Turkey Revises VAT Rules: Defense, Urban Renewal and Fuel Sectors Affected

The Turkish Ministry of Treasury and Finance has announced significant updates to the Value-Added Tax (KDV) General Implementation Communiqué, introducing new exemptions and adjustments that will affect defense, urban renewal, and fuel industries. The new regulation, published in the Official Gazette, also extends certain tax incentives until 2028 and raises the minimum threshold for VAT refund claims.

Defense and Security Purchases Exempted

One of the most notable changes is the full VAT exemption for purchases made to meet national security needs. Vehicles and equipment acquired by the Ministry of National Defense, Ministry of Interior, Defense Industry Agency, and the National Intelligence Organization (MİT) will no longer be subject to VAT.

Additionally, manufacturers producing vehicles and systems for export-oriented defense projects will also benefit from VAT-free procurement of goods and services required in their production.

Urban Renewal and Foundation-Owned Land Sales

The regulation expands exemptions to cover urban transformation projects. Land and property transfers made by the Urban Transformation Presidency will not be subject to VAT. Similarly, the General Directorate of Foundations will enjoy exemptions on sales of real estate owned by mazbut foundations, easing financial burdens on redevelopment and foundation-driven projects.

Fuel Sector Discrepancy Removed

For years, imported fuel products were subject to a different VAT calculation compared to domestically purchased fuel. The new amendment eliminates this discrepancy by including Special Consumption Tax (ÖTV) guarantees in the VAT base for imported fuel. This ensures that imported and domestically sourced fuel are now taxed under the same framework, closing a long-standing loophole in the market.

Other Key Adjustments

• Extended Tax Incentives for Investment & Tourism: VAT exemptions for investment incentive certificate holders in the industrial and tourism sectors are extended until December 31, 2028, under a Presidential decree.

• Higher VAT Refund Threshold: The minimum claimable amount for VAT refunds has been raised from ₺2,000 to ₺10,000, reducing administrative pressure from smaller claims.

• Clarifications on Excise Tax (ÖTV): The General Communiqué on the Special Consumption Tax (List II) has been updated to clearly outline exemptions for national security institutions’ vehicle purchases.

Broader Economic Impact

These changes are expected to bring clarity and uniformity to sectors long affected by tax inconsistencies. While defense and security agencies gain financial relief to support strategic projects, the fuel sector will see increased transparency and balance in pricing mechanisms. At the same time, urban renewal initiatives may accelerate thanks to the removal of VAT burdens, particularly in high-cost real estate transfers.