Turkey, noting significant progress with its developing economy in recent years, investments in construction and real estate sectors, is becoming a center of attraction for institutional and individual investors. In this process, the country offers significant opportunities to foreign investors who need to master local dynamics to make successful investment decisions. As Trem Global team, we are closely following developments in order to provide support to investors in real estate acquisition and investment issues, which are highly dependent on internal and external factors and have unique problems, with our experienced and industry-dominated staff. In order to meet the needs of our customers in Turkey, and to help them achieve successful results in investment decisions we present Real Estate Acquisition and Investment Guide in Turkey to the investors, where we provide sector-specific knowledge. The information in this guide is general, not social, tax or legal advice.
In accordance with the Law on Foreigners and International Protection in Turkey, real estate acquired foreigners by applying for a short-term residence permit they can obtain a residence permit provided that each application can cover a maximum period of 2 years. When submitting the forms, a housing address must be declared.
While foreign real persons in Turkey performing real estate acquisition in Turkey in order to obtain Turkish citizenship, they had to obtain a compulsory real estate valuation report. Now, not only in order to obtain Turkish citizenship, it is being made compulsory to obtain a valuation report for all real estate sales whose buyers and sellers are foreign real persons. It should be noted that the relevant report is valid for 3 months from the date of issue.
Turkish Citizenship by Real Estate Investment
Foreign real persons who acquired real estate in Turkey can gain the right to apply to a short-term residence permit for up to 2 years.In addition to this, foreign real persons can obtain Turkish Citizenship if they have lived permanently in Turkey for 5 years before the application date.
With the amendment made to the Turkish Citizenship Law, now the possibility of becoming a Turkish citizen through investment has been made and the existing investment limits for transition to Turkish citizenship without any time limitation have been reduced and the right to become a Turkish citizen without waiting 5 years.
The requirements for this are as follows:
1. The purchase of a real estate worth at least USD 250.000 by a real person of a foreign national,
2. Establishment of condominium and condominium easement for purchased immovable,
3. Obtaining Turkish citizenship is facilitated on condition that the real estate cannot be transferred to another person for 3 years.
By putting an annotation of not being sold the real estate for 3 years in the title deed registry records, it will not be possible for foreign real persons, who apply for the acquisition of Turkish citizenship by buying real estate, to sell their real estate for 3 years.
Electricity and Water Services of Purchased Real Estate
Real estate owners gain the right to start the subscription process in order to benefit from public services (electricity, water, and sewerage system, etc.) after they were given permission to occupancy permit. For those who have a building permit, the new real estate owner or tenant should apply to the relevant public institutions and sign a service contract with the public institutions after the real estate is acquired or leased. After signing of the service contract and payment of subscription or deposit fees, they are given the opportunity to benefit from the services.
Income Tax in Own Use of Real Estate Owner
In Turkey, there is income tax implementation which by means of earn rental income by real estate rental or gaining capital gains by selling the property. Therefore, the retention of real estate in Turkey for the purpose of personal use only and not rented to any natural or legal person for any other transaction does not make income tax payment is required.
Sale or Rent of Real Estate
Turkish citizens and foreign real persons in Turkey are completely free to transfer their property to third parties and they are fully liberal to sell, rent or collateralize their real estates. The only exception is the inability to sell the property for 3 years after the payment of USD 250,000 for the acquisition of Turkish citizenship through investment. Rent income can be obtained by renting the real estate or real estates that are bought in order to acquire Turkish citizenship.
Rent Amount of The Real Estate
Freedom of Contract In accordance with the provisions of the Turkish Code of Obligations, the parties can determine all contract terms as they wish, including the rent amounts in Turkish Lira. It is not possible to determine the foreign currency or foreign currency indexed rent amount in real estate lease agreements. But the real people who live outside Turkey or established companies branches in Turkey, representative offices, offices or liaison offices or those people directly or indirectly 50% or more shareholders which they are Turkish companies and / or joint control and / or they are kept under control; or, as long as the agreement relates to its activities in free zones, it is permitted to determine the prices in the lease agreements to which companies in the free zones are tenants, indexed in foreign currency or foreign currency.
Increase Rates in Real Estate Rent
The parties agreeing on the rental price and who are within the freedom of the contract can regulate the rental rate increase rates among themselves. According to the laws of Turkey, rates of increase for rents paid in Turkish Lira, do not exceed the Consumer Price Index (CPI). In cases where it is possible to determine the rental amounts in foreign currency, the rent value cannot be changed during the first 5 years. This restriction, if the tenant is a merchant in the position of private or public legal entity engaged in trade as specified in the Turkish Commercial Code, this restriction will not be applied until 1 July 2020 in roofed workplaces.
Renting of Real Estate by Currency
People living in Turkey, in agreements signed between them, the rent must be determined in Turkish Lira and recorded. In other words, rent amounts cannot be written in foreign currencies, determined or indexed. The exception to this: The real people who live outside Turkey or established companies branches in Turkey, representative offices, offices or liaison offices or those people directly or indirectly 50% or more shareholders which they are Turkish companies and / or joint control and / or they are kept under control; or, as long as the agreement relates to its activities in free zones, it is permitted to determine the prices in the lease agreements to which companies in the free zones are tenants, indexed in foreign currency or foreign currency.
