Is it possible to obtain a residency permit after acquiring a property?
According to the “Law on Foreigners” and “International Protection”, foreigners who have acquired property in Turkey are entitled to apply for a short-term residency permit. Short-term residency permits are granted for one year for each application. The applicant is required to declare a residence address when filling out the forms.
How to start using the utility services?
The owner of a real estate may only apply for subscription of the utility services (such as electricity, water and sewage system connection) following the issuance of the building utilization permit. Accordingly, if the building utilization permit is in place, following the acquisition or leasing of the property, the new owner or tenant must apply to the relevant institution, and should execute an agreement regarding usage of the relevant utility service. The new owner or tenant can use the utility services following the execution of the utility service agreement, and after making payment of the subscription or deposit fee.
What are my tax liabilities if I hold the real estate only for my own use?
Income tax is applicable only if you rent your property and earn “rental income” or sell your property and derive “capital gains”. So, if you hold your property in Turkey only for your own use and not rent it to any other parties, you will not be subject to any income tax in Turkey.
Can I lease my property to third parties?
Turkish citizens as well as foreign real persons are free to dispose of their property. They may sell, lease or pledge their property to third parties.
Can the parties freely determine rental amounts?
The freedom of contract is one of the main principles of the Turkish Lease Law. Therefore, except for the mandatory provisions of the Turkish Code of Obligations (TCO), the parties can freely determine contract terms, including rental amounts.
Is rental adjustment possible?
Parties to a lease agreement can regulate a rental adjustment rate. According to the TCO, adjustment rates for rents paid in Turkish Lira cannot exceed the Producer Price Index. However, the parties may determine a higher adjustment rate in their lease agreement and exercise such rate if they both agree to do so. In the event that the rental is determined as a foreign currency, no adjustments can be made to the rental for the first 5 years. However, such restriction shall not apply until 1 July 2020 for lease of workplaces if the lessee is a merchant as specified under the TCC or a private/public legal person.
Is foreign currency rental possible?
The parties may determine a foreign currency for rent payments. As mentioned above, if the rental is determined as a foreign currency, no adjustments can be made to the rental for the first 5 years. After the expiry of the first 5 years, the judge will determine the rental in accordance with (i) the PPI, (ii) the current status of the leased property, (iii) the precedent rentals, and (iv) changes in the foreign currency.
You can use the utility services following the execution of the utility service agreement, and after making payment of the subscription or deposit fee.
What is the maximum lease duration?
There are no restrictions regarding the term of a lease agreement. Parties are free to determine the term of the lease agreement by mutual agreement. The TCO also regulates extensions of term of lease agreement in case there is no mutual agreement between the parties and it also determines conditions to terminate.
Do lease agreements bind third parties?
Lease contracts can be annotated before the relevant title deed registry. In such a case, the tenants are entitled to claim their rights against third parties, such as a new owner of the real estate. The annotation of a lease agreement prevents eviction of the tenant (during the lease term) from the premises, if and when the real estate is transferred to a third party.
How is my rental income taxed in Turkey?
Rental income is subject to “Income Tax”. Income Tax is calculated on a yearly basis by taking into consideration for all rental income collected during the calendar year. Rental collections relating to the previous years and current year are subject to tax as the income of the year in which collection is made, whereas collections made for future years in advance are taxed as income of the year to which they relate. Moreover, the income obtained at the time of a lease transaction made on the basis of a foreign currency is converted to Turkish Lira using the exchange buying rate of the Turkish Central Bank effective on the date on is made and the tax is levied accordingly.
Yearly rental come is declared via an annual income tax return between 1st and th of March in the following year that the rental income is and taxed at the rates between 15% and 35 Income Tax is in two equal instalments in March and June.
Specific portion the rental income derived from dential property by the individuals is held exempt from Income Tax. The exempt amountt is TRY 3,600 for the year 2015.
Taxpayers who derive rental income that is subject to withholding tax will submit a tax return in the event the gross amount for this rental income exceeds TRY 29,000, which is the cap set for submitting a tax return in 2015. At the time of determining this cap, the gross rental income which is subject to withholding tax as well as residential rental income exceeding the exemption amount are taken into account together. In the scope of declaring rental income obtained during a calendar year, individuals are allowed to deduct some expenses.
An independent lawyer will negotiate on your behalf and advise you on any penalties you might incur for late payment or other delays.
As regards expenses to be deducted while determining the base for the rental income to be taxed, there are two methods that can be selected by the taxpayers. These are:
Real Expense Method
In case of selection of the real expense method, following expenses that are incurred in relation to the leased properties can be deducted from the gross rent amount:
- Lighting, heating, water and lift expenses
- Administrative expenses,
- Insurance expenses for the properties and rights leased out,
- Interest expense of the borrowing made and spent for the properties and rights leased out,
- 5% of the acquisition amount of the property rented out for residential purposes for a period of five years (this deduction equalling the 5% of the acquisition amount will only be applied to the income derived from the relevant property, the portion not deducted will not be treated as excess expense),
- Property tax, duties, charges and goodwill as well as participation amounts for expenditure paid to municipalities,
- Repair expenses,
- Rents and other real expenses paid by those who have leased out properties and rights which they have rented.
- Rent amounts of residential or accommodation units occupied by those persons who lease out their residential units (excluding rent amounts paid by non-resident taxpayers in a foreign country), and
- Damages, losses and indemnities.
The portion of these expenses corresponding to the income amount held exempt from tax cannot be deducted.
Lump Sum Expense Method
Taxpayers who prefer the lump sum expense method can deduct the lump sum expense corresponding to 25% of the amount remaining after the offsetting of exemption amount from the rental income. Taxpayers who prefer this method cannot use the real expense method for the next three years.
