Real Estate Acquiring Türkiye Guide

1. Introduction

Türkiye is the bridge from West to East, a melting pot of rich and various civilisations, a country of diversity where everything seems to be possible.

In recent years the tourism to Türkiye  has experienced significant growth.

Of course this has to do with the great climate, the beautiful coastal region, the wonderful sites, the pleasant atmosphere, the Turkish hospitality, but certainly also the reasonable prices. In comparison with many countries in Europe, live in Türkiye is significantly cheaper, which makes Türkiye very attractive for foreigners to buy a (second) home there. Unfortunate devaluation of Turkish Lira against EURO and USD made the property prices more affordable for foreign buyers.

Türkiye strictly monitors that the tourist areas do not become a copy of the Spanish coastal areas. Large project developments are kept away as much as possible.

That is why there are a few restrictions for foreigners (including those who do not have the Turkish nationality) who wish to acquire a Turkish real estate property.

In Türkiye foreigners only receive the official ownership of a Turkish real estate property at the time they receive their official certificate of ownership (the so–called tapu) from the Turkish cadastral department.

From 16 April 2008, Turkey introduced a so–called real estate stop for foreigners: the issue of the aforementioned tapu to foreigners was suspended at that time. Several months after that this real estate stop was cancelled. Thus foreigners can again become owner of real estate in Türkiye. However, the following restrictions (under the amended Title Deed Law 2644) apply:

–        size restriction: a foreigner can purchase a maximum of 300,000 m² of surface area;

–        reciprocity principle: this condition was recently eliminated;

–        location restriction: foreigners can only purchase real estate in areas for which a qualified or local zoning plan exists. In addition, the acquisition is excluded in military barricade and safety zones, flora and fauna, agricultural and irrigation areas and strategically important areas, due to cultural and religious issues. Associations, communities, societies and funds cannot purchase real estate or land, respectively.

Specific restrictions also apply for the acquisition by foreign companies:

– foreign legal entities may not acquire Turkish real estate unless this is permitted by a specific law such as the law on tourism, industrial zones, etc.;

– a Turkish subsidiary of a foreign company can acquire Turkish real estate under the condition that this is permitted by a specific law such as the law on tourism, industrial zones, etc. and if the acquisition of real estate is in correspondence with its object description in the articles of association.

Once the tapu is issued, the buyer shall become the full owner of the Turkish real estate. Any agreements made out of Land Registry Office does not provide ownership and Land Registry records is the ultimate proof of ownership.

The buyer then has the free disposal of the Turkish real estate.

Taking into account this complex and quickly changing regulation, it is recommended to consult a local attorney or legal specialist in order to review if there are problems with the respective real estate property. Is the property not located in a forbidden zone? Is it available for sale? Is the building not located illegally? Is construction permitted? This legal assistance does constitute extra costs, but can prevent much more expensive problems later.

Below we will address the various tax aspects associated with the acquisition, use, sale, donation and inheritance of this Turkish real estate.

2. Purchase of a holiday home

As always, the answer to the question about purchase via a company or privately depends on various factors. Does the purchase property require renovations? What is the type of income the investor wants to realise (rental income versus added value)? For what period do they want to keep the real estate? How large is the investment amount?

According to our Turkish correspondent, for natural persons such as Nele and Ignace who wish to acquire a real estate property in Türkiye for private use, for example as holiday destination, it is recommended to acquire the real estate property privately.

In practice is hardly ever occurs that natural persons acquire holiday homes via a company.

For commercial projects there are other possibilities of course. Foreign companies that want to acquire Turkish real estate, according to our Turkish correspondents should best opt to establish a Turkish company that acquires the real estate, instead of for the direct purchase of shares of Turkish real estate companies. In some cases real estate developers establish SPV companies in order to benefit tax exemptions. Please contact BBC Legal to find out more about different options.

2.1.    Formalities in case of purchase

In Türkiye the sale of a real estate does not have to be recorded in a written agreement. In practice this usually does happen (e.g. with a sales promise), and for reasons of legal certainty we also highly recommend this.

As a result of the signing of the purchase agreement (satis sozlesmesi) by the buyer and the seller there is a transfer, but legally the buyer is not yet the owner at that time. As stated above, the buyer only becomes the official owner of the real estate the moment it is in the possession of the tapu and this transaction is carried out in the Land Registry Office.

