What is an Exemption Invoice? What Is It For?
An exemption invoice is a special type of invoice issued in Turkish tax legislation to document the sale of certain goods or services exempted from Value Added Tax (VAT) or other taxes. As the name suggests, if a transaction that is normally subject to taxation is classified as exempt by law or regulations, an “exemption invoice” must be issued for that transaction. The main purpose of this practice is to support both companies and the national economy in areas such as exports, diplomatic representations, transit and free zones, health tourism, or certain investment incentives.
The main difference in an exemption invoice is that the phrase “VAT Exemption” or the relevant exemption code is clearly stated, along with the legal article justifying the exemption. For instance, Articles 11, 13, 14, and 15 of Turkish VAT Law No. 3065 provide exemptions for exports, international transportation, diplomatic sales, and similar transactions. An exemption invoice is not a tax-free invoice; on the contrary, it must clearly indicate whether the transaction is subject to tax, the reason for the exemption, and the legal provision it is based on. This ensures that both seller and buyer fulfill their legal obligations properly.
In practice, exemption invoices are most commonly encountered in export transactions. Exporters issue an invoice to the foreign buyer, marking it with a “VAT Exemption” note and do not collect VAT on the invoiced amount. Similarly, sales to diplomatic missions operating in Turkey, certain international logistics and transit operations, or sales made from free zones are also considered within the scope of exemption invoices. These invoices are tracked and audited in a separate category both in accounting records and before the tax office.
Important Note
When issuing an exemption invoice, it is crucial to confirm that the transaction truly falls within the scope of exemption and to indicate the relevant legal provision on the invoice. Otherwise, there may be penal liability in potential tax audits in the future.
Exemption Invoice in Exports
For sales of goods and services abroad, VAT is not calculated in accordance with Article 11 of Turkish VAT Law No. 3065, and an exemption invoice is issued on this basis. These invoices are also mandatory for VAT refund requests.
Diplomatic and Other Exemptions
Exemption invoices are also issued for sales to foreign embassies and consulates, international organizations, free zones, and within the scope of investment incentives. The relevant exemption code and the legal basis must be clearly stated on the invoice.
Practical Considerations
When issuing an exemption invoice, the correct codes and explanations must be entered both in the accounting system and to the Revenue Administration. Also, the invoice and its annexes should be carefully archived, as they may be required for audits and refund processes.
Types and Usage Areas of Exemption Invoices
Exemption invoices can be issued in different types according to the various tax exemption practices. Each exemption invoice type is determined by the legal requirements and economic incentives specific to the relevant transaction or sector. These invoices vary not only by the type of transaction but also by their area of use and hold a special status in accounting and tax processes.
The most common types of exemption invoices are seen in export transactions, sales to diplomatic missions and international organizations, transit and free zone operations, health tourism, and sales related to investment incentives. The legislation and exemption codes to be applied differ for each. Choosing the wrong type of invoice can cause significant problems during tax refunds and audits in the future; therefore, it is essential to issue the invoice suitable for the transaction type.
Export Exemption Invoice
No VAT is applied for the export of goods and services to foreign buyers. These invoices bear the phrase “Exemption according to Article 11 of Turkish VAT Law No. 3065” and are the primary documents for VAT refund applications.
Diplomatic Sales Exemption
Issued for sales to foreign embassies, consulates, and international organizations. The relevant protocol, institution, or representation is stated on the invoice and the phrase “VAT Exemption” is clearly written.
Transit and Free Zone Exemption
Issued for goods sent directly abroad as transit cargo or for deliveries to companies in free zones. Used in both domestic and international shipments.
Health Tourism Exemption
VAT exemption applies for health services provided in Turkey to persons resident abroad. The invoice includes patient and service details and the phrase “VAT Exemption”.
Investment Incentive Exemption
For sales of machinery, equipment, or installations under an investment incentive certificate, a VAT-exempt invoice is issued with reference to the relevant incentive document.
Areas of Application and Key Points
Issuing the correct and complete type of exemption invoice provides legal protection for both seller and buyer in subsequent tax refunds, incentives, and audit processes. The exemption code for each transaction type must be fully included in the invoice description and in the electronic invoice system.
When Is an Exemption Invoice Issued?
An exemption invoice is issued only for special situations and transactions specified by tax laws. It cannot be used for every commercial transaction; only when VAT or other tax exemptions are explicitly defined by legislation and the relevant exemption article is cited can an exemption invoice be legally prepared. The most common applications are seen in exports, transit trade, free zone transactions, diplomatic sales, certain investment incentives, and health tourism.
