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The taxation system in Turkey

  • 15 July 2020

Rules for payment of Income-tax depends on residency.  A Turkish resident will be liable to pay income tax in Turkey. But if you are nonresident, then you are not liable to pay taxes in Turkey, but your earnings derived in Turkey fall in the category of property on which tax is applied.

Rules for foreign nationals for income tax payment in Turkey

 The residency status of a foreign national will decide how he/ she will have to pay income tax. The following rules will be applicable:

  1. A foreign national considered resident in Turkey for tax purposes:  he/she will be liable to pay tax in Turkey. Any foreign national that has acquired legal Turkish residence or have lived in Turkey for more than six months in one tax year will be assumed Turkish resident for tax purposes. This is the 'six-month' rule applied for assigning residency for tax implementation.  A foreign national that is assigned to be a Turkish resident he/she will have to pay taxes on his/her income regardless of the source of that income. Simply, a foreign national who is considered a resident in Turkey for tax purposes is liable to pay tax on his/her income worldwide.

 

  1. A foreign national not considered as a Turkish resident for tax purposes: he/she is liable to pay tax in Turkey on the ownerships and earnings coming from business in Turkey. This is known as limited tax-payer status. Any resident staying in Turkey for more than six months only to perform some official duty or services, e.g., diplomats, also fall in the category of limited tax-payers. Most of the nonresident Turkish holiday home property owners are also limited tax-payers. They are resulting in the fact that they have to pay tax on the income obtained from the renting of their Turkish holiday apartments or any such investment.

In contrast to other European countries, the Turkish real estate taxes (which are compulsory to pay by all, whether you are resident or nonresident) are quite how. If you are interested in the property business in Turkey, you should have an understanding of how taxes are charged. A comparison of the property tax between Turkey and other European countries can prove to be some valuable information. Here's a look into the tax system in Turkey in contrast to other European nations.

Significant sectors of Taxes in Turkey 

  • The first category is the tax that is paid during the purchase or selling of any property, during which ownership of property changes. This type of charge is known as stamp duty.  It is fixed as 4.4% of the declared amount of the property under business and both parties are liable to pay the equal amount. However, in most of the cases, this stamp duty is pushed towards the buyers, and generally this 4.4% is funded by the buyer.

 

  • To minimize the stamp duty and other capital taxes, sellers and buyers usually under-declare their property and show the less declared amount of the property. Aware of this fact, the Turkish tax authorities test for 'reasonable declarations. Showing 50-60% of purchase value is acceptable nowadays, and considering it feasible, Turkish Revenue does not challenge it. However, if the seller insists on a very low declaration (say, less than 30%), if you are purchasing any property in real estate, then you should acquire some legal advice before accepting it. Very low declarations may be objectionable and can be challenged by the Turkish tax authorities.

 

  • Annual property tax is also payable in Turkey. It is just like council taxes paid in the U.K. and U.S., but it is not that much high generally between 0.6% to 1% of property value. It means that if you purchase a property value of Euro 200,000 in Turkey a d its assessed value is Euro 120,000, then you will have to pay nearly Euro 1,000 annually.

 

  • The income gained from business in real estate, e.g., selling or renting a property in Turkey by a foreign real estate investor, also falls in the group that is subject to tax payment. These taxes can be between 15% to 30%.

There is no relaxation in tax if the profits or incomes earned are reinvested in real estate. Taxes related to real estate are divided into two main types.

  1. Capital gains tax on the profit obtained from the sale of property
  2. Tax on income or profit obtained from the property (e.g., rental income)

The profit gained while selling a property is known as a capital gain. The gain is equal to the difference between the 'declared amount' of the property on sale and the 'declared amount' of the property purchased. For understanding here is an example, you bought a holiday apartment in Turkey for Euro 100,000  in 2010 ( the amount declared on the documentation on which stamp duty was paid Euro 60,000), and you sold it for Euro 130,000 in 2013 (amount claimed on sale was Euro 80,000). The profit on sale has come out to be Euro 20,000.

This is your capital gain, and being a non-Turkish resident, you will have to pay tax on this gain.  At Turkish Lira 6,000, the payable profit limit starts. Less than this capital gains are not liable to tax payment. Up to Lira 40,000, the tax rate reaches around 23%, and above that, it may reach up to 35%. Therefore, if you earn only Euro 20,000 in 2013, after annual exemptions and lower rate bands, you will finally be paying around Euro 3,800, which makes about 19%. Another useful information for your business planning would be that after five years of ownership in Turkey, you will be exempted from the capital gains tax. That means after this period, you have to pay3 nothing in the form of capital gain tax. The income coming from the rental business is also subject to tax as capital gains tax.  Earning gained from  Turkish real estate falls in taxable property.  This tax is again subject to an annual exemption amount. For net income, more than Lira 40,000 tax implements from 15% to 35%.

How income tax of Turkish differs from other European nations?

On the contrary, Russia is not a country that can be regarded as a friend of its owners. The evacuation only occurred after six months of arrears, and it is still not easy. In addition, regardless of the lease terms, Russian tenants can terminate the lease after just three months' notice.

Besides, external real estate investors have to pay a 30% income tax on all income without deductions. If you are shopping in a city other than other major cities, you still need to pay the highest property tax of 1.5% and the highest property tax of 2.2%.

 

In Austria, as non-residents, you will substantially pay a stiff property tax. You also need to understand the additional property taxes that you plan to sell in less than 10 years because you need to tax capital gains. Normal income is 25% to 30%, but there is no cost to ease this effect.

France has strange tax laws related to rental income. There is a clear difference between the taxes you will pay. It is only defined by whether you rent a furnished or unfurnished property. If you are considered a "professional" landlord in France, you may also be punished.


In the case of Panama, foreign investors must avoid levying value-added tax on real estate, but there are also property taxes that increase based on the present value of the real estate.

The worst place to become a landlord is probably Italy: the landlord is angry about the 23-43% tax on leasing income. Moreover, for residency, you will be charged a tax on your worldwide income. 

Switzerland does not want to be listed as one of the best countries to tax everyone's life. Enjoy a 54.5% rental income tax on Swiss cabins.

Some countries levy moderate property taxes and property taxes, but many of them are not the right choice due to civil strife, political, or national economic challenges.

Greece is a decent choice. As the current property tax and income tax rates are lower than Turkey, but Greece has not yet found a stable national financial system.

You should research a lot before investing in overseas real estate. However, Turkey's property tax and income tax are low, asset value growth is high, and the obstacles to foreign ownership are minimal.

 

We are partners with MFY Partners Law Firm that oversees and advises us in all of our legal process. ( MFY Partners Logo ) www.mfy-partners.com

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