When payment institutions and e-money institutions were first established, the commissions they collected from customers were subject to VAT. However, because payment institutions and e-money institutions carry out activities that are in a sense similar to banking, there was discussion that they should pay the Banking and Insurance Transaction Tax (BSMV).
To prevent this confusion, the issue was resolved with the General Communiqué on Expense Taxes (Series No: 91).
How are taxation and the tax base determined for payment institution money transfer services?
According to Article 8 of the General Communiqué on Expense Taxes (Series No: 91), taxation of money transfer services is carried out as set out in the following provisions.
ARTICLE 8 – (1) For the payment service performed under the first paragraph of Article 12 of Law No. 6493, where the commission amount for the transaction is collected from the sender;
a) For money transfer transactions from Turkey to abroad made through branches directly affiliated with the payment institution, BSMV must be calculated by the payment institution on the entire commission amount collected by the payment institution’s branches.
Example: Mr. (B) sent TRY 1,000 to his son living abroad through a branch of a payment institution, and the branch also collected a TRY 10 commission for this transaction. Accordingly, the payment institution must calculate BSMV on the TRY 10 collected by the branch.
b) For money transfer transactions from Turkey to abroad, if the representative acting as intermediary for the transaction is a person liable for BSMV, BSMV must be calculated on the commission amount that falls to the domestic representative’s own share, and, for the payment institution, on the commission amount transferred to it after the domestic representative deducts its own share of the commission.
Example: Mrs. (C) sent TRY 1,000 to her daughter living abroad through Bank (B), a representative of the payment institution, and the bank collected a TRY 10 commission for this transaction. The bank deducted TRY 3 of the commission it collected and transferred TRY 7 to the payment institution. Accordingly, BSMV must be calculated on the TRY 7 that the payment institution received for itself. For the bank, BSMV must be calculated on the TRY 3 remaining outside the amount transferred to the payment institution.
c) For money transfer transactions from Turkey to abroad, if the representative acting as intermediary for the transaction is not a person liable for BSMV, VAT must be calculated on the commission amount that falls to the domestic representative’s own share, and BSMV must be calculated, for the payment institution, on the commission amount transferred to it after the domestic representative deducts its own share of the commission.
Example: Mrs. (D) sent TRY 1,000 to her sibling living abroad through (K) Inc., a representative of the payment institution that is not liable for BSMV, and (K) Inc. collected a TRY 10 commission for this transaction. (K) Inc. deducted TRY 3 of the commission it collected and transferred TRY 7 to the payment institution. Accordingly, BSMV must be calculated on the TRY 7 that the payment institution received for itself. For (K) Inc., VAT must be calculated on the TRY 3 remaining outside the amount transferred to the payment institution.
d) For money transfer transactions from abroad to Turkey, depending on the transfer amount being withdrawn from the payment institution or its branch, BSMV must be calculated by the payment institution on the commission amount transferred from abroad.
Example: Mr. (A), living abroad, sent TRY 1,000 to his wife living in Turkey through a payment institution, and the institution abroad transferred a TRY 6 commission to the payment institution for this transaction. Mr. (A)’s wife withdrew the TRY 1,000 from a branch of the payment institution. Accordingly, BSMV must be calculated on the TRY 6 collected by the payment institution.
e) For money transfer transactions from abroad to Turkey, if the representative acting as intermediary for the transaction is a person liable for BSMV, BSMV must be calculated on the commission amount transferred to the domestic representative by the payment institution, and, for the payment institution, on the amount remaining with it other than the commission amount it will transfer to the representative.
f) For money transfer transactions from abroad to Turkey, if the representative acting as intermediary for the transaction is not a person liable for BSMV, VAT must be calculated on the commission amount transferred to the domestic representative by the payment institution, and BSMV must be calculated, for the payment institution, on the amount remaining with it other than the commission amount it will transfer to the representative.
g) For domestic-to-domestic money transfer transactions, if the representative acting as intermediary for the transaction is not a person liable for BSMV, VAT must be calculated on the commission amount that falls to the domestic representative’s own share, and BSMV must be calculated, for the payment institution, on the commission amount remaining with it other than the commission that falls to the domestic representative’s share.
Example: Mr. (A), living in Ankara, sent TRY 1,000 to his sibling living in Istanbul through (Y) Inc., a representative of the payment institution that is not liable for BSMV, and (Y) Inc. collected a TRY 10 commission for this transaction. (Y) Inc. deducted TRY 3 of the commission it collected and transferred TRY 7 to the payment institution. The payment institution in turn transferred TRY 3 of the TRY 7 transferred to it to (Z) Inc. in Istanbul, which is not liable for BSMV and where the money will be withdrawn. Accordingly, BSMV must be calculated on the TRY 4 that the payment institution received for itself. For (Y) and (Z) Inc., VAT must be calculated on TRY 3 each.
(2) It goes without saying that if the commission amount for the transaction is collected from the recipient, the transaction will be handled within the framework of the explanations given in the first paragraph of this article.
You can access the General Communiqué on Expense Taxes (Series No: 91) at the link below.
