Investing in Turkey offers a myriad of opportunities to investors interested in the emerging market. With its booming economy, strategic location bridging Asia and Europe, diverse range of industries, and well-developed transportation infrastructure, Turkey presents a compelling investment landscape.
However, when it comes to investing in real estate in Turkey, understanding the intricacies of the tax system is crucial for making informed decisions and optimising your financial returns. Thorough knowledge of the tax implications and compliance with the legal framework are vital for successful real estate investments. In this detailed overview, we will delve into the various taxes and fees that apply to property ownership and transactions, providing valuable insights from a legal perspective. By leveraging professional expertise and staying informed about the evolving tax regulations, investors can maximize their potential in this dynamic market.
Real Estate Tax System in Turkey
The Turkish tax system categorizes real estate taxes into two main types: property tax and capital gains tax. Property tax is assessed based on the value of the land and property, while capital gains tax applies to any profits made from selling real estate. Property taxes are calculated using a table that sets different rates depending on the property’s use.
Property Tax
Property tax is a significant component of the Turkish tax system. It is calculated based on the value of the property and the applicable tax rate determined by the property’s classification. In major cities, the property tax rate ranges from 1 per thousand to 2 per thousand, while in normal cities, it is typically 1 per thousand for residential properties and 2 per thousand for commercial properties.
Property Tax Payment
Annual property taxes in Turkey are levied in two installments, with payment deadlines falling in May and November. When selling a property in Turkey, the seller is responsible for paying the full year’s property tax in advance. Consequently, the buyer assumes the responsibility for the annual property tax payments starting from the first calendar year following the purchase. For instance, if a property is bought in Izmir in April 2022, the seller must make advance payments for the taxes due in May 2022 and November 2022 prior to completing the sale. The buyer’s initial tax payment will be due in May 2023. Property taxes can be paid either at the local council offices or through online channels.
Buyers may be eligible for exemption from paying the annual property tax when purchasing a private residence with a gross area of less than 200 square meters, provided they do not have any income within Turkey (excluding income from a pension) and do not own any other properties in the country.It is advisable to consult with a local financial advisor to confirm whether a property qualifies for this exemption before proceeding with the purchase.
Corporate Profits Tax
If the property is owned by a company, corporate profits tax is imposed on the net profits derived from real estate transactions and rental income. The tax rate for corporate profits is 20%, encompassing capital gains.
Income Tax
Individual landlords earning rental income from properties are subject to income tax. The income tax rate gradually increases from 15% to 35% based on the amount of income generated.
In the event that the buyer decides to lease the property when not in residence, additional taxes on rental income may apply. However, it is worth noting that a portion of the sale price, as well as the costs associated with renovations or repairs, can be deducted as expenses. This deduction typically results in lower taxes on rental income during the first ten years of ownership.
VAT on Real Estate
Value-added tax (VAT) is applicable to real estate transactions, with varying rates depending on the type of property or service. Residential properties are subject to a VAT rate ranging from 1% to 18%, while commercial properties generally carry an 18% VAT rate.
Real Estate Ownership Fees in Turkiye
In addition to taxes, there are ownership fees associated with property purchases in Turkey. The property purchase costs include a title deed tax imposed on both the buyer and seller, amounting to 2% of the property’s sale price.
Considerations for Investors
Understanding the tax implications is crucial for investors seeking to navigate the Turkish real estate market. Key considerations include the purchasing tax, which is 4% of the sale price, and VAT on real estate transactions. However, foreign investors may be eligible for VAT exemptions if they meet specific conditions, such as refraining from selling the property within a certain period.
Furthermore, investors should factor in annual real estate taxes ranging from 0.1% to 0.6% of the property’s value as ongoing expenses.
Staying Informed and Adapting to Changes
The Turkish tax landscape is dynamic, with frequent updates and amendments. Earthquakes centered in Kahramanmaraş and Hatay on 6 February 2023, caused significant public financing needs. This has led and continues to lead to the implementation of many new regulations to generate more public revenue by increasing taxes. As a result, careful financial planning by taxpayers, who would be affected by these regulations, thereby increasing their tax burden, becomes increasingly important. We recommend that taxpayers closely follow the new regulations to avoid adverse consequences.
