Who is liable under VAT withholding?
Withholding shifts part of the tax from the seller to the buyer for declaration and payment. Applied incorrectly it causes problems on both sides: liability for the buyer, a lost refund for the seller.
The rule in VAT is that the seller declares the tax. Withholding is the exception: for designated transactions, all or part of the tax is declared by the buyer as the responsible party. The aim is to strengthen tax security and bring collection closer to the transaction.
Full and partial withholding
| Full withholding | Partial withholding | |
|---|---|---|
| Who declares | All of the tax, by the buyer | Set proportion by the buyer, rest by the seller |
| Typical area | Services received from abroad | Designated services and supplies |
| Threshold | None | Applies |
| Seller's return | No VAT calculated | The non-withheld portion is declared |
In partial withholding the proportion varies by transaction, between 2/10 and 9/10. Which proportion applies to which transaction is listed in the VAT General Application Communiqué and is updated over time, so the rate must be confirmed against the current list at the date of the transaction.
The most common mistakes
- The buyer accepting an invoice without withholding for a transaction within scope. Because liability arises with the buyer, an incorrectly issued invoice offers no protection.
- Testing the threshold on the VAT-exclusive amount. The threshold is applied to the VAT-inclusive total.
- Failing to separate items subject to and outside withholding on the same invoice.
- Not declaring the withheld tax on the second VAT return, which is the return of the buyer making the withholding.
- The seller attempting to treat the withheld amount as deductible input tax. That amount gives rise to a refund claim, not a deduction.
The refund side
Where withholding applies, the seller may not be able to recover input VAT through deduction. A refund claim then arises. Refunds demand care in documentation and timing: the input listing, the deductible VAT listing and sales invoices must be complete, and the claim period must not be missed.
Legal basis
- VAT Law No. 3065, Article 9 (responsible party)
- VAT General Application Communiqué, section I/C-2
- Revenue Administration withholding rate lists
This article is general information and does not replace professional assessment of a specific matter. Amounts and rates relate to the stated year; please verify the current provisions before acting.
