Transit Trade and Accounting Procedures

 

Due to its exemption from taxes and various duties, transit trade has become a more prominent transaction type, especially during the COVID-19 pandemic. When permit and registration requirements arose for the export of products such as masks and ethyl alcohol, which saw rapidly increasing demand during the pandemic, many traders opted for transit trade to avoid delays in their orders.

 

What is Transit Trade?

 

In its most basic form, transit trade can be defined as procuring a product from another country and selling it to a third country without first crossing the Turkish customs border. All taxpayers and registered traders can engage in this activity.

 

How Does Transit Trade Work?

 

A customs declaration is often not required for transit trade, as it is not included in import or export transactions. Methods used in international trade, such as advance payment and letters of credit, can also be applied to transit trade.

 

The process can be summarized in a few points:

 

• A transit trade declaration must be prepared if goods are to enter customs areas in Turkey. If the products never enter customs territory, this declaration is not required.

• Taxes, fees, or charges paid during import and export are not valid in transit trade.

• Transit trade cannot be conducted for goods whose sale or transportation is prohibited. The respective country's regulations must be checked.

• For products purchased from abroad, the supplier must issue an invoice, and then a separate invoice must be issued to the recipient country for the sale. The invoice should be prepared in both Turkish and English; the English version will be sent to the recipient.

• Any profit earned must be declared in the accounting records.

• There are no restrictions regarding money transfer or mode of transportation; only the rules of the countries of origin and destination of the goods should be reviewed in advance.

Although it may seem operationally simpler than import and export, there are several details to consider in transit trade. While the country of shipment is not crucial, shipping documents must be prepared in accordance with the rules of the countries of entry and exit.

 

Invoice Issuance in Transit Trade

 

Companies engaged in transit trade are required to issue invoices for these transactions. Those participating in the e-Archive system can issue e-archive invoices, while other taxpayers can issue paper invoices.

 

For example, if a company ships products purchased from China to its customer in Germany under its own brand label before arriving in Turkey, this is considered transit trade.

 

According to the e-invoice guide published by the Revenue Administration, "Export invoices are not required to be issued as e-invoices unless they are included as an attachment to the customs declaration." Therefore, invoices issued for transit trade cannot be considered e-invoices, and e-archive or paper invoices must be used.

 

Accounting Record of Transit Trade

 

Since goods in this transaction do not enter the company's warehouses or physical storage areas at all, it is recommended that these products be tracked under the "Other Stocks" account in accounting. Sales should be recorded under the "International Sales" account.

 

Transit Trade Form

 

The previously used transit trade form was repealed by a regulation published in the Official Gazette dated July 12, 2008. Additionally, the TRGB Detailed Transit Declaration (TRIM/TREX) was cancelled in 2017.

 

Is Transit Trade Considered an Export?

 

Due to tax advantages, it is not strictly classified as an "export"; however, its operation is quite similar to exports.

VAT is not applied to goods sold directly to another country without passing through Turkey. Sales made through warehouses or free zones are also exempt from VAT, as per Article 16/1-c of the Value Added Tax Law.

 

Things to Know About VAT in Transit Trade

 

For VAT to be calculated, the goods or services must actually be within the borders of Turkey. Since the goods do not physically enter the country in transit trade, VAT is not applicable.

Similarly, a service not performed in Turkey cannot be subject to VAT. Therefore, it is not included in transit trade VAT returns.

Warehouses and free zones are special areas where transit trade can take place. Purchase and sale transactions made in these regions are completely exempt from VAT and accounting records are created accordingly.