Turkish Property Legal and Fiscal Aspects_2018


Turkish Property – Legal and Fiscal Aspects

A Belgian Approach

 

1.    Introduction

Turkeyis the bridge from West to East, a melting pot of rich and variouscivilisations, a country of diversity where everything seems to be possible. Inrecent years the tourism to Turkey has experienced significant growth. Incomparison with many countries in Europe, live in Turkey is significantlycheaper, which makes Turkey very attractive for foreigners to buy a (second)home there.

Turkeystrictly monitors that the tourist areas do not become a copy of the Spanishcoastal areas. Large project developments are kept away as much as possible. Thatis why there are a few restrictions for foreigners (including those who do nothave the Turkish nationality) who wish to acquire a Turkish real estateproperty.

InTurkey foreigners only receive the official ownership of a Turkish real estateproperty at the time they receive their official certificate of ownership (theso–called tapu) from the Turkishcadastral department.

From16 April 2008, Turkey introduced a so–called real estate stop for foreigners:the issue of the aforementioned taputo foreigners was suspended at that time. Several months after that this realestate stop was cancelled. Thus foreigners can again become owner of realestate in Turkey. However, the following restrictions (under the amended Title Deed Law 2644) apply:

–       size restriction: aforeigner 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 orlocal zoning plan exists. In addition, the acquisition is excluded in militarybarricade and safety zones, flora and fauna, agricultural and irrigation areasand strategically important areas, due to cultural and religious issues.Associations, communities, societies and funds cannot purchase real estate orland, respectively.

Specificrestrictions also apply for the acquisition by foreign companies:

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

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

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

Thebuyer then has the free disposal of the Turkish real estate.

Takinginto account this complex and quickly changing regulation, it is recommended toconsult a local attorney or legal specialist in order to review if there areproblems with the respective real estate property. Is the property not locatedin a forbidden zone? Is it available for sale? Is the building not locatedillegally? Is construction permitted? This legal assistance does constituteextra costs, but can prevent much more expensive problems later.

Cektircan provide you assistance in all parts of Turkey regarding  your property, inheritance and conveyancingmatters.

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

 

2.    Purchase of aholiday home

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

Accordingto our Turkish correspondent, for natural persons such as Nele and Ignace whowish to acquire a real estate property in Turkey for private use, for exampleas holiday destination, it is recommended to acquire the real estate propertyprivately.

Inpractice is hardly ever occurs that natural persons acquire holiday homes via acompany.

Forcommercial projects there are other possibilities of course. Belgian companiesthat want to acquire Turkish real estate, according to our Turkishcorrespondents should best opt to establish a Turkish company that acquires thereal estate, instead of for the direct purchase of shares of Turkish realestate companies. In some cases real estate developers establish SPV companiesin order to benefit tax exemptions. Please contact Cektir to find out moreabout different options.

 

2.1.    Formalities incase of purchase

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

Asa result of the signing of the purchase agreement (satiş sözleşmi) 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, thebuyer only becomes the official owner of the real estate the moment it is inthe possession of the tapu and thistransaction is carried out in the Land Registry Office.

Incontrast to Belgium, notaries are not involved in the completion of theownership transfer. After all, under Turkish law the transfer of ownership in asuitable letter of intent of the seller and buyer is only registered in the Tapu register.

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

Theofficer of the Tapu office will sendthe application to the competent military institution depending on the locationof the property . These institutions check if the real estate is not located ina safety zone. An exemption confirmation of the competent military authoritiesis required for the registration of the transfer in the Tapu register. The investigation period is two to a maximum of sixmonths.

Afterall formalities have been completed, the tapuis issued in name of the buyer.

Anyowner of real estate in Turkey must also apply for a tax ID number with thecompetent administration before proceeding with the transaction.

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

 

2.2.    Indirect taxesowed with purchase

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

Incertain cases, one must also take into account the VAT rate (Katma Değer Vergisi) of 18%.

 

3.    Use of theholiday home

Thetax treatment of the use of Turkish real estate by a foreign investor dependson how the investment took place.

