What Kind of Tax Exemptions Do You Expect When Investing in Turkey?
In almost every piece of writing about investing in Turkey, it is always mentioned that “Turkey is a great place to invest in since the business environment is so convenient and welcoming”. Yes, that’s true, it is truly welcoming and one of the most solid reasons for that is the tax incentives in Turkey.
Key Takeaways
- Study Turkish real estate tax law and find out what kind of exemptions you are eligible to benefit from.
- Make an inquiry that whether the property you are going to invest in is included.
- Check out the requirements listed below and see if you can meet them.
- Always consult a specialist and get aid to avoid a mistake since they can cost dearly by leading you to the way of not benefitting from the exemptions when you could.
FDI Flowing into The Turkish Market Is HUGE!
Thanks to the fact that Turkey is playing big for the year 2023 (the 100th foundation anniversary of the Turkish Republic), Turkey puts hard work into attracting foreign investment into the country. And their efforts really work, since the FDI flowing into the Turkish market is huge. FDI Markets reports that despite the tragic impact of Covid-19, Turkey became the ninth most popular FDI destination with 160 projects in all of Europe in 2020, maintaining its position in 2019 and increasing its share from 3 per cent to 3.1 per cent. (For detailed info on the performance of the Turkish economy, check out our blog on “Investment Opportunities in Turkey in 2023”).
If you want to be one of the international investors among the many who prefer investing in Turkey, you should know what kind of incentives or exemptions awaiting you and exploit them to the fullest extent possible to squeeze a solid return out of your investment. So, let’s have a look at them:
Incentive Programs of Turkey
The Turkish government offers a comprehensive investment incentives program with a wide range of instruments that helps reduce the burden of down costs and accelerates the returns on investments. These programs are applicable to both greenfield and brownfield projects.
Other incentives may also be specifically designed for initiatives in priority industries that are identified as important hubs for technological diffusion and economic growth. Additionally, through a variety of grants, incentives, and loans, the Turkish government offers extensive assistance programs for R&D and innovation projects, staff training initiatives, and exporters.
There are a lot of tax incentives or exemptions that make the Turkish business environment very optimal in terms of making or starting a business. However, the main focus of this article is the property tax exemptions, and who could benefit from them for real estate investments.
Incentives or Exemptions? Or Does it Really Matter?
Let’s make something clear. Tax incentives or exemptions are, most of the time, applied for the sake of easing the burden of the investors and in this way to be able to attract more investors to invest in the country. So, our answer to the question we posed in the subheadline is: No, it doesn’t, because the ultimate goal of both practices, incentives or exemptions, are the same and serve pretty much for the same result.
In order to attract more investors and encourage them to buy real estate, Turkey gave foreign investors a variety of opportunities, privileges, and cancellations of some restrictions. One of these amenities is the real estate tax exemptions, which exempt the investor who wants to buy or sell and transfer ownership of a property to the buyer from paying some state fees. By alleviating the burden of paying taxes imposed on them, this exemption attempts to increase the flow of investment into Turkey. In addition to real estate owners being exempt from paying the tax in full, some investors are also free from paying certain portions of these taxes for set periods of time.
What Do Turkish Real Estate Taxes Entail?
According to the real estate property tax law, Turkey obligates every investor and property owner on its territory to pay taxes to the government entities in charge of collecting taxes on set days. The property must be paid for by the two people who have the legal right to sell it.
The investor must exercise extreme caution when submitting an application for tax exemption to the Turkish state departments in charge of handling tax matters because any mistakes made during the submission process could result in the property owner losing out on the advantages of the tax exemption law.
Additionally, the investor must pay these fees at certain periods specified by the Tax Department and the Land Registry even if he is exempt from paying some of these taxes. The value of the tax will be increased by fines at a rate of 1.40 per month if the property owner fails to pay these taxes by the due dates. This percentage rises every year. There is no way to eliminate or erase this fine.
To manage the affairs of these intricate transactions and avoid tricky legal violations by the investor, consult those who are reliable and informed about these laws, it is always necessary to seek the advice of lawyers and specialists.
2021, the Enactment of the New Real Estate Tax Bill
In order to revive its economy, Turkey wants to allure as many foreign investors as possible. Turkey's strategic location, as well as its favorable and stimulating business environment, have helped Turkey draw in investors from all over the world. As a result, it passed a number of laws pertaining to investors on Turkish soil, including one to lessen the tax burden on both foreign and domestic investors, most notably the "Value Added Exemption" law, which applies to all residential and some commercial properties when they are sold for the first time, including homes, apartments, and offices.
Due to Turkey's laws on foreign investment, which guarantee equal treatment for both foreign and local investors, this exemption applies to both foreign and local investors. As a result of these exemptions, the investor can save a sizable sum of money. But please kindly note that these tax exemptions for real estate do not apply to annual taxes, ownership transfers, membership fees, or yearly services.
