A) WHY INVEST IN TURKEY?
Turkey; with its geopolitical location, natural and cultural riches, transportation facilities and newly built bridges, airports and advanced tourism, trade, entertainment, event, and congress tourism, is an attractive country for foreign investors as well as a stable country with a stable economy. Turkey with a growing economy, mega projects and sector dynamics in the real estate sector to accommodate new opportunities to provide added value to its investors and will continue to enhance the future value.
Turkish real estate sector; despite all the economic, political and social issues that we live in as a country, it is one of the sectors that has sustained growth. Turkey Statistical Institute (TSI), according to statistics, in 2018 in Turkey 1 million 375 thousand 398 housing has changed hands. As of the end of February 2019, the house sale was 151.387. Despite all the problems that our country experienced in 2017 it has caught such a performance is a reflection of the confidence in the stability of Turkey’s economy and the real estate sector.
Also, granting citizenship to foreign investors who buy real estate in our country is a pleasing development in the way of attracting foreign investors to our country. It has become possible for foreign investors to acquire Turkish citizenship by investment with USD 250.000 worth property investment. This regulation also applies to investors who invest at least USD 500,000, individuals who invest USD 500,000 in the bank, or investors who provide employment opportunities for at least 50 Turkish citizens. Besides, the new regulation issued by the government granted VAT exemption to foreign investors. Under the new VAT regulation, foreign investors can purchase real estate without paying VAT; but he/she will not be able to sell these properties for three years.
The real estate sector in Turkey, the best properly presented opportunities for institutional and individual investors by telling the whole world, contributing to the recognition of real estate of our industry abroad and in our country, we want to help to come to the place it deserves in the international arena. For this reason, especially individual investors to orient themselves and need to pay attention to what I’ve noticed that when investing in Turkey will show them what they need mentors.
With this article, we have created an important resource that will guide foreign investors and help them buy real estate by answering all the questions. In this article, you can easily and in detail all applicable procedures about being real estate owners in Turkey, making the most accurate real estate investment, the valuation of these investments and remarkable about the process, such as sold at the right price will be a source of reference covering the basic issues.
With a wide range of demands, advancing technology and information systems with entry to the sector, Turkey’s real estate sector will continue to change and evolve in the coming years. We will continue our works that will provide added value to the sector and will continue to be a reference point in the past.
B) 10 REASONS TO INVEST IN TURKEY
- Population of 82 million people (2018, TUIK)
- The most populous young population compared to the EU. (Eurostat)
- Half the population under 32 years. (2018, TUIK)
- The working-age population increased by 1.4% to 67.8% compared to the previous year (TUIK 2018)
- Young, dynamic, educated and multicultural population.
- Rapidly developing economy; GDP, which was US $ 231 billion in 2002, rose to US $ 851 billion in 2017, and the annual average real GDP rose by 5.8% between 2002 and 2017. (TSI)
- An institutionalized economy that has attracted US $ 193 billion of foreign direct investment in the last 15 years. (CBT)
- A dynamic and mature private sector with an export volume of USD 157 billion, an increase of 335% between 2002 and 2017. (TSI)
QUALIFIED AND COMPETITIVE LABOR FORCE
- Over 31.6 million young, educated and motivated professionals. (2018, TUIK)
- Increased employee productivity.
- More than 1,000,000 graduates annually from more than 200 universities. (2018, YÖK)
- More than 985,000 high school graduates, half of them from vocational and technical high schools. (2017, MONE)
A LIBERAL AND INNOVATİVE INVESTMENT ENVIRONMENT
- Since 1997, it is the 2nd largest reformer in OECD member countries in terms of restrictions on foreign direct investment. (OECD FDI Regulations Restriction Index 1997-2017)
- A business-friendly environment offering company set up in 6.5 days on average. (World Bank Doing Business Report 2018)
- Extremely competitive investment conditions, a strong industry, and service culture.
- In 2018, approximately 71,805 foreign capital companies. (TOBB)
- International arbitration and transfer guarantee.
- New and improved technical infrastructure in the transport, telecommunications and energy sectors.
- Highly developed, low-cost sea transport.
- Advantage by rail to Central and Eastern Europe.
- Well-structured transport facilities and direct transport mechanism to most EU countries.
- Its location between East-West and North-South is an effective and cost-effective starting point for major markets.
- Easy access to 1.7 billion customers in Europe, Eurasia, the Middle East, and North Africa.
- Access to numerous markets with a total GDP of US $ 25 trillion.
ENERGY CORRIDOR AND TERMINAL OF EUROPE
- An important energy terminal and gateway connecting East and West.