What happens if my lessee is a company?
Legal entities have to calculate tax withholding at 20% over rental payments for properties leased by real persons and pay the relevant amounts to the affiliated tax office. Real persons obtaining the relevant rental income offset these taxes that are levied to their earnings from the tax that will be calculated over their yearly declared earnings.
Should I charge VAT to my rental income?
No. Rental income obtained by individuals who are not dealing with any commercial activity or from the properties that are not part of the enterprise are not subject to VAT. So, as an individual lessor you will not charge any VAT.
Is stamp tax applicable if I sign a rental agreement?
As mentioned above, in principle all originally signed agreements having a monetary value signed in Turkey are subject to “Stamp Tax” including leasing agreements over the total leasing amount statet in the agreement at 0.189%. On the other hand, since leasing agreements between two individuals are exempt from stamp tax no tax is calculated.
Is it obligatory to register rental agreement to the title deed registry? What are the fiscal liabilities if we register?
It is not obligatory. But, if parties are agree to register Title Fee at the rate of 0.683 % over the total rental amount is calculated and paid to the Tax Office.
Should I pay property tax for all my properties in Turkey? How and when?
Yes. Land and buildings in Turkey are subject to property tax and the taxpayer is the owner of the building.
Property tax rates vary depending on property type and its location (whether the property is located within the boundaries of a metropolitan municipality). Tax rates that are currently effective according to these criteria are as follows:
Property tax is calculated over values determined by municipalities for the streets and avenues. So, you should check your property’s tax value by the related municipality.
|Residential unit||Workplace||Arable land||Other land|
|Metropolitan municipality boundaries and surrounding areas||2%||4%||6%||2%|
Property tax liability for persons who purchase property starts as of the beginning of the year following the year in which the sale is made.
Property tax is paid in two equal instalments, the first one due for payment in March, April and May and the second one due for payment in November.
Also, as an additional liability called “the surcharge for the protection of immovable cultural assets” is collected together with the property tax at 10% of the annually collected property tax.
Are there any different principles applicable while selling a property owned by a foreign real person?
There is no difference regarding the principles of a property sale by a foreign real person and a Turkish citizen. However, if the purchaser is a foreign real person, the procedure as set forth under “acquisition” above, will apply.
Should I pay income tax if I decide to sell my property?
Yes. Capital gains derived from the disposal of properties, which have been acquired by individuals in return for an acquisition amount and which are held for less than five years, are subject to income tax. Thus, no Income Tax is calculated for the capital gains obtained from the property sales after 5 year holding period.
How is capital gain taxed in Turkey?
Individuals deriving capital gain from the property sales have to declare their income on a yearly basis with Income Tax declaration. The tax base is the positive difference between the sales price and the acquisition value. While determining the earnings to be taxed, “expenses incurred due to disposal and remained under the responsibility of the seller”, and “Taxes and charges paid” are separately deducted in addition to the cost amount of the property. Moreover, of the capital gains obtained during a calendar year, TRY 10,600 is exempt from income tax for the year 2015.
How is title deed charge calculated at the time of disposal?
Similar to the fee calculated and paid at the time of acquisition, title deed fee at the rate of 2% is also applicable over the sales price for buyer and seller separately. Fee has to be paid to the tax office before the transaction made at the registrar.
Should I add VAT to my selling price?
If the owner of the property is an individual who is not dealing with commercial activity, no VAT is applied. However, if the purchase and sales of properties are made within a business organization that can perform this activity on a regular basis, property sales will be subject to VAT. Please note that Turkish Ministry of Finance classifies sales activities of individuals as made within business organization if an individual makes more than one sale within one calendar year or one sales per year in the consequent years.
Your tax liability changes if you are the shareholder of a company holding a property in Turkey.
Do my tax liability changes if I am the shareholder of a company holding a property in Turkey?
Yes. As being a non resident individual shareholder of a Turkish company, you may obtain “dividend” income from your Turkish investment. Or, at the time of disposal, you may obtain “capital gain” from the sale of your Turkish Company shares.
Your Turkish company holding a property in Turkey will be subject to Corporation Tax at the rate of 20% over its all yearly income. After tax profit can be distributed to the shareholders after setting aside first and second degree legal reserves. Please note that Turkish REIT’s are exempt from corporate tax. So, REIT’s can distribute all their after legal reserve income without any corporate tax burden.
At the time of profit distribution, Turkish company has to withhold Income Tax for their non-resident shareholders at the rate of 15%. This rate can be reduced to 10% or even 5% if there is a Double Tax Treaty between Turkey and the Country on which the shareholder is resident. Please also note that withholding tax rate for the dividend distributions of Turkish REIT’s is 0%. So, if you have a Turkish REIT shares and receive profit from these REIT’s, no withholding tax will be calculated at the time of profit distribution. The withholding tax calculated by the distributing Turkish Company will be the final tax burden for the non-resident shareholder at the Turkish level.
If non-resident shareholder decides to sell his/her shares in the Turkish Company, capital gains in principle would be taxable. If the Turkish company is a public company such as Turkish REIT’s, capital gains will be taxed via withholding by the intermediary banks or brokerage houses. The withholding tax rate for public companies is 0%. So, no capital gains tax is calculated for the disposal of shares of the Turkish Companies by non residents. All other share disposals will be subject to capital gains at the rate up to 35%. Again, in the case of “Double Tax Treaty” between Turkey and shareholders’ country, capital gains would be avoidable. In most of the treaties, sale of Turkish company shares after 1 year holding period would limit Turkey’s taxation rights.
Before making any transaction please consult your advisor for the latest double tax treaty provisions.