Today, businesses engaged in e-commerce must consider many different elements in terms of both tax obligations and legal regulations. One of these is the withholding tax. Withholding tax is a significant type of deduction encountered by companies engaged in commercial activities when fulfilling their income tax or corporate tax obligations. So, what is withholding tax in e-commerce? Who pays withholding tax? How are withholding deductions calculated? We will address all these questions in detail.
What is Withholding Tax?
Withholding tax is a type of tax collected through direct deductions from certain types of income and earnings, implemented by the government to facilitate tax collection. Employers are obliged to make deductions from specific items such as salaries, rent, and freelance payments, and to deposit the relevant amounts directly to the tax office.
What is Withholding Tax in E-Commerce?
Businesses engaged in e-commerce are obliged to pay withholding tax in certain situations. This usually applies to the payments they make or the services they receive. In e-commerce, withholding tax may arise under the following circumstances:
Rental payments: If an e-commerce business rents a physical office, warehouse, or store, it is required to apply withholding tax on the rental amount.
Freelance services: Payments made to freelancers or external service providers are subject to withholding tax.
Advertising expenses: Certain withholding deductions may apply to payments made to digital advertising platforms.
Business partnerships and commission payments: Companies operating through e-commerce marketplaces or affiliate marketing models must calculate withholding tax on specific payments.
Who Pays Withholding Tax in E-Commerce?
The parties responsible for paying withholding tax in e-commerce are generally determined as follows:
Sole proprietorships: Individuals engaged in freelance or independent professional activities fulfill their tax obligation by making withholding deductions.
Limited liability and joint-stock companies: These entities are required to declare the withholding tax deductions and pay them to the relevant tax office.
E-commerce marketplaces: These platforms collect withholding tax on behalf of the sellers at specified rates and transfer it to the government.
Withholding tax rates vary depending on the type of payment made. The current withholding tax rates are as follows:
Rental payments: 20%
Freelance payments: 20%
Advertising and marketing expenses: Can go up to 15%
Commission payments: Varies between 5% and 20%
Withholding Tax on E-Commerce Marketplaces: This is a tax regulation that came into effect on January 1, 2025, covering sellers who make sales through online marketplaces. Under this regulation, a 1% advance tax deduction is applied to the income earned by the sellers. Intermediary platforms are responsible for directly deducting this amount from the sales revenue and transferring it to the relevant tax office.
How Are Withholding Deductions Calculated?
To calculate withholding tax in e-commerce, you can use the following formula:
Withholding Deduction = Gross Payment Amount × Withholding Rate
For example, if an e-commerce company pays a freelance software developer 10,000 TL and this payment is subject to a 20% withholding tax:
Withholding Deduction = 10,000 TL × 20% = 2,000 TL
In this case, the e-commerce company pays the developer 8,000 TL and directly transfers 2,000 TL to the tax office.
Declaration and Payment of Withholding Tax
Withholding tax is a tax that must be declared and paid. Businesses are required to submit a withholding tax declaration to the Revenue Administration (Gelir İdaresi Başkanlığı) either monthly or quarterly and pay the tax accordingly.
Is There Any Withholding Tax Exemption?
In certain special cases, e-commerce businesses may be exempt from withholding tax. For example:
Payments made to individuals who are not subject to VAT may be subject to specific exemptions.
Under the exemptions outlined in the Income Tax Law, withholding may not apply in certain cases.
Withholding tax in e-commerce is one of the financial obligations of businesses and is paid to the tax office through deductions made from specific payments. Withholding rates vary depending on the type of payment, and businesses must manage this process carefully. Not knowing the details of withholding tax may lead to legal penalties, so make sure to consult your accountant or financial advisor.