- More than 70% of primary energy in the world proven reserves are located in areas very close to Turkey. The biggest energy consumers in the European position, taking place in western Turkey, the key country in energy transfer in the region, has this to an energy terminal.
LOW TAXES AND INCENTIVES
- Corporate Tax from 33% to 20%. (22% for the years 2018, 2019 and 2020)
- Total / partial exemption from Corporate Tax and employer’s social security share support, such as Technology Advantage Zones, Industrial Zones, and Free Zones tax advantage, land allocation.
- R&D Law.
- Incentives for strategic investments, large-scale investments, and regional investments.
CUSTOM UNION WITH THE EU SINCE 1996
- The Customs Union which entered into force with the EU in 1996 and the Free Trade Agreement with 21 countries. (Ministry of Commerce)
- New Free Trade Agreements under consideration.
- Accession negotiations with the EU.
LARGE DOMESTIC MARKET
- 2002-2018: Number of broadband Internet subscribers from 0.1 million to 73.8 million. (BTK, TUIK)
- 2002-2018: Number of mobile subscribers from 23 million to 80.6 million. (TSI)
- 2002-2018: Number of credit card users from 16 million to 65.7 million. (Interbank Card Center)
- 2002-2018: Number of airline passengers rising from 33 million to 210 million. (TSI)
- 2002-2018: The number of foreign tourists from 13 million to 40 million. (TSI)
C) DEMOGRAPHIC, ECONOMIC AND SECTORAL STATICTICS ABOUT TURKEY
With a population of 15 million, Istanbul is the largest city in terms of population.
In 2018, 1 million 375 thousand 398 residential sales in Turkey have been realized. As of the end of February 2019, house sales reached 151,338.
There are direct flights from Istanbul to 400 destinations and 22 direct connections to the capitals within 2 hours.
Turkey, half under the age of 32, the proportion of the working-age population has a population of 82 million, which is 67.8%.
In 2017, there was more than US $ 10.8 billion of foreign direct investment and more than US $ 3.1 billion of foreign direct investment at the end of April 2018.
5 million residential units are expected to be renovated in the next 20 years; this means a sector of US $ 400 billion.
In 2017, 7.4% of economic growth was achieved. Compared to the same period of the previous year, the GNP forecast increased by 6.2% in the first 6 months of 2018 according to the chain volume index calculation.
Turkey has the world’s 18th largest economy.
It is expected to be in the world’s top 15 economies by 2050.
Secondary cities with investment potential: Ankara, Izmir, Antalya, Bursa, Kocaeli, and Mersin.
Turkey was visited by 43 million tourists in 2008.
The urban transformation projects carried out strengthened Istanbul’s real estate market.
23 cities with a population of over 1 million in Turkey.
Istanbul is also Turkey’s financial center, the development of additional office space has growth potential.
D) HOW TO PROGRESS AT THE INVESTMENT PROCESS?
Does the property belong to the person who identifies himself as the property owner?
Did you visit the property?
Is the property included in the implementation zoning plan?
Do you cross-check the property and its project in the municipality?
Have you checked all licenses and official permits required for the property?
Did you ask the seller to give you a building permit or a settlement document from the local authorities?
If the property is only in the project phase, have you made a pre-sale agreement with the landowner in a notary public?
If the property has tenants, did you check the rental agreement?
If there is a tenant in the property, have you checked to see if the seller has given eviction notice to the tenant?
Do you have a mutual declaration to the Land Registry to transfer the property to both of you and the seller?
The new owner of the property is also responsible for paying overdue real estate tax liabilities. Based on this situation, did you add a special clause to the sales contract to prevent a possible manifestation in the future?
Do you have both English and Turkish copies of the contract?
Have you notarized both English and Turkish copies of the contract?
Have you applied to the Land Registry to transfer the property?
Have you made due diligence at the Land Registry Office?
Did you bring the deed or document showing the exact position of the property, your passport and identity card and two current photographs with you during the application to the Land Registry Office?
Can real persons of foreign nationality acquire real estate?
Which it was communicated by the Council of Ministers of the countries (Syria, Armenia, Cuba, Israel, and Cyprus) foreign natural persons who are citizens, are entitled to acquire property rights in Turkey.
In any case, the total size of the land cannot exceed 300,000 square meters per person. Also, natural persons of foreign nationality have the right to acquire real estates up to 10% of the total surface area of the neighborhood concerned. The Council of Ministers has the authority to increase the per capita rate.
To formally understand whether a foreign individual can acquire a certain property, the prospective buyer must apply to the title deed administration for approval. After the approval of the title deed administration concerned, the acquisition can be carried out.
