۩ Guide:Turkish Property Taxes
PROPERTY TRANSFER TAXES
When you buy a Turkish property, it is subject to 1.5% (of the sale price) transfer tax. The buyer and the seller pay 1.5%. The same charge will be applicable when the property is sold and, in either case, is collected prior to the transfer of ownership at the Land Registry Office. If the property is new-build, a tax of 1.5% based on the value of the asset is due.
In addition, VAT will also be applicable on company-to-company or company-to-person sales.
New build residential properties with a useable area of less than 150 m² are subject to 1% VAT, rather than the standard 18%. Since most residential property is below this, it isn’t a problem but be careful if you are contemplating a large property.
Although not strictly a transfer tax, you should check to see if the contract of sale includes a monetary clause. If so, you may be liable to pay Stamp Duty of 0.75% of the value stated in the contract. This could be a significant amount so be warned!
ANNUAL TAX RATES AND FILING
Property tax returns are filed on a four-yearly cycle and annual taxes are paid in two equal installments. This year (2006) is a filing year in the four year cycle.
Annual tax rates (as a percentage of the property value) for different types of real estate are as follows:Land 0.3 % Buildings 0.2 % Residential buildings 0.1 % Fields 0.1 %
These rates are double in metropolitan areas so you need to check if your intended purchase is within a metropolitan boundary.
In general, all capital gains from the sale of property are subject to Income Tax but we will refer to this as a Capital Gains Tax as it is very similar to this concept (in
As an individual, after you have owned a property in
BUYING THROUGH A TURKISH COMPANY
BE VERY CAREFUL WITH THIS! We have come across several agents in the Bodrum area, and we know it happens elsewhere, who offer ‘off-the-shelf’ companies for you to use to buy your property. Some agents will simply not support this method, which sets the alarm bells ringing. We will deal with the tax implications here but it also impacts on where you can buy – more in another article . There is some doubt as to how the Turkish authorities view companies which only own your property. You do not want to be in a tricky tax position because the company does not actually trade. We are investigating this further and will post an article soon.
If you buy a house in Turkey through a company (i.e. you set up a Turkish company to buy the property), when you sell the any capital gain is exempt from corporation tax if you have owned it for at least two years. However, a 10% withholding tax is applicable to the capital gain. If you are a non-resident and you do not trade with your company (i.e. it is only a vehicle to buy the property), then you will need to file a tax return for the capital gains within 15 days from the date of sale.
You only need to own a property for two years to be exempt from a Capital Gain if you buy through a (your own) companyTURKISH PROPERTY TAX PROBLEMS
Property taxes are based on the tax value of property, which is the sale price of the property. Properties are subject to a revaluation every year at a level declared by the government. Officially, the property value declared may not be less than the minimum amount determined for the area by the ‘special valuation commission’. However, there is a widespread disregard for this aspect of the system. The majority of people under-declare the sale price (in private sales) in order to avoid taxation and the local Land Registry Office (Tapu ve Kadastro Müdürlüğü) seem to be quite ‘flexible’ on this. Here is an example:
A 3 Bedroom, 2 bathroom semi-detached villa in Bodrum with a sea view.
Owner paid £50,000 two years ago
Value today: £100,000 (yes, this is possible!)
Why do this?
Because the tax rates on any gain (mentioned above) are calculated as a percentage of the difference between the purchase price and the sale price, so in our example:
True difference between purchase price and sale price: £100,000 - £50,000 = £50,000 Amount which is legally taxable as a gain: £50,000 Declared difference between purchase price and sale price: £100,000 - £70,000 = £30,000 Amount which the tax authorities think is taxable as a gain: £30,000 Amount ‘hidden’ for tax purposes: £50,000 - £30,000 = £20,000!
You both save on the 1.5% sales & purchase tax, which instead of being 1.5% of £100,000 becomes 1.5% of £70,000 but this is only a saving of £450
IN REALITY, THIS IS TO THE SELLER’S ADVANTAGE, NOT YOURS. YOU ONLY SAVE ON THE 1.5% TRANSFER TAX, THE SELLER SAVES ON THE TRANSFER TAX AND THE CAPITAL GAIN.
The rate of taxation on the gain has varied significantly over the years (from 28.5% to 107.6% of the difference, we think this is correct) so you will need to check what it is currently if you are selling. If you are buying, be careful! Under-declaration is illegal and could potentially lead to a large fine. You may also have a problem with buildings insurance. Imagine a scenario where your house needs to be completely rebuilt after a fire/earthquake etc.. Your insurer in our example may only cover you for the declared value of your property (£70,000) but the cost of reconstruction may be more.
Finally, if you come to sell in a few years and you under-declared the sale price, there is every chance that because of the fast rising prices you will become liable for a much larger gain:
You ‘officially’ bought the Bodrum house for £70,000 in 2006 and you want to sell it in 2010(when there is no Capital Gains Tax) when it is worth £180,000. The authorities have become much more efficient and you are unable to under-declare.
You pay tax (at the prevailing 2010 rate) on £180,000 - £70,000 = £110,000.
Had you declared the true purchase price in 2006 of £100,000, you would only have paid tax on:
£180,000 - £100,000 = £80,000
RENTAL INCOME
Net rental income is taxable in
If you are non-resident and only earn rental income that has been subject to withholding tax in
Property related costs such as maintenance, repairs, insurance and interest are tax deductible. Annual taxes are normally shared between the lessee and lessor (if you are interested in an investment property for long letting this is relevant).
Stamp Duty is levied on tenency contracts at a rate of 0.15%.
Rental income acquired by companies is included in annual corporate income tax return and is subject to 30% corporation tax. Additionally, a levy of 10% is imposed.
N.B ACCORDING TO THE
RESIDENTIAL ENVIRONMENTAL SERVICES TAX (EST)
This tax is collected through your water bill but covers other services such as rubbish collection. If you own a residential property, the local water suppliers charge an EST of YTL (New Turkish Lira) 0.13 / m³ of metered water used, but you should check that your water comes from the mains supply or from an artesian well on your site (estate/compound) as this may be cheaper and will usually be paid to the site managers' office. Either way, this is not a huge amount to pay.
The rates for metropolitan areas are slightly higher at YTL 0.16 / m³ of metered water used by residential properties.
This tax are paid twice yearly at the belediye (council) office.
SUMMARY
We know that bad advice is worse than none at all so always to double check anything anyone tells you (including us). This goes equally for estate agents in
Tags: Turkish tax, Turkish property
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