Real Estate Rental Times
Although the parties do not have any restrictions for the termination of the lease agreement, they can determine the duration of the lease agreements by mutual agreement. In the absence of agreement between the parties on this matter, the Turkish Code of Obligations regulates the terms of the extension of the lease agreement and sets the conditions for termination.
Binding of Real Estate Lease Agreements to Third Parties
Since there is the possibility of annotation in the real estate lease agreements before the title deed registration, the tenants may act as new owners of the property and claim rights against third parties. After the annotation process, if the real estate is transferred to a third party or when it is transferred, the eviction of the tenant from the real estate is prevented.
Taxation of Real Estate Rent Income
The rental income obtained by natural persons in Turkey, are taxed by the name of Income Tax and is declared annually by calculating all the rental income collected during a calendar year.If rent income is not taxed in the previous years, it is collected and taxed as income of the related year.
In the abovementioned allowed situations, the income obtained after the determination of the rent amount in foreign currency, The Central Bank of the Republic of Turkey calculates the foreign exchange rate applicable on the day the rent is received and converts it into Turkish Lira and the income tax is calculated and collected accordingly.
Annual rental income in Turkey, are taxed and charged at a rate of 15% to 35% by declaring on 1-25 March of the following year after the income tax return and the rental income were obtained. Income tax is paid in two equal installments in March and June.
A certain portion of real estate rent income is exempt from income tax and this exemption amount is 5,250 TL for 2019. For the taxpayers who obtain rental income from the workplace, if the gross amount of the rental income exceeds 40.000 TL for 2019, a declaration is required.
With the declaration of the rental income obtained, it is possible to deduct some expenses from the tax in the calendar year.
Rent income to be taxed when calculating the rent income base, there are two methods to be used by taxpayers in terms of tax deductible expenses. These are stated in the legislation as “real” and “lump” expense methods.
Tax Deductible Expenses - Actual Expense Method
By using actual expenses method following actual expenses can be deducted from the gross amount of rental income:
· Lighting, heating, water and elevator expenses
· Insurance expenses relating to the rented property and rights,
· Management costs,
· Interest of debts relating to the rented property and rights and 5% of acquisition value of a rented house for 5 years beginning from the date of acquisition (This deduction applies only to rental income of the rented house; non-deductible part is not evaluated as expenditure surplus),
· Taxes, fees, charges and special assessments paid for the rented property and rights, as well as charges paid by lessor to municipalities for participation to spending,
· Repair and maintenance expenses,
· Rent of the house accommodated by the lessors who rent their own property, (It is not allowed for taxpayers not residing in Turkey),
· Cost of damages and compensations
The portion of the above-mentioned expenses corresponding to the income exempted from tax amounting to TL 5,250 for 2019 is not counted as tax deductible expenses.
Tax Deductible Expenses- Lump-sum Expense Method
Taxpayers who have opted for the lump sum method can, after deducting the amount of exception from their rental income, set off the lump sum expenses at 15% of the remaining amount against actual expenses. It is not possible to opt for lump sum expenses method in the case of leasing rights.
Taxpayers who have chosen the lump sum expenses method cannot choose actual expenses method before three years have elapsed.
The Tenant is a Commercial Earning Company or Merchant
In Turkey, by making 20% deduction (withholding) from rental payments that will be made to legal entity tenants and traders, is deposited in the tax office on behalf of the lessor. In the event that the real estate is leased to company or a real person with a commercial profit if the rent income exceeds the annual declaration limits, the owner of the real estate must make a declaration with an annual income tax return. While making the declaration, they must remove the deductible expenses and deduct the amount deducted by the lessee from the tax amount to be calculated over the remaining amount after the discounts and declare the remaining portion in two installments to the tax office in March and June.
VAT on Rental Income
Value-added tax does not apply to rental income in Turkey. The income arising from the renting of real estates that do not have any commercial activity or have no connection with the commercial enterprise is not subject to value-added tax.
Lease Agreement and Stamp Tax
Since lease agreements signed in Turkey is considered a monetary value, the rate of 0.189% on the total amount specified in the lease agreement Stamp Duty is paid. Lease agreements signed between two real persons are counted as exemption from stamp duty and the tax is not calculated.
Registration of The Lease Agreement to The Land Registry
Lease agreements has no requirement to be registered on the title deed in Turkey. However, since the registration of the agreement is considered to be a monetary value, a title deed fee of 0.683% must be paid over the total rental amount during the registration process.
Real Estate Tax
While in Turkey, land, terrain and real estate owners pay property tax, tax rates vary depending on the type and location of the property. Real estate taxes at different rates are collected for settlements, businesses, arable land and other lands with the classification of ordinary regions and metropolitan municipality borders and surrounding areas.
Metropolitan Municipality Borders and Surrounding Areas
The property taxes calculated by the municipalities are calculated based on the value determined in the streets and avenues where the property is located. The property tax amount for real estate is obtained from the municipality where the property is located.
The real estate tax obligation to be paid to the municipality after the purchase of a new real estate starts at the beginning of the year following the sale. The real estate tax paid in two equal installments is paid in first March, April or May and the second in November.
Besides property tax in Turkey, there is "contribution to the protection of cultural property" tax which is charged with property tax and claimed 10% of the property tax.