Is there a different procedure for property acquisition by foreign nationals?
Apart from the aforementioned procedure, there is no difference between real persons of foreign nationality and Turkish citizens about property acquisition.
Is there any difference between Turkish and foreign nationals taxpayers for the property tax implications regarding the operations in Turkey?
In principle, there is no difference in taxation matters related to the acquisition of property by those who do not reside in Turkey. Foreigners are subject to the same rules as a Turkish citizen and resident people in Turkey. However, in May 2017, a law on VAT-free real estate acquisition for foreigners passed through parliament. (Please see VAT section for details) In this sense, it would be more advantageous to be a foreign national in the purchase of real estate which is the first sale of new buildings constructed as houses and workplaces.
The land registry system used in Turkey, which is a robust and secure system certified as an official of each real estate transaction.
Is there a difference between application procedures for office and villa or apartment acquisition?
Procedures involving the acquisition of offices and villas or apartments are subject to the same formal procedures.
Can foreign heirs of the foreign property owner inherit the property through inheritance?
Foreign heirs may obtain immovable property through inheritance. This is subject to the following conditions; (i) the heir shall be a national of the countries notified by the Council of Ministers; (ii) immovable property may not be within zones of limited access (military areas, security zones, etc.); (iii) the total size of the immovable property taken over by a single heir may not exceed 300,000 square meters and 10% of the total surface area of the area concerned.
If the heir does not have the right to acquire the property due to any of the restrictions mentioned above, the heir is obliged to sell the property to an acceptable third within a maximum of one year. Otherwise, the property will be sold by the Ministry of Finance and the sale price will be paid to the heir.
Finding a property: Is it necessary to contact a real estate agent to find a property?
The acquisition of the property can be completed by a direct transaction with the landowner, or alternatively, the service can be obtained from a real estate agent, whereby a suitable property can be found that meets the relevant requirements. The commission is paid to the real estate agents when the transaction is completed. By market practices, realtors may set their fees to be equal to 4% of the purchase price (excluding VAT). This commission is usually shared equally between the buyer and the seller.
Am I paying the right price?
There are real estate valuation companies that determine the current market value of the properties. These companies can be used to measure the accuracy of the purchase price. Alternatively, real estate agents working in the vicinity can be visited to understand the market value of properties in the area concerned.
How secure is the Turkish land registry system?
The land registration system used in Turkey, first created by the Ottoman Empire and took its current form change over time passing. It is a robust and secure system in which each real estate transaction is officially registered. Land registry records are public; therefore, the rights of third parties who own or benefit the property of any property are considered in the title deed records.
Information on the legal status of immovable property (property rights, rights registered in favor of third parties, acquisitions, etc.) is stored in a computer system called Takbis in addition to physical books.
Is it necessary to conduct a field survey?
Before proceeding with any real estate transaction, it is advisable to conduct a field survey to obtain information about the legal status of the target property and to determine the predictable legal risks and their impact on the use of the property for the intended purposes. The main information and documents to be evaluated when conducting this field study are:
I. Assessment of current ownership of property
To verify that the seller is the legal owner of the property, the details of the ownership of property must be examined before the transaction.
II. Mortgages on property
In favor of third parties associated with the Property; the title deed records of the property should be examined to determine whether there are any outstanding foreclosures, mortgages or other debts It should also be checked whether there are other annotated rights, such as easement right and commitment. If there is no mortgage or annotated right, ownership of the property may be transferred without any restrictions or legal risks.
III. Cadastral Records
The cadastral records of the property must comply with the relevant zoning plans and should not contain any outstanding or unusual information. Furthermore, the property boundaries (property boundaries) must match the property boundaries specified in the zoning plans.
IV. Zoning Status of the Property
To determine the activities for which the building can be used (as a residence, office, hotel, etc.), the zoning plan and plan notes should be examined by the municipality.
V. Construction Permit and Occupancy Permit
Construction permits and occupancy permits are the main permits to be obtained from the relevant municipalities to build a new building or to make changes to an existing building. The property must have a valid construction permit and occupancy permit to verify that the structure has been constructed by the construction permit.
If there is any inconsistency between the completed building and the building permit because the absence of a building permit is permitted, the municipality concerned may demolish the building or ask for it to be changed by the construction permit. In this case, the owner of the land may be sentenced to various fines.
VI. Current Physical Status of the Property
The current status of the property and its location should be assessed by visiting the property. Before any agreement is signed, due diligence should be made on the compatibility of the existing physical status of the property with the original final projects.
What are the main types of purchasing agreements?
