When Should Exchange Rate Difference Invoices be Issued in Foreign Currency Invoices?

Dear readers, this week we will discuss the issue of when to issue exchange rate difference invoices in foreign currency invoices, considering the latest dated circular on the subject.

CAN INVOICES BE ISSUED IN FOREIGN CURRENCY? Yes, invoices can be issued in foreign currency. However, the procedural requirement for this is stated in Article 215, paragraph (2) of the Tax Procedure Law No. 213, which states that:

“Documents can be issued in foreign currency, provided that they are also shown in Turkish currency equivalent. However, there is no requirement to show the Turkish currency equivalent on documents issued on behalf of customers abroad.”

This regulation explicitly permits the issuance of invoices in foreign currency.

THE TAXABLE EVENT AND TIMING OF INVOICES IN TERMS OF VAT FOR FOREIGN CURRENCY INVOICES The VAT General Application Communiqué provides important explanations regarding the taxable event for VAT and the timing of invoices related to this event.

Under the section titled “Elements Included in the Tax Base” in the Communiqué’s section on “Exchange Rate Differences,” it states that “In transactions where the price is expressed in foreign currency or indexed to foreign currency, if the payment is made partially or entirely after the date on which the taxable event occurs, the exchange rate differences benefiting the seller are included in the VAT base. Therefore, in the calculation of exchange rate differences included in the base, the exchange rate differences attributable to the goods and services price are taken into account, and the resulting exchange rate differences related to VAT are not included in the base.”

ACCORDING TO THE COMMUNIQUÉ, VAT-INCLUSIVE INVOICES SHOULD BE ISSUED FOR EXCHANGE RATE DIFFERENCES BETWEEN THE DATE OF DELIVERY/RENDERING OF SERVICES AND THE DATE OF PAYMENT Continuing with the aforementioned provision of the Communiqué, according to this, the seller should issue an invoice for the exchange rate difference in favor of the seller between the date of delivery or rendering of services and the date when the payment is collected. The exchange rate difference indicated on the invoice should be subject to VAT based on the applicable rate for those transactions at the time of delivery or rendering of services.

In cases where there is an exchange rate difference in favor of the buyer at the time of payment collection, the buyer should issue an invoice to the seller for the amount of the exchange rate difference. VAT should be calculated based on the rate applicable at the time of delivery or rendering of services.

It is worth noting that VAT is not calculated on exchange rate differences resulting from valuations made at year-ends and temporary tax periods, in accordance with the Tax Procedure Law.

In summary, according to the explanations in the Communiqué, it is not mandatory to issue VAT-inclusive invoices for foreign currency invoices during temporary tax periods. However, it is necessary to issue VAT-inclusive exchange rate difference invoices for the period between the invoice issuance date and the collection date.

Regarding this issue, the conclusion of the recent circular dated March 16, 2023, numbered 11395140-105[VUK-1-21709]-323016, from the Istanbul Tax Office is as follows:

“In this context, for sales transactions where the price is determined in foreign currency or indexed to foreign currency, for the exchange rate differences that arise between the date of the taxable event and the date of payment, it is generally required for the party benefiting from the exchange rate difference to issue an invoice and calculate VAT based on the exchange rate difference.”