Real Estate Is Exempt From Value-Added Tax (KDV).
Turkey created legislation exempting international and local investors from value-added tax ("KDV"), which ranges from 1% to 18% of the value of property sales and is paid once to the tax department according to the characteristics and location of the property. After the tax exemption benefits were provided regarding real estate in Turkey, the groups investing within the Turkish territory got advantages from these exemptions.
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It cannot be argued that all investors can take advantage of these exemptions because only foreign investors living outside Turkey, Turkish expatriates living abroad, and international businesses without a legal presence in Turkey are free from this tax.
Which Properties Are Exempt From Paying Taxes?
When referring to real estate taxes, it is important to note the types of property that are exempt from paying taxes, including residential structures, apartments, villas, housing units, and commercial real estate that is licenced from public buildings and workplaces. Older real estate is not covered by the exemption decision, nor are agricultural lands or other forms of land, and this exemption only applies to recently constructed real estate.
What Are the Real Estate Tax Exemption Categories?
They are eligible to take advantage of the tax exemption decision if they fall into the applicable group of this exemption, which includes "foreigners not residing in Turkey, foreign legal entities that are not located in Turkey, and Turks not residing in Turkey."
Requirements for Real Estate Tax Exemption
When requesting an exemption from the real estate tax, the following requirements must be met:
• Turkey should not be the investor's place of residence.
• The individual requesting the exemption cannot have spent more than six months in Turkey in the previous year.
• The candidate must not currently hold a year-old, valid residence permit for Turkey.
• The applicant should not reside at a Turkish registered address.
• Foreign business firms are not permitted to have their primary offices in Turkey.
• Paying the full market worth of the property in foreign currency; this money must entirely originate outside of Turkey and must be sent to Turkey via bank transfer or cash, in which case a customs declaration document must be provided.
• The property must be brand-new because older homes are excluded from the criteria required for this exemption.
• Only residential buildings (villas, apartments, and residential units) and comparable commercial real estate may be included in the real estate subject to the exemption (workplace offices). Other types of real estate, including agricultural lands, are not covered by this exemption.
• A year must pass before the tax-exempt property is put up for sale again.
• The investor must prepare the following paperwork:
• A passport photocopy that has been translated.
• A translation of a document attesting to the investor's residence outside of Turkey.
• Tax ID in Turkey.
• The real estate sale contract
If the property owner satisfies these requirements, he must apply for a real estate tax exemption at the Title Deed Department of the municipality to which the property belongs. The owner may also be able to recoup any prior taxes they paid as evidence of their eligibility.
Certificate for Tax Exemption
The investor must submit an application to the Turkish tax authorities in order to get a "Tax Exemption Certificate" after securing all the relevant paperwork, meeting all the requirements, and taking all the necessary actions to qualify for the tax exemption.
Use Propline’s Legal Advice Service and Consult an Expert
To avoid a costly mistake, please make sure that you consult an expert about tax exemptions for properties in Turkey. Since you could save or in the worst case lose a lot by these tax exemptions.
As in every area of law, Propline is there for you to support you by finding the right legal service for all your legal needs. Also, it could either be about you or your property, it doesn’t matter.
To find you the right legal office according to your needs, the right legal counselor who would be contacting you in your preferred language, either in English or (if it’s available) in your native language, we refer you to some of the best and affordable lawyers we know who would do everything in their power to solve your legal disputes.
For more detailed info, check out our legal services in our exceptional concierge package.
FAQ
What are Turkey's property taxes?
According to the local Land Registry and Cadastre directorate, 4% of the land value is the total amount of tax owed to the Turkish government. Frequently, the land value is less than the selling price of the property. According to Turkish legislation, unless both parties agree otherwise, the seller and buyer each pay 2% of the total transaction price.
In Turkey, is rental income taxed?
Rental income from properties or other assets located in Turkey is taxable for non-residents. However, both residents and non-residents may be eligible for several exemptions and adjustments.
Do foreigners in Turkey pay taxes?
Residents of Turkey are subject to tax on their worldwide income, whereas non-residents are only subject to tax on income from a Turkish source. After various deductions and exemptions, income tax is assessed at progressive rates on taxable income. There is no unique tax system for foreigners.
What requirements must be met in Turkey in order to be exempt from real estate taxes?
The applicant for the exemption cannot have spent more than six months in Turkey in the previous calendar year. The candidate must not have a current-year-old residence permit in Turkey. There shouldn't be a registered address for the applicant in Turkey.
Which properties in Turkey are tax-exempt?
Since the tax law does not apply to land and agricultural land, properties in Turkey that are free from real estate tax must be of the residential or commercial variety, such as homes, offices, shops, and places of employment.
