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What is a Free Zone? How to Create an Invoice for a company operating in a Free Zone?

What is a Free Zone? How to Create an Invoice for a company operating in a Free Zone?

A free zone is an economic commercial activity zone, generally located near a border gate such as a port or airport, with different exemptions and advantages from other regions in terms of tax, customs and commercial regulations. In the Free Zone, foreign investors who want to trade and invest are granted various tax exemptions. and exemptions and other incentives apply. Free zones are generally used in export and import activities, that is, foreign trade transactions.

These special areas for foreign investors operating in any free zone; It offers an easier and more convenient way to start and manage a business. In these regions, investors can benefit from zero or reduced tax opportunities. Additionally, businesses in free zones may be exempt from customs duties or other additional taxes.

What are the advantages of the Free Zone?

The facilities of the free zone are as follows:

a.Customs duty exemption: In free zones, customs duty is not paid on imports and exports. This allows companies to trade their goods and services around the world at competitive prices.

b.VAT exemption: In free zones, there is no obligation to pay VAT. This reduces companies' costs and allows them to offer goods and services at more affordable prices.

c.Commercial facilities: In free zones, the facilities, equipment and logistics services required for companies to produce, store, process and distribute goods and services are available. This allows businesses to run their operations more efficiently.

d.Tax advantages: In free zones, it is possible for companies to benefit from tax advantages. For example, companies' earnings, such as capital gains or foreign exchange differences, may be tax-free. In addition, free zones are 100% exempt from property taxes.

e.Foreign investor-friendly environment: Free zones in Turkey are designed to attract foreign investors. For this reason, various incentives and facilities are provided for foreign investors in free zones.

These advantages make free zones in Turkey an attractive business environment for foreign investors.

How to Create e-Invoice for Free Zones?
Invoicing in free zones was very different; because these regions have special customs, tax and trade regulations. There are some exceptions to the obligation to issue electronic invoices to free zones. The steps to be followed to issue invoices in free zones are:

The company that will export must apply to the free zone management and obtain permission to operate in the free zone.
If the exporting company sells goods to a company in the free zone, it issues a normal invoice. However, if the exporting company sells goods to a company outside the free zone, it must issue an export invoice.
When issuing an export invoice, the phrase "Free Zone Export" must appear on the invoice.
A copy of the export invoice must be submitted to the free zone management.
After the export process is completed, the free zone management must be exited.
It is possible to issue invoices in free zones in Turkey by following these steps. However, if there is an invoice issued according to the customs exit declaration, an e-export invoice must be issued, and if it is an invoice issued according to another document, a normal e-Invoice must be issued.
In light of this information, any foreign currency or Turkish lira can be used when issuing e-Invoices to the free zone.

Can an invoice with VAT be issued to a company in the Free Zone?
Although free zones are located within the borders of Turkey, they are considered outside the Turkish Customs Territory and therefore there is VAT exemption for transactions carried out in free zones. Therefore, no VAT invoice is issued for sales made to free zones. However, VAT refunds can be obtained for export transactions made from the free zone. For this process, the necessary documents must be prepared and the relevant procedures must be followed.

What is the VAT Exemption Code for the Free Zone?
There is VAT exemption for transactions made in free zones. Due to VAT exemption, VAT is not included in free zone invoices. For this reason, when issuing an invoice, an invoice with 0 VAT must be issued. For this, when creating a sales invoice, the "351 other non-exception" code must be selected from the invoice exception codes. This code indicates that transactions in the free zone are not invoiced due to VAT exemption and that VAT is not included.

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