You also need to consider the real estate taxation in Turkey, when you purchase a property in Turkey. There are various types of tax on the sale of properties that can be applied to your property. These taxes are;
• Title Deed Conveyance Tax
• Property Rental Income Tax
• Value-Added Tax
• Inheritance Tax
• Annual Property Tax
• Capital Gain Tax
• Gift Property Tax
Title Deed Conveyance Tax
This type of tax is imposed on the transfer of the real estate to the new owner. Calculated as 4% of the sales price, this tax is paid to the Cadastre office and General Directorate Land Registry on a one-time basis.
By this law, the price may be shared as 2% between seller and buyer. But in Turkey, the buyer pays the full price of the title deed transfer tax, as an unspoken market rule and general custom. We advise talking about this issue during the price negotiating stage because if not, it is customary and expected from the buyer to pay the full price of transfer tax.
Annual Property Tax
The value of the property increases annually when you own a house. This increase is taxed annually ranging from 0.1 to 0.3 percent considering its facilities (daily and social amenities nearby) and the square meter area regardless of building or land.
In metropolitan municipalities such as İstanbul, Bursa, İzmir, Antalya, Trabzon, etc annual real estate tax rates are doubled. This tax is accepted by online payment instructions via accepted banks and can be paid in 2 installments in May and November.
These rates are:
There has to be an invoice regarding the sale process, which includes VAT if you are buying your property from a company instead of a third person.
VAT have different rules for apartments, lands, and commercial properties as explained below;
Land fair value < 1.000 TL and Net sqm < 150
1.000 TL < Land fair value < 2.000 TL and Net sqm < 150
Land fair value > 2.000 TL
Company-owned lands always have 18% VAT
Company-owned lands always have 18% VAT
Value-Added Tax (VAT for short, KDV in Turkish) is based on land fair value; which is the city committee's designated value for the land in question. It depends on many factors like its position and daily or social amenities and every four years, the city committee evaluates every parcel of the town.
Capital Gain Tax
Earning taxable income equal to the price difference from the time you bought the real estate to its current value means selling a property within 5 years after purchase. Such gains are added to your income. In 2020 Capital Gain Tax on the property was 15% of the gained revenue from the sale. Generally, it will give you short-term capital gain if you hold the property for less than 5 years in Turkey. Therefore you have to pay short-term capital gain tax. You may exclude the bank interest costs (if you get a mortgage), annual property tax, title deed conveyance tax, and whatever renovation costs you have spent on the property.
If you sell your property after 5 years, or if you own the property you want to sell without paying a price like inheritance your income will count as a long-term capital gain. You will be excluded from Capital Gains Tax on real estate.
For example, let's say that you bought your property in June 2016 at 200.000 TL and sold it in March 2020 for 400.000 TL.
The months before the purchase and sale take place, after calculating the property's current value (the price indices of May 2016 and February 2020, it should be divided and multiplied by the purchase price of the house (200.000 TL x (482,02/257,27) = 374.719 TL).).
After we exclude the sales price from the real price, we get the profit (400.000 TL – 374.719 TL = 25.280 TL).
25.280 TL is the amount we gained from the sale of the property. When we exclude this from the exception rate, (25.280 - 18.000 TL = 7.280 TL) 7.280 TL is the taxable gain. In 2020, the capital gain tax was 11,29% therefore you have a 1.693 TL capital gain tax.
Property Rental Income Tax
The most important thing to know about rental income tax is, that it's progressive. This means that the higher your rental capital gains on real estate go, the higher your tax rate will. The rates are;
• Up to 18.000: 15%
• 18.000 TL – 40.000 TL: 20%
• 40.000 TL – 98.000 TL: 27%
• 98.000 TL – 500.000 TL: 35%
The law states that the owner must pay the full tax if you have a tenant in your residential property. We advise commercial properties for such purposes if you want to make an investment in rental income properties in Turkey. Our rental income properties can be reached from here.
(At the beginning of the new year, annual price ranges announced by the government. Latest update: 22.12.2020).
The inheritance law in Turkey includes residents and foreign investors as well. This taxes rate is based on the value of the inheritance;
• Up to 160.000 TL: 1%
• 160.000 TL – 510.000 TL: 3%
• 510.000 TL – 1.280.000 TL: 5%
• 1.280.000 TL – 2.780.000 TL: 7%
• More than 2.780.000 TL: 10%
Gift Property Tax
Gift tax rates range from 10% to 30% percent of the item's appraised value, a progressive tax just like the inheritance tax, is applied to items that have been acquired as a gift:
• Up to 160.000 TL: 10%
• 160.000 TL – 510.000 TL: 15%
• 510.000 TL – 1.280.000 TL: 20%
• 1.280.000 TL – 2.780.000 TL: 25%
• More than 2.780.000 TL: 30%.
If these gifts are coming from a family member, spouse, or children this tax can be cut by approximately 50%.
Double Taxation in Turkey
Double taxation is a tax principle referring to income taxes paid twice on the same source of income. When the same income is taxed in two different countries it can occur in international trade or investment.
In order to avoid this and draw investors to the country, either a government should make the necessary changes in its regulations, or as more commonly used, make international agreements between countries based on power and information sharing in order to avoid taxation conflicts.
List of Double Taxation Agreement Countries:
Bosnia & Herzegovina
For more information, you can read expenses in Turkey.