1. What taxes are EU contracts exempt from?

Expenditures under the EU contract are exempt from:

1. Import duty
2. VAT(Value Added Tax)
3. Special consumption tax
4. Income and corporate tax (30. page of the guide)
5. Inheritance and transfer tax
6. Stamp duty
7. Special communication tax and
8. Motor vehicles tax. 

Detailed information on tax exemptions is available at the following links:

- IPA I

- IPA II

 

2. How is VAT exemption certificate obtained?

To obtain the VAT exemption certificate, first of all, VAT exemption information form (for IPA I, for IPA II) should be filled and submitted to our Ministry for approval.

An application should be submitted to the Revenue Administration with the following documents:

•  Petition Letter
•  Approved VAT information form
•  A copy of the contract certified as the "true copy of the original" by our Ministry (special conditions part) and
•   A copy of letter of commencement date.

Detailed information on the use of VAT exemption certificate is available at http://www.gib.gov.tr/fileadmin/beyannamerehberi/abmaliyardim_rehberi.pdf 

 

3. Which expenditures are covered under VAT exemption? 

EC contractor can use the VAT exemption certificate only for the supplies, services and works to be procured under the EC contract. Detailed information is available at the following link: EU Financial Aid Guide.

 

4. What are the income tax liabilities of foreign country resident companies?

Regarding the legal issues, the contractors are obliged to abide by the laws and rules of the beneficiary country in accordance with Article 7.1 general conditions of the contract.

For tax liabilities, in accordance with Article 26c of the Framework Agreement constituting the basis for IPA funds, if;

•  There is a Double Taxation Agreement ratified by our country with the contractor's country, and
•  Implementation period of the contract exceeds 183 days within a year 

Turkey has the taxation right over the contractor. To be able to pay this tax as an income tax rather than withholding tax, the contractor should;

•  be a taxpayer with full liability that is registered in Turkey, or
•  should appoint a permanent representative in Turkey.

The Ministry should be notified about this situation with an official letter.

 

5. What are the other legal obligations?

Social Insurance Institution Obligations

The legal basis for Social Security Institution (SGK) is Social Insurance Law No 5510 and the Circular No 2008/88. Accordingly:

If the contractor's supporting personnel/experts to be employed under the contract will be subject to Social Insurance Law, the contractor must apply to the Provincial Directorate of Social Security in the province where the contract will be implemented, and register the workplace related to the tender. SGK number obtained after this registration should also be notified to the Ministry.

If the contractor's supporting personnel/experts to be employed under the contract will not be subject to Social Insurance Law, the contractor must apply to the Provincial Directorate of Social Security in the province where the contract will be implemented, and state that a workplace dossier will not be opened related to the tender since it does not have employees subject to Social Insurance Law, and submit the related letter from SGK to our Ministry.

If the experts and other supporting personnel to be employed under the contract are the staff of the workplace where contractor is registered, SGK and the Ministry should be informed, and the existing workplace SGK number should be submitted.

 

6. What are the required documents for the payments under service contracts?

Documents required for pre-financing:

•  Cover letter to the attention of Finance Department
•  Payment request or invoice
•  Letter of guarantee at the amount of pre-financing

Avans ödemesine kadar SGK numarası, vergi kaydı gibi tüm yasal bildirimlerin Bakanlığımıza yapılması gerekir.

Documents required for interim and final payments:

•  Cover letter to the attention of Finance Department
•  Invoice
•  Independent Audit report, each page sealed/stamped and signed by the audit company
•  Invoice of the independent audit company
•  Financial report prepared for man-days and incidental budget
•  E-mail or copy of an official letter indicating the approval of the interim report for the payment period by the Implementing Department
•  Copies of approved timesheets
•  Expert approvals
•  Approvals for the weekends, public holidays and days spent working at home, if any
•  Incidental expenditure approvals by the Beneficiary and our Ministry, if any
•  Copies of the receipt, invoice and supporting documents related to incidental expenditures as well as the documents proving experts' accomodation in another city in relation to the per diem claimed, such as flight documents, copies of bus tickets, accomodation documents, etc.
•  "Certificate of no outstanding debt" obtained form the relevant SGK, if applicable

 

7. What are the required documents for the payments under works contracts?

Pre-financing

•  Cover letter to the attention of the Finance Department, prepared by the consultancy company indicating its approval for the payment
•  Copy of the contractor's payment request letter to the consultancy company
•  Interim payment certificate (No:0)
•  Payment Request/Invoice
•  Letter of guarantee at the amount of pre-financing
•  Social Insurance Institution (SGK) workplace application document
•  Insurance policy
•  Receipt indicating the payment of insurance policy cost

Interim payments:

