated as supplied in Turkey if it is performed or used here. Because the supplier sits abroad, Article 9(1) puts the whole VAT on the recipient, and the VAT General Implementation Communiqué (section I/C-2.1.2.1.1) calls this full withholding. You do not need to be a VAT payer to owe it. Even a business without VAT registration must file KDV2.

The Taxable Event: Advances Do Not Trigger VAT

The VAT liability arises when the service is performed, or earlier if an invoice is issued before performance, limited to the amount on that invoice (Art. 10(a) and 10(b)). Whichever comes first applies. Instalments you pay before delivery do not create VAT on their own if no invoice exists; the Communiqué (section I/Ç-1) says a fee collected before performance does not trigger VAT unless a document was issued. If your foreign supplier invoices on receipt of an advance, that invoice date and amount matter.

Tax Base and Exchange Rate

The tax base is everything you pay or owe for the service (Art. 20). When the fee is stated in foreign currency, convert it at the TCMB buying rate published for the day the liability arises (Communiqué III/A-1.1). The portion you paid earlier as an advance is part of the total fee, so the base is the full currency amount at that day’s rate. This can leave a small gap between the VAT base and the cost recorded in your books.

Worked Example: A USD 10,000 Software Service

The figures and rates below are invented examples for illustration. The standard VAT rate is 20%. A USD 4,000 advance was paid before delivery (rate 40.00). The service was delivered and invoiced at a rate of 42.00. The remaining USD 6,000 was paid later at 43.00.

KDV2 base: 10,000 × 42.00 = TRY 420,000; VAT: TRY 84,000.

Event	Debit	Credit
Advance payment (USD 4,000 × 40.00)	269 Advances given (intangibles) 160,000	102 Bank 160,000
Delivery and invoice (rate 42.00)	260 Rights 412,000	269 Advances given 160,000; 320 Trade payables 252,000
KDV2 filed	191 Input VAT 84,000	360 Taxes and funds payable 84,000
KDV2 paid	360 Taxes and funds payable 84,000	102 Bank 84,000
Remaining USD 6,000 paid (rate 43.00)	320 Trade payables 252,000; 656 FX losses 6,000	102 Bank 258,000

The advance stays at its TRY value on the payment date (account 269, or 159 for expense-type services that will not be capitalized) and closes at the same value on the invoice date. The exchange difference arises on the unpaid foreign-currency balance, not on the advance, and is booked to 646 (FX gains) or 656 (FX losses) at payment or revaluation. Practice differs on year-end revaluation of foreign-currency advances, so we apply your chosen method consistently.

If you capitalize the software or system, it goes into account 260 and is depreciated over its useful life (Tax Procedure Law Arts. 269, 313 and 315).

Filing, Payment and Input VAT Timing

KDV2 is filed by the 21st of the month following the month of the service and paid by the 23rd (VAT Law Arts. 41 and 46). An invoice that arrives later does not shift the filing period (Communiqué I/C-2.1.1.1). The right to deduct comes from Article 29(1)(ç). Under Law No. 7491 and VAT Communiqué Series No. 50, KDV2 is not deductible until it is paid, effective from January 2024. If you file and pay on time, you deduct it on the Return No. 1 for the period KDV2 relates to. If you pay late, the deduction moves to the period of payment (Communiqué III/C-1.1), and partial payment allows only a partial deduction.

Is There Withholding Tax on Foreign Software?

Where you pay only for services (development, cloud, consulting), no withholding tax normally applies to a non-resident company’s commercial income. If the payment is for the sale, transfer or licensing of copyright, trademark or software rights, withholding can apply under Corporate Tax Law Art. 30(2), or Income Tax Law Art. 94(4) for individuals. The rate changes by presidential decree, and a double tax treaty can reduce it, so we check the contract before the first payment.

Frequently Asked Questions

Can I deduct KDV2 before paying it?

No. Since January 2024 the VAT you report as responsible party is deductible only to the extent paid, in the period of payment. Filing and paying on time lets you deduct it in the period KDV2 relates to.

When do I file KDV2 if the foreign invoice arrives next month?

Within the filing deadline of the month in which the service was performed. The Communiqué confirms that an invoice issued in the following month does not change the period.

Is an annual subscription paid upfront taxed on payment?

It depends on when the service is performed. If the foreign seller invoices the whole year at the start, the invoice date can be the taxable event (Art. 10(b)). If the service runs across periods, we review the contract and documents together.

What happens if I never file KDV2?

A tax loss penalty and interest can follow on the unreported VAT. Booking a foreign invoice as an expense without filing KDV2 is a common audit finding.

Setting Up the KDV2 Filing and Entries Correctly

We review your foreign invoices by service date, exchange rate and contract type, file and pay KDV2 on time, and book the advance and depreciation entries. If a payment may carry withholding tax, we assess the contract beforehand. Start with our bookkeeping service and tax advisory service. If you also sell services abroad, our article on service exports and tax advantages may help.