For exports, Turkish companies issue VAT-exempt invoices for sales of goods and services abroad, processing the transaction as an “export exemption”. Likewise, exemption invoices are mandatory for sales to foreign diplomatic missions and representations operating in Turkey. Transit trade, deliveries from free zones, health services provided in Turkey to foreign nationals, certain deliveries under an investment incentive certificate, and international transportation operations are also within the scope of exemption.
Important Information
To confirm whether the transaction is exempt, the relevant article of the VAT Law or the exemption provision should be reviewed, and support should be sought from an accounting expert or certified public accountant if necessary. Exemption invoices issued incorrectly or without justification may cause problems in tax audits.
How to Issue an Invoice and To Whom?
When issuing an exemption invoice, both general invoicing rules and the relevant exemption provisions must be followed. The invoice must contain essential information such as the type of goods or services, quantity, unit price, total amount, and the date of delivery/performance. Additionally, the phrase “VAT Exemption”, the relevant exemption code, the legal article, and the reason for the exemption must be clearly stated at the top or in the description section of the invoice. In electronic invoice systems (e-Invoice, e-Archive), the correct exemption code must be selected.
Exemption invoices are issued only to buyers entitled to the exemption. That is, to foreign buyers in export transactions, to foreign diplomatic missions in diplomatic exemptions, to companies with investment incentive certificates in investment-incentivized transactions, and to persons residing abroad or the institutions providing their service in health tourism exemptions. The invoice serves as a legal basis for accounting records as well as for the tax office and audits.
Required Elements on the Invoice
- Transaction Details: Type, quantity, unit price, and total amount of the goods or services
- Buyer and Seller: Title, address, tax number, country
- Exemption Description: VAT exemption code and legal article
- Invoice Date and Number: Date of delivery/performance and serial number
- Additional Information: Export declaration number, incentive certificate or health report reference
To Whom Is the Invoice Issued?
- Foreign buyers (exports and transit trade)
- Diplomatic missions and international organizations
- Companies holding investment incentive certificates
- Free zone companies
- Persons resident abroad under health tourism
Practical Information
Avoiding missing or incorrect information on the invoice will prevent time and cost losses in future tax, incentive, and refund processes for both buyer and seller.
Exemption Invoice Codes and Examples
Exemption invoices are recorded with special codes defined by the Revenue Administration and used in the e-Invoice system, depending on the reason for issuance. Each code represents a specific type of exemption and its legal basis. Using the correct code is critical both for invoice validity and for tax refund processes.
The following table summarizes the most common exemption invoice codes and their application areas. For every transaction, the correct code must be selected, and the relevant exemption description must be included on the invoice.
| Code | Type of Exemption | Area of Use | Legal Basis |
|---|---|---|---|
| 301 | Export Exemption | Sale of goods or services abroad | VAT Law Art. 11/1-a |
| 302 | Diplomatic Sales Exemption | Sales to foreign embassies, consulates, and international organizations | VAT Law Art. 14/1 |
| 305 | Free Zone Exemption | Deliveries to free zones | VAT Law Art. 17/4-ı |
| 306 | Investment Incentive Deliveries | Sale of machinery and equipment under investment incentive certificate | VAT Law Art. 13/d |
| 311 | International Transportation | Invoices for international transportation services | VAT Law Art. 14/1 |
| 335 | Health Tourism Exemption | Health services provided to persons residing abroad | VAT Law Art. 13/ı |
Example of Application
In an export transaction, when issuing an e-Invoice, the code "301 - Export Exemption" is selected, and the description section states “VAT exemption has been applied in accordance with Article 11/1-a of Law No. 3065”.
Frequently Asked Questions About Exemption Invoices
Below are the most common questions and answers encountered in practice regarding exemption invoices. Both sellers and buyers should be aware of these details before proceeding with transactions.
Can an exemption invoice be issued for every transaction?
PracticeNo, it can only be issued for transactions where VAT or another tax exemption is clearly defined by law or regulation.
What happens if the wrong code is used on an exemption invoice?
AuditThe use of the wrong code may result in rejection of the tax refund, penalties, and legal liability. Correction or cancellation may be required.
Which supporting documents should be kept when issuing an exemption invoice?
DocumentationIn addition to the invoice; customs declaration, incentive certificate, health report, diplomatic permit, etc. should be carefully archived.
Is the exemption code mandatory in e-Invoice and e-Archive?
DigitalYes, the relevant code and legal basis must be selected/written on all exemption invoices issued in digital environments.
How does an exemption invoice affect the VAT return?
DeclarationExempt transactions are reported in special sections of the VAT return; VAT is not calculated, but invoice entry is still mandatory.
Important Note
Frequently asked questions may vary by sector or exemption type. If you have a special case regarding your transaction, be sure to consult your CPA or tax advisor.
