Today, it is as important for businesses not only to generate revenue, but also to document this revenue in accordance with the law. Within the complex structure of tax legislation, there are some documents that mean much more than just being an accounting document. This is exactly where the invoice with withholding comes into play. One of the most sophisticated elements of the VAT system, this type of invoice offers a structure that increases the state's collection assurance by sharing the tax responsibility of both the seller and the buyer.

But it's not just a deduction or an accounting technique; it's part of broader goals such as tax security, combating informality and auditing high-risk sectors. If you want to protect the future of your business from the risks of tax penalties and put your financial processes on a firmer footing, you need to understand the concept of withholding invoices in all its dimensions. In this guide, you will go beyond the question of what a withholding invoice is; you will find every detail from application types to legal bases, from current rates to accounting records.

What is a Withholding Invoice?

A withheld invoice is a special type of invoice in the Value Added Tax (VAT) system where the tax is split between the buyer and the seller. In a normal invoice, the entire VAT is declared by the seller, whereas in a withheld invoice, a certain percentage of the VAT is deducted by the buyer and paid directly to the government. This deduction is called "VAT withholding" and its purpose is to secure the state's tax receivable.

Legal Basis and Purpose

The main purpose of withholding tax is to ensure tax security by securing the state's tax receivables. This practice is used especially in sectors where VAT collection is considered difficult or risky and as an effective tool in the fight against the informal economy.

The legal basis of the practice is Article 9 of the Value Added Tax Law No. 3065. This article grants a special authority to the Ministry of Treasury and Finance: In cases where the Ministry deems it necessary to secure the tax receivable, it may hold the buyers of taxable transactions responsible for the payment of the tax. This authorization makes the withholding system dynamic. By continuously monitoring economic activity, the tax administration can impose new withholding obligations on sectors with an increased risk of tax loss (such as private security services in the past). This shows how withholding is a reactive tool for tax policy.

Types of Withholding Tax and Basic Concepts

In order to apply the withholding tax system correctly, it is necessary to know its basic concepts and types. Meaning of the word "withholding": "Withholding", which is of Arabic origin, means "deduction" or "withholding" in the dictionary. The equivalent in our tax system is that a portion of the tax on the invoice is deducted by the buyer and paid directly to the state.

Main Types of Withholding: There are two main types of withholding in Turkish tax legislation:

1- Income Tax Withholding (Withholding): Within the scope of Article 94 of the Income Tax Law; it is the deduction made at source from income such as salaries, rents, self-employment payments.

2- Value Added Tax (VAT) Withholding: The main subject of this guide is the deduction of a certain portion of the VAT calculated on the price of a good or service by the buyer and payment to the state.

Subtypes of VAT Withholding

VAT withholding is divided into two according to the deduction rate:

Full Withholding

- The VAT calculated on the transaction price is deducted by the buyer. - VAT is not paid to the seller; the buyer declares and pays the full VAT "as responsible". - This is shown on the invoice with a rate of 10/10. - It is generally applied in cases where tax follow-up is difficult, such as services received from non-resident companies in Turkey.

Partial Withholding

- It is the allocation of the calculated VAT between the buyer and the seller in certain proportions. - The buyer deducts VAT at the rate specified in the communiqués and pays it to the government. - The remaining part of the VAT is paid by the buyer to the seller. - Rates are expressed in fractions such as 2/10, 5/10, 7/10, 9/10.

Who is obliged to withhold?

The roles of the buyer and seller in the withholding invoice process are clearly separated.

Seller's Role and Responsibilities

- Invoice Preparation: Prepares the invoice with withholding in accordance with legal requirements. - Displaying the Withholding: The invoice clearly indicates the withholding rate, the amount of VAT deducted and the net amount to be collected. - Partial VAT Collection: Collects from the buyer only the VAT amount remaining after the withholding deduction. - Declaration (VAT-1): Declares the VAT collected and the transaction subject to withholding in its VAT-1 Declaration. - VAT Refund Right: It has the right to demand a refund from the government of the VAT amount that it cannot collect from the buyer due to withholding.

Role and Responsibilities of the Recipient (Tax Responsible)

The buyer gains the title of “tax responsible” in the withholding system and becomes directly liable to the tax office.

- Tax Deduction: Deducts the total VAT on the invoice at the rate determined for the transaction. - Declaration and Payment (VAT-2): Declares and pays the amount of tax deducted to its own tax office with the VAT-2 Declaration. This allows the state to guarantee the tax receivable. - Partial Payment: Does not pay the VAT amount to the seller, but pays the remaining part of the invoice amount to the seller.

Who is obliged to withhold?

Not every buyer is obliged to withhold on every transaction. Tax legislation defines those who are obliged to withhold in two main groups:

1- All VAT Taxpayers (For Certain Transactions): For certain service purchases (e.g. labor supply, cleaning services), all VAT payers are obliged to withhold, regardless of who the buyer is. 2- Designated Recipients: The list below includes institutions and organizations that are obliged to withhold on transactions specified in the communiqué, regardless of whether they are VAT payers or not:

- General and annexed budget administrations, special provincial administrations, municipalities and villages. - Revolving fund organizations. - State economic enterprises (SOEs). - Professional organizations in the nature of public institutions (Chambers, Bar Associations, Stock Exchanges, etc.). - Banks, insurance and reinsurance companies. - Companies whose shares are traded on Borsa Istanbul (BIST). - Organized industrial zones and development agencies.

Things to Consider When Issuing Invoices with Withholding

To minimize the risk of errors, it is useful to look at the following questions before each transaction. - Recipient Status: Is my customer a “Designated Recipient” or a standard VAT payer? - Scope of the Transaction: Is the service I am providing or the goods I am delivering included in the current withholding tax list? - Type of Withholding: Is my transaction subject to full withholding (10/10) or partial withholding? - Lower Limit Check: If the transaction is partial withholding, does the total value including VAT exceed the current lower limit (9.900 TL for 2025)? - Rate and Code Confirmation: What is the current withholding rate and e-invoice code applicable to my transaction? - Calculation Check: Have I correctly calculated the total VAT, VAT to be withheld and the net amount to be collected? - Invoice Format: Does my invoice contain all mandatory information about withholding tax?

Following these steps meticulously will protect your business against the complexities of withholding and strengthen your financial compliance.