- Purchase / Sales Agreement (Direct Acquisition)
Under Turkish law, the sale of a property can only be carried out with the participation of both the seller and the buyer in the presence of the relevant land registry. To transfer the property, the parties must issue a standard transfer certificate prepared by the relevant land registry. The purchase of the property can be carried out by purchasing directly from the existing landowners. Realtors, if any, request a commission to participate in the purchase process, as stated in our response to the previous question.
- Sales Commitment Agreement
Before the property is sold, the seller and the buyer can sign a preliminary “Sales Commitment Agreement”. This agreement is the only preliminary agreement that can be signed between the parties validly. It must be prepared by the notary public to be binding and signed before the notary public.
To qualify for protection against third party claims, the Sales Commitment Agreement must be registered in the land registry. If the sales commitment agreement is not registered, the purchase by a third party acting in good faith will prevail. The annotation shall be valid for five years.
If you are going to buy a building under construction, make sure the contractor is financially reliable and legally authorized.
What payment options are available?
The purchase price of the property can be made in cash, by bank transfer or by a blocked check.
Should the property be purchased personally?
The acquiring party (natural person of foreign nationality) or their legal representatives may carry out transactions regarding the acquisition of property. If the procurement procedures are carried out by power of attorney, this power of attorney should be prepared and issued by the notary public and signed before the notary public who has the authority to supervise and approve the right to act on behalf of this person under Turkish law. The power of attorney to be used for the acquisition of the property must include the full name and address of the legal representative (s), as well as all authorities given to the legal representative for the acquisition of the property.
If the power of attorney is issued and concluded abroad, the following steps should be followed: (i) a photo of the signatory must be included; (ii) the photograph must be signed, sealed or stamped by the relevant authority issuing this power of attorney; (iii) the power of attorney must be prepared in the official language of the country of issue and (iv) the power of attorney must be approved and apostilled by the notary public. To be the binding mandate of such a document notarized translation is required in Turkey.
Are there rules governing the rights and obligations of the parties living in the same property? (Condominium Law – Management Plan)
The management plan is an agreement between the owners of condominiums that regulates the management of the main structure and common areas. All property owners and their heirs are subject to the provisions of the management plan.
The purpose of the management plan; to determine the rights and obligations of the parties living in the same property to each other, to establish rules on property management and operations, inspection, maintenance, repair, and related to the purpose and method of use, and to ensure a peaceful, healthy, safe and proper operation of the property in accordance with the “Condominium Law” to establish and maintain the system.
The provisions of the management plan shall be valid as long as they are by the Property Ownership Law. Therefore, condominium owners cannot add provisions to the management plan that replace or modify the mandatory provisions of the Condominium Ownership Act.
The board of condominium owners (the “Board”) is responsible for the management of common areas. Owners of condominiums are natural members of the Board and have the right to participate in the management of the entire building by the provisions of the Ownership Law. The Board may delegate management powers to professional management companies.
In addition, each person has rights and obligations under the Property Law and the Civil Code against other persons living in the same property.
Is it necessary to have a tax number to acquire property?
During the acquisition of property by the land registry office, the buyer is asked to provide a tax number. A natural person may apply to a tax office with a passport (notarized and approved by a notary) and obtain a tax number.
What are the main taxes on property transactions?
In principle, each property acquisition by individuals is subject to certain treatment taxes, such as “Land Registry Fee”, “Value Added Tax”, “Stamp Tax” and “Notary Costs”. Also, to own property in Turkey, “real estate tax” makes the payment of a so-called property tax necessary.
Income from the property, such as rental income or capital gains, is also subject to “Income Tax”. Each of the aforementioned taxes is subject to a certain calculation, payment and declaration rules, and of course, some exemptions exist.
What is “Title Deed Fees”? How is it calculated and paid?
Land Registry Fee is calculated by the Law on Fees for the purchase/sale of the property, registration of the lease agreement and any transactions carried out in the land registry office such as the annotation of any transactions made in the registry office.
At the time of acquisition, the 2% deed (reduced to 1.5% until 31 DECEMBER 2019) is calculated over the sale price and collected separately from the buyer and seller. This fee must be paid to the tax office before proceeding with the registrar.
Decree 2018/11674 of the Council of Ministers and the Addendum to the Decree No. 287 of 31/10/2018, the deed rate applicable to the sale of houses and workplaces has been extended until 31 DECEMBER 2019.
After 31 December 2019, the buyer and seller will continue to pay a 2% separate title deed on the sales price unless a new regulation is issued by this date.
Value Added Tax (VAT), valid for all property acquisitions in Turkey?
