Taxation in Turkey: A Guide for Property Buyers

Understanding the tax obligations associated with property ownership in Turkey is essential for both foreign and domestic buyers. This guide provides an overview of property taxes, including annual property tax, capital gains tax, and VAT exemptions for foreign buyers.

1. Overview of Property Taxes in Turkey

When purchasing and owning property in Turkey, buyers should be aware of several types of taxes that may apply. These include taxes on the purchase itself, as well as ongoing taxes related to property ownership.

1. Property Purchase Tax (Tapu Harcı)

• Rate: The Property Purchase Tax, also known as Tapu Harcı, is levied at 4% of the declared purchase price of the property. This tax is usually shared equally between the buyer and the seller, with each party paying 2%.
• Payment: The tax must be paid before the title deed (Tapu) transfer is completed at the Land Registry Office.

1. Annual Property Tax (Emlak Vergisi)

• Rate: The Annual Property Tax is paid by property owners each year. The tax rate varies depending on the type of property and its location:
• Residential properties: 0.2% of the assessed value in metropolitan municipalities and 0.1% in non-metropolitan areas.
• Commercial properties: 0.4% in metropolitan municipalities and 0.2% in non-metropolitan areas.
• Land: 0.3% in metropolitan municipalities and 0.1% in non-metropolitan areas.
• Payment: This tax is paid to the local municipality where the property is located. It can be paid in two installments, typically in May and November.

1. Capital Gains Tax

• Rate: Capital Gains Tax applies to profits made from the sale of property. If a property is sold within five years of purchase, the profit is subject to Capital Gains Tax, which is calculated on a sliding scale from 15% to 35% based on the profit amount.
• Exemption: If the property is held for more than five years, it is exempt from Capital Gains Tax. Additionally, if the profit is below a certain threshold (which is adjusted annually), no tax is payable.

2. Information on Annual Property Tax and Capital Gains Tax

1. Annual Property Tax (Emlak Vergisi)

• Assessment and Payment: The local municipality assesses the value of the property, and the owner is responsible for paying the Annual Property Tax based on this assessed value. The tax is relatively low compared to other countries, making property ownership in Turkey cost-effective.
• Due Dates: The tax is payable in two installments each year. The first installment is due by the end of May, and the second by the end of November. Late payments may incur penalties.

1. Capital Gains Tax

• Calculation: The tax is calculated on the difference between the sale price of the property and its purchase price, adjusted for inflation. The rate is progressive, meaning that higher profits are taxed at a higher rate.
• Exemptions:
• Five-Year Holding Period: If you own the property for more than five years, you are exempt from paying Capital Gains Tax on the sale.
• Inheritance: Properties inherited by heirs are also exempt from Capital Gains Tax when sold, regardless of the holding period.
• Payment: Capital Gains Tax is paid at the time of the property sale, and it must be declared in the seller’s annual tax return.

3. VAT (Value Added Tax) Exemptions for Foreign Buyers

1. Overview of VAT on Property

• Rate: VAT on property purchases in Turkey ranges from 1% to 18%, depending on the property’s size, location, and whether it is a new build or a resale. Typically, residential properties smaller than 150 square meters are taxed at 1%, while larger properties and luxury homes may be subject to VAT of up to 18%.
• Applicable Properties: VAT generally applies to properties purchased directly from developers or contractors. Resale properties typically do not attract VAT.

1. VAT Exemption for Foreign Buyers

• Eligibility: Foreign nationals and Turkish citizens residing abroad are eligible for a VAT exemption on their first property purchase in Turkey, provided that they meet certain conditions:
• The purchase must be made in foreign currency (e.g., USD, EUR).
• The buyer must commit to not selling the property for at least one year.
• Exemption Process: To benefit from the VAT exemption, the buyer must provide proof of foreign residency or citizenship and meet the currency and holding period requirements. The exemption is applied at the time of purchase, and no VAT is charged on the transaction.

1. Benefits of VAT Exemption

• Cost Savings: The VAT exemption can result in significant cost savings, especially for high-value properties that would otherwise attract a VAT rate of up to 18%.
• Investment Appeal: This exemption makes investing in Turkish real estate more attractive for foreign buyers, enhancing the country’s appeal as a destination for property investment.

Understanding the tax implications of property ownership in Turkey is crucial for making informed investment decisions. The Annual Property Tax and Capital Gains Tax are key considerations for property owners, while the VAT exemption offers a valuable benefit for foreign buyers. By staying informed about these taxes and planning accordingly, investors can maximize the benefits of owning property in Turkey while minimizing their tax liabilities.