What Is an Overseas Service Invoice? What Are Its Types?

 

In international trade, invoicing processes for goods and services can become complicated due to differences in legislation. Integrating e-export and digital invoicing solutions into business processes helps speed up operations and reduces potential errors.

Invoices received from abroad vary depending on the type of service provided. Below are the most common types of overseas service invoices.

 

 

Common Types of Overseas Invoices

 

• Service and consultancy invoices (e.g. freelance and consultancy platforms)

• Digital advertising and sponsorship invoices (search engines, social media, and mobile app ads)

• SaaS (Software as a Service) invoices (CRM tools, business software, communication and marketing platforms)

• Software license and usage invoices

• Cloud, server, and hosting service invoices

• Intangible rights invoices (licenses, royalties, know-how)

• Commission invoices

 

 

Why Is Taxation of Overseas Invoices Complicated?

 

In cross-border transactions, each country has its own tax regulations. As a result, both the country providing the service and the country benefiting from the service may claim the right to tax the same income.

For example, while the foreign service provider pays corporate tax in its own country, the Turkish tax authority may require withholding tax to be applied by the company making the payment in Turkey.

To prevent such double taxation, countries sign Double Taxation Avoidance Agreements (DTAs).

 

What Is a Double Taxation Avoidance Agreement (DTA)?

 

Double taxation occurs when the same income is taxed both in the country where it is generated and in the country where the income recipient is resident.

To eliminate this situation, countries enter into DTAs, which define where and at what rate specific types of income may be taxed.

 

 

Key Factors in Applying DTAs

 

When evaluating the tax treatment of overseas service invoices, two main factors are considered:

• The country where the service provider is resident
  This is proven by a Certificate of Residence issued by the competent authority.

• The nature of the service provided
  The service must be assessed under the relevant article of the DTA signed between Turkey and the other country.

These two factors determine which country has taxing rights.

 

 

Steps to Determine Taxation Under a DTA

 

To correctly assess tax obligations on overseas service invoices, the following questions must be answered clearly:

1. In which country is the service provider resident?

2. Is there a valid DTA between Turkey and that country?

   • Note: If no DTA exists, withholding tax is generally applied at 20%.

3. Under which article of the DTA does the service fall?

4. Was the service used in Turkey or for a project abroad?

   • Note: If the service was not used in Turkey, VAT or withholding tax may not arise.

Once these questions are answered, tax obligations become clearer.

 

 

How Is the Deductibility of Overseas Services Evaluated?

 

If there is uncertainty about whether an overseas service invoice can be recorded as an expense, the following questions should be considered:

1. Was the service actually received and used?

2. Was the service necessary for the company’s operations?

3. Is the price reasonable compared to market conditions?

These criteria are essential for expense recognition.

 

 

Tax Treatment by Invoice Type

 

Service, SaaS, and Cloud Usage Invoices

If these services are used in Turkey and a DTA exists between Turkey and the service provider’s country:

• VAT must be calculated under the reverse charge mechanism (VAT Return No. 2).

From a withholding tax perspective:
The tax authority often classifies such invoices as intangible rights and requires withholding tax. However, in practice, many professionals argue that SaaS, cloud services, and subscription-based usage fees should be treated as business income, meaning no withholding tax should apply.

 

Software Invoices

 

If software invoices are used in Turkey and a DTA exists:

• The tax authority generally treats them as intangible rights and requires withholding tax.

However, if:

• No rights to modify, reproduce, or copy the software are granted, and

• Only a right of use is provided,

the income should be considered business income, and withholding tax should not apply.

⚠️ If the invoice includes a license fee, withholding tax must be calculated. Therefore, the invoice should clearly separate:

• Software usage fee

• License fee

• Support or consultancy fee

Withholding tax is applied according to these distinctions.

 

 

Consultancy and Professional Service Invoices

 

If consultancy services are used in Turkey and a DTA exists:

• VAT must be calculated under VAT Return No. 2.

Regarding withholding tax:
If the service provider stays in Turkey for more than 183 days, withholding tax applies.
If the stay is less than 183 days, withholding tax is not required.