With recent change, notaries are now involved in the completion of the ownership transfer. However, if one of the parties is a foreigner, Land Registry Office has the sole discretion to finalize the ownership transfer. 

Thus, the seller and the buyer (or its agent) must go to the Tapu office (public register of real estate) together in order to submit a tapu application. If a foreign buyer does not sufficiently command the Turkish language, he must be accompanied by a Turkish certified translator at the Tapu chamber. In practice, foreigners usually grant a limited power of attorney (with the notary) to a Turkish person in order to make things go faster.

The officer of the Tapu office will send the application to the competent military institution depending on the location of the property. These institutions check if the real estate is not located in a safety zone. An exemption confirmation of the competent military authorities is required for the registration of the transfer in the Tapu register. The investigation period is two to a maximum of six months.

After all formalities have been completed, the tapu is issued in name of the buyer.

Any owner of real estate in Türkiye must also apply for a tax ID number with the competent administration before proceeding with the transaction.

For the sake of completeness, it must be noted that in case a real estate property is purchased that is part of a new construction project, the buyer must make sure that the project developer gives him the genel iskan”. The “genal iskan” is the proof that the construction company has fulfilled all its obligations (building regulations, tax and social security for their personnel, etc.).

There is a recent regulation emposes foreigners to make the purchase fee by Turkish currency through a bank opreating in Türkiye. There are several transaction chain prior to make purchase fee to the seller which are 1- Opening a bank account in a bank operating in Türkiye (each bank has its own policy to open a bank account for a foreigner in Türkiye and it is difficult to provide required set of documents to open a bank account in Türkiye. Most of the banks require following documents: Notarized Turkish translation of passport, original copy of the passport, Potential Tax ID Number generated by Turkish tax authorities, national ID/tax or social security number in buyer’s own country, residence certificate in buyer’s own country) 2- Deposting the purchase fee with USD or EUR in the bank account in Türkiye 3- Changing the deposited amount into the Turkish lira. 4- Bank issues a FX sale certificate 5- Bank sends the FX sale certificate to the relevant Land Registry directorate via registered e-mail service (KEP). 

2.2.    Indirect taxes owed with purchase

Türkiye levies 2% transfer tax (tapu harci) with the purchase of real estate from individuals, in principle owed by the buyer as well as the seller. Thus the total transfer tax is 4%. The taxable base is the sales value of the real estate.

In certain cases, one must also take into account the VAT rate (Katma Değer Vergisi) of 20%.

3. Use of the holiday home

The tax treatment of the use of Turkish real estate by a foreign investor depends on how the investment took place.

In any case, Türkiye based on the double taxation convention that was concluded with your government has the right to levy tax for real estate income that is generated from real estate located in their territory.

3.1.    Property tax (emlak vergisi)

Holding real estate gives rise to taxability in Türkiye, regardless of whether or not this real estate generates rental income. In Türkiye this is called the emlak vergisi or property tax.

The taxable base is the tapu value. Earlier it used to be the tax payer at its own initiative must request the tapu value and the tax that is owed from the competent administration. now determined by the municipalities depending on the assessment made by the municipalities. The owner can challenge the determined value and ask for reassesment.

The rates are different for Big City Municipalities and Regular Municipalities.

The rate of this Turkish property tax for regular Municipalities is 0.1% for homes within the municipal borders, and 0.2% for buildings other than homes, 0,3% for lands within zoning plan,  0,1% for other lands. The rate of Turkish property tax for Big City Municipalities is 0.2% for homes within the municipal borders, and 0.4% for buildings other than homes, 0,6% for lands within zoning plan,  0,2% for other lands.

3.2.    Personal income tax (gelir vergisi)

According to Turkish tax case law, the mere fact of ownership of Turkish real estate by a non–resident, albeit a natural person or a legal entity, in principle does not lead to the presence of a permanent establishment.

If the real estate would yet be part of a business activity in Türkiye, then the income from the real estate of the permanent establishment would be taxed as if it were a Turkish company. For the situation of real persons this is not the case.

In case a real person would rent out the real estate to private individuals, the effectively received rental income would be subject to the normal progressive rates in the income tax, whereby an exemption is granted with regard to the first level of TL33,000.00.