 In any case, Turkey based on the doubletaxation convention that was concluded with Belgium has the right to levy taxfor real estate income that is generated from real estate located in theirterritory.

3.1.    Property tax(emlak vergisi)

Holdingreal estate (such as that from our Belgians) gives rise to taxability inTurkey, regardless of whether or not this real estate generates rental income.In Turkey this is called the emlakvergisi or property tax.

Thetaxable base is the tapu value. Earlierit used to be the tax payer at its own initiative must request the tapu value and the tax that is owed fromthe competent administration. now determined by the municipalities depending onthe assessment made by the municipalities. The owner can challenge thedetermined value and ask for reassesment.

Therates are different for Big City Municipalities and Regular Municipalities.

Therate of this Turkish property tax for regular Municipalities is 0.1% for homeswithin the municipal borders, and 0.2% for buildings other than homes, 0,3% forlands within zoning plan,  0,1% for otherlands. The rate of Turkish property tax for Big City Municipalities is 0.2% forhomes 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 incometax (gelir vergisi)

Neleand Ignace plan to acquire the real estate privately.

Accordingto Turkish tax case law, the mere fact of ownership of Turkish real estate by anon–resident, albeit a natural person or a legal entity, in principle does notlead to the presence of a permanent establishment.

Ifthe real estate would yet be part of a business activity in Turkey, then theincome from the real estate of the permanent establishment would be taxed as ifit were a Turkish company. For the situation of Nele and Ignace this is not thecase.

Incase Ignace and Nele would rent out the real estate to private individuals, theeffectively received rental income would be subject to the normal progressiverates in the income tax, whereby an exemption is granted with regard to thefirst level of TL4.400.00.

 

InTurkey the following progressive rates apply for personal income tax:

 

Taxable income

Rate

Up to TL14,800

15%

From TL14,800 to TL34,000

20%

From TL34,000 to TL80,000

27%

Over TL80,000

35%

 

Withregard to the deduction of costs for repairs, maintenance and improvements, thefollowing choice exists:

–       deduction of the actual maintenance and repair costs, as well asthe 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 incurredcosts for repairs, maintenance and improvements.

Oncethey opt for the fixed deduction, Ignace and Nele must apply this system forthe 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 andrepair costs.

 

3.3.    Corporate Tax (Şirketin ödeyeceği vergi)

Ifthe real estate is acquired in Turkey by a Turkish company, then the incomegenerated by the real estate is taxed at the level of this company.

Turkishcompanies are taxable on their income in the Turkish corporate tax, the şirketin ödeyeceği vergi.

Therate of the corporate tax is 20%.

Profitsof the Turkish company can be transferred to the foreign investor–shareholderby a dividend payment.

Withdividend payments by a Turkish company, according to national law these mustwithhold a source tax of 15%. The Belgian shareholder, natural person, inBelgium shall in principle also owe dividend tax 27% on top of the received netdividend.

Ifthe real estate is purchased by a Belgian company, then the aforementionedscheme grosso modo shall apply. Or ifthe Belgian company has a permanent establishment in Turkey, then the fiscaltreatment of the income is equal to that of a Turkish company. Or if there isno permanent establishment, then Turkey levies tax based on the applicable taxtreaty according to the aforementioned rules.

3.4.    Local taxes

Untiltoday no local taxes are owed in Turkey.

3.5.    Wealth tax

Turkeydoes not have wealth tax.

3.6.    Indirect taxes

Incase of registration of rental agreements with the object to rent outresidential real estate to natural persons, the Turkish stamp duty is owed.However, there is no obligation in Turkey to register a rental agreement.

Anenvironmental tax is also levied on real estate. However, this tax depends onthe water consumption of the home, and is settled automatically via the billingof the water consumption.

 

4.      Sale of the holiday home

Ifthe real estate is directly held by our Belgian investors, then anotherdistinction must be made between the situation whereby the real estate whetheror not is part of an Turkish permanent establishment.

In the improbable hypothesis that the real estateis part of the Turkish permanent establishment (a registered establishment underthe laws of Turkey which is a corporate income tax payer in Turkey), the capitalgains generated with the sale of the real estate is part of the permanentestablishment profit; taxable at the corporate tax (22% for fiscal years 2018,2019 and 2020).