•  Cover letter to the attention of the Finance Department, prepared by the consultancy company indicating its approval for the payment
•  Copy of the contractor's payment claim letter to the consultancy company
•  Interim payment certificate (No:1,2,3....)
•  Invoice
•  Monthly report
•  Insurance policy if not submitted for pre-financing (should be submitted until the first payment claim)
•  Document indicating the payment of insurance policy premium
•  Certificate of no outstanding SGK debt
•  Certificate of Origin

Final midterm payment:

•  Cover letter to the attention of the Finance Department, prepared by the consultancy company indicating its approval for the payment
•  Copy of the contractor's payment claim letter to the consultancy company
•  Final payment certificate
•  Invoice
•  Monthly report
•  Certificate of no outstanding SGK debt
•  FIDIC 14.10- Statement at Completion

Retention money payment:

•  Cover letter to the attention of the Finance Department, prepared by the consultancy company indicating its approval for the payment
•  Copy of the contractor's payment request letter to the consultancy company
•  Payment request
•  Provisional acceptance certificate signed by the contracting authority
•  Statement at Completion if not submitted for final payment (FIDIC 14.10- Statement At Completion)

Final payment:

•  Cover letter to the attention of the Finance Department, prepared by the consultancy company indicating its approval for the payment
•  Copy of the contractor's payment request letter to the consultancy company
•  Final report
•  Invoice
•  SGK Clearance Certificate
•  Final Acceptance Certificate
•  Discharge Notification (FIDIC 14.12 –Discharge)
•  Test Certificate(if any) 

 

8. What are the required documents for the payments under supply contracts? 

Pre-financing:

•  Cover letter to the attention of Finance Department
•  Payment request or invoice
•  Letter of guarantee at the amount of pre-financing

Final payment:

•  Cover letter to the attention of Finance Department
•  Invoice
•  Provisional Acceptance Certificate
•  SGK Clearance Certificate (for the goods that cannot be readily bought and sold on the market)
•  Certificate of Origin and/or Turkish Goods Certificate
•  Test Certificate  if any

 

9. What are the ineligible expenditures?

In accordance with Article 26 of the Framework Contract signed between the Republic of Turkey and the EU Commission, taxes and charges with equivalent effect are ineligible expenditures.  Certain invoices and receipts may include taxes. In this case, it should be requested while preparing the financial reports that these invoices are paid excluding the tax amounts.

In accordance with Article 35 of the Financing Agreement, the following are ineligible expenditures: 

•  Leasing or purchasing land or building
•  Penalties and court expenses
•  Operating expenses
•  Secondhand equipment
•  Bank charges, guarantee costs and similar expenditures
•  Costs and losses due to the changes in foreign exchange rates and other sole financial expenses
•  Donations
•  Depreciation expenses for infrastructure 

In accordance with Article 35 of the Financing Agreement, "sound financial management" principle as well as cost efficiency and economy criteria should be taken into consideration for payments.

In this scope,

Expenditures can be rejected by the Contracting Authority and/or Project Beneficiary (ERA) as ineligible expenditures, in cases when the expenditures are deemed not relevant to the aims of the project, or they should have been approved under the project but they were not, or approvals stated as the basis for payments by the contracting authority in the contract kick-off meetings were not granted, or when supporting documents are missing, and expenditures are not economical or cost efficient.

 

10. What is the exchange rate to be used for Euro conversion in order to report the incidental expenditures in currencies other than Euros?

For the expenditures in other currencies than Euro, the exchange rate of the expenditure month that can be found on Europeaid (http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/index_en.cfm) page will be used to claim the Euro equivalent of the relevant expenditure. 

 

11. What are the reasons for postponing of payments?

In case missing documents in payment requests are identified, the Contracting Authority may request new supporting documents from the contractors.  Payment process is postponed until relevant documents are submitted to the Authority.

 

12. What is the procedure for clearing the pre-financing?

Pre-financing is cleared in accordance with Article 29.1 of the General Conditions for fee-based service contracts and Article 14.2 of FIDIC  for works contracts.

 

13. To which authority should the invoices be addressed? How does the payment process work?

The contractor submits the invoices to  the Finance Department. After the interim reports stating that the activities are carried out properly are reviewed and pre-approved by the beneficiaries, our Department execute the payments.

 

14. Are personnel costs covered during project implementation?

Personnel costs cannot be covered in the scope of IPA legislation, either at project development phase or during and after implementation.

 

15. What is the rule of origin? What is a Certificate of Origin? Where is it obtained and is it required to be submitted?

The supplies and materials procured under a contract financed by the European Commission must originate from the Community or from an eligible country. Therefore, the EC contractors are obliged to submit a certificate of origin for the goods and materials supplied as stipulated in their contracts. The certificate of origin to be submitted for Turkish goods is Turkish Goods Certificate.

"Procedures and Principles of the Regulation and Sanction of the Turkish Goods Certificate pressed by TOBB within the Context of IPA" was published. Detailed information on this regulation dated 1 November 2012 is available at http://www.tobb.org.tr/DisTicaretMudurlugu/Sayfalar/Duyurular.aspx