In Türkiye the following progressive rates apply for personal income tax:

With regard to the deduction of costs for repairs, maintenance and improvements, the following choice exists:

–        deduction of the actual maintenance and repair costs, as well as the interests on mortgage loans; or

–        a fixed deduction of 25% of their gross received rental income. In this case there is no additional deduction for the effectively incurred costs for repairs, maintenance and improvements.

Once they opt for the fixed deduction, real persons must apply this system for the next two years. Only after the expiration of a time period of two years, they can again switch to the system of the actual deduction of maintenance and repair costs.

3.3.    Corporate Tax (şirketin ödeyeceği vergi)

If the real estate is acquired in Türkiye by a Turkish company, then the income generated by the real estate is taxed at the level of this company.

Turkish companies are taxable on their income in the Turkish corporate tax.

The rate of the corporate tax is 25%.

Profits of the Turkish company can be transferred to the foreign investor–shareholder by a dividend payment.

With dividend payments by a Turkish company, according to national law these must withhold a source tax of 15%. A foreign shareholder, natural person, shall in principle also owe dividend tax 27% on top of the received net dividend.

If the real estate is purchased by a foreign company, then the aforementioned scheme grosso modo shall apply. Or if a foreign company has a permanent establishment in Türkiye, then the fiscal treatment of the income is equal to that of a Turkish company. Or if there is no permanent establishment, then Türkiye levies tax based on the applicable tax treaty according to the aforementioned rules.

3.4.    Local taxes

Until today no local taxes are owed in Türkiye.

3.5.    Wealth tax

Türkiye does not have wealth tax.

3.6.    Indirect taxes

In case of registration of rental agreements with the object to rent out residential real estate to natural persons, the Turkish stamp duty is owed. However, there is no obligation in Türkiye to register a rental agreement.

An environmental tax is also levied on real estate. However, this tax depends on the water consumption of the home, and is settled automatically via the billing of the water consumption.

4. Sale of the holiday home

If the real estate is directly held by a foreign investors, then another distinction must be made between the situation whereby the real estate whether or not is part of a Turkish permanent establishment.

In the improbable hypothesis that the real estate is part of the Turkish permanent establishment, the added value generated with the sale of the real estate is part of the permanent establishment profit; taxable at the corporate tax (25%).

In the absence of a permanent establishment, the generated added values are taxable in Türkiye based on double taxation convention. Turkey taxes the added values, as so–called (gelir artiş vergisi), if the sale takes place within five years after establishment or acquisition.

Added values on real estate acquired by donation or inheritance are always exempt for natural persons. The waiting period of five years is not required for this.

The taxable base is the difference between the sales price with the market value as minimum, and purchase price, increased with the costs arising from the sale. The realised added value is taxable at the normal progressive rates in the income tax. The first level of TL87,000.00 of the realised added value is exempt from tax (2024).

Added values of companies are taxable under the regular rates in the Turkish corporate tax (25%). If the sale takes place more than two years after the acquisition, no VAT shall be owed. Moreover, in that case a 75% exemption applies to the added value.

If the shares of a company with Turkish real estate are sold, then no transfer tax shall be owed. Also the Turkish added value tax cannot be levied as a result of the double taxation convention. And as indicated with the other countries, the realised added value in your country shall not be taxable, subject to the hypothesis of abnormal management of private capital and qualification as professional income. However, it is possible that VAT is owed in Türkiye on the transfer of the shares, such as in case of sale within two years.

5. Inheritance planning

5.1.    Applicable inheritance law

Pursuant to the entry into force of the European Inheritance Law Ordinance, an estate from a deceased who died on or after 17 August 2015 from European perspective is processed under the law of the last regular place of residence of the deceased upon his death. However, one could chose the law of the nationality.

From a Turkish perspective, the Inheritance Law Ordinance shall not be applied. The specific impact thereof must be reviewed on a case by case basis.

5.2.    Turkish donation and inheritance tax

In Turkey the following rates apply with regard to donation tax and inheritance tax (veraset ve intikal vergisi):

With regard to donations between spouses, ascendants and descendants (with the exclusion of adopted person), the above mentioned rates are reduced by 50%.

For each beneficiary, the first level of TL 37,059.00 is exempt from donation tax.

With regard to the inheritance tax, the first level of TL1,609,552.00 is exempt for each heir. In case the deceased does not have descendants, the first level of TL3,221,082.00 is exempt for the surviving spouse.

Authors: Att. Berk Çektir & Att. Uğur Karacabey