In the absence of a permanent establishment, the capitalgains on real estate are taxable in Turkey based on the Belgian–Turkish doubletaxation convention. Turkey exempts the capital gain on real estate, asso–called (değer artış kazancı), provided that the sale takes place within fiveyears after establishment or acquisition.

Capital gains on real estate acquired by donationor inheritance are always exempt for natural persons. The waiting period offive years is not required for this.

The taxable base is the difference between thesales price with the market value as minimum, and purchase price, increasedwith the costs arising from the sale. The realised capital gains is taxable atthe normal progressive rates in the income tax. There is a certain amount of capitalgain which is exempt from tax (for fiscal year 2018 12.000 TL).

Capital gains of companies are taxable under theregular rates in the Turkish corporate tax (22% for fiscal years 2018, 2019 and2020). However, in that case a 50% exemption applies to the capital gainprovided that the property is sold more than two years after the acquisitiondate and other criteria in the legislation are fully satisfied (like collectingthe sales amount in two years time, the booking the related gain under aprivate provision account in the equity of the company for five years after thesales takes place, not withdrawing the earnings from the company during giveyears after the sales takes place etc). Besides, if the sales takes place morethan two years after the acquisition date, no VAT shall be owed provided thatthe company is not operating in real estate market.

 

If the shares of a company with Turkish realestate is sold, then no property transfer tax shall be owed. Also the Turkishadded value tax cannot be levied as a result of the double taxation convention

If the shares of a limited company is transferredbefore two years time, it shall be made subject to VAT. If it is sold after twoyears time, VAT shall not be applied.

If the shares of a joint-stock company aretransferred before two years time, it shall be made subject to VAT providedthat the shares are not linked to share certificates. If the shares are linkedto issued share certificates and those certificates are transferred to thebuyer, VAT shall not be applied regardless of the time that the shares areowned. If it is sold after two years time, VAT shall not be applied in any case.

Based on the double taxation agreement in betweenTurkey and Belgium, the capital gains on the share sales of a Turkish company(for the shares those are hold by Belgian shareholders more than one year) isnot taxable in Turkey. However, it is possible that VAT is owed in Turkey onthe transfer of the shares, such as in case of sale within two years and therelated shares are not linked to share certificates.

 

5.    Inheritanceplanning

5.1.    Applicable inheritancelaw

Pursuantto the entry into force of the European Inheritance Law Ordinance, an estatefrom a deceased who died on or after 17 August 2015 from Belgian perspective isprocessed under the law of the last regular place of residence of the deceasedupon his death. However, one could chose the law of the nationality. From aTurkish perspective, the Inheritance Law Ordinance shall not be applied. Thespecific impact thereof must be reviewed on a case by case basis.

5.2.    Turkishdonation and inheritance tax

InTurkey the following rates apply with regard to donation tax and inheritancetax (veraset ve intikal vergisi):

Taxable base

Succession

Donations

Up to TL240,000.00

1%

10%

From TL240,000.00 to 570,000.00

3%

15%

From TL570,000.00 to 2,200,000.00

5%

20%

From TL2,200,000.00 to 4,280,000.00

7%

25%

Over TL4,280,000.00

10%

30%

 

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

Foreach beneficiary, the first level of TL4,656.00 is exempt from donation tax.

Withregard to the inheritance tax, the first level of TL202,154.00 is exempt foreach heir. In case the deceased does not have descendants, the first level ofTL404,556.00 is exempt for the surviving spouse.

Thetechnique of the split purchase – bare ownership with the children, usufructwith the parents – can be considered, but does not work the same in Turkey asin Belgium. Upon the death of the usufructuary, the bare owner shall receive anasset that is taxable for the Turkish inheritance tax.

Inthe area of inheritance tax, there is no double taxation convention between thetwo countries so that Belgian national law applies. However, the Belgian heirsin Belgium, in accordance with Belgian national law, can receive a tax creditin the amount of the Turkish inheritance tax that was paid on the Turkish realestate.

 

With courtesy of Cazimir Advocaten







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