In principle, held in Turkey every commercial, industrial and professional transaction is subject to VAT. Therefore, in principle, property sales are also covered by VAT. On the other hand, VAT is not applicable for property sales if:
The first of a residential or business place; (Ii) work or residence permit availability more than 6 months time is Turkish citizens living abroad are, (ii) foreign nationals who are not resident in Turkey or (iii) where the business center in Turkey and found a place of business or in Turkey be transferred to recipients residing in representatives of legal entities that do not generate income through the state’s position in Turkey VAT exemption applies. Foreign nationals / legal entity referred to VAT exemption on the operations of the real estate transfer fee but in such cases is paid in transactions denominated in foreign currency issues brought to Turkey should be considered to be valid. Also, the property in question must be held for at least one year after acquisition. If the property is sold within one year of the acquisition date, the VAT must be paid together with the late payment interest.
– If the seller/owner of the property is an individual who is not engaged in any commercial activity.
– If the seller of the property is a company that does not engage in real estate trade regularly or has held the property in question for more than two years.
What are the VAT rates for property acquisition?
The general VAT rate in Turkey is 18%, this rate applies to property sales. In principle, all property sales, including offices, residential properties, land acquisition, etc., are in principle subject to 18% VAT calculated on the sale price. However, different VAT rates have been determined for residential properties that meet certain conditions. Please note that all residential units (except those subject to 1% VAT) and workplace sales will be subject to 8% VAT until 31 March 2019.
What are the VAT rates set for residential property sales?
Apart from the normal VAT rate of 18%, rates of 1% and 8% are also applicable for settlements with a net area of less than 150 square meters. If the project is under urban renewal, a VAT rate of 1% applies regardless of the value of the property. With the new decree added to the legislation, the tax thresholds have increased in favor of taxpayers and are valid for new projects (starting from 1 January 2017). Therefore, we strongly recommend that you consult your tax advisor to find out the exact VAT rates for a settlement with a net area of less than 150 square meters. Net area of 150 square meters more than the settlements and all other property in Turkey should be noted that subject to the KDV rate of 18% as mentioned above.
It should also be borne in mind that all residential sales, except for units subject to a 1% VAT rate, will be subject to 8% VAT without any net area restrictions until 31 DECEMBER 2019. Also, to learn more about VAT, please acquisitions, “VAT apply to any acquisition of property in Turkey?” examine releases section.
What is “Stamp Tax” and how does it apply to property transactions?
In principle, stated in the contract or agreement signed in Turkey are subject to a rate of 0.948% stamp tax on the highest monetary value referred to in the contract. Please note that the Sales Commitment Agreements are exempted from stamp duty and Prepaid Housing Sales Agreements are subject to 0% stamp duty. Lease agreements are subject to 0,189% stamp duty.
On the other hand, agreements signed between individuals who do not engage in any commercial activity are not subject to stamp duty. Signed parties are mutually responsible for the payment of stamp duty. If the parties conclude their agreements in front of the registrar, no stamp duty is calculated.
What are the financing models used for property acquisition?
The most common financing model used for property acquisitions is the financing in which the lender establishes a mortgage on the target property, taking into account a loan of up to 80% of the market value of the target property. Real persons of foreign nationality are also entitled to benefit from this mortgage financing model offered by Turkish financial institutions.
What kind of loans will be offered?
Fixed-rate and floating-rate loans are available. However, fixed-rate loans are widespread in Turkey. Therefore, by selecting the first one, you can pay your loan in equal installments and at a fixed interest rate throughout the term of your loan. Thus, a fixed interest rate allows you to learn your monthly installments precisely, and your credit is not affected by volatile market conditions.
How to create a mortgage?
The mortgage can only be established with an agreement prepared by a certain official form. The official mortgage agreement must be concluded and registered by the parties in the presence of the relevant land registry office.
The legal plan for the establishment of mortgages on immovable property, ie mortgages, is regulated under the Turkish Civil Code No. 4721. By local regulations, a mortgage on immovable property may be established to secure existing or future loans. Only real estates registered in the land registry office can be mortgaged.
Real persons of foreign nationality can be mortgaged without any approval.
As a foreign national, what requirements should I meet for the mortgage? What are the application requirements?
It is a legal obligation to be at least 18 years of age or older to get all kinds of loans including mortgages.
Although unfinished houses are also mortgaged under certain conditions, as a general practice, they must be able to live in the property to be purchased and have minimum easement rights.
The Maximum Credit / Value Ratio may increase up to 80% of the value of the property you will purchase.
Although the most preferred credit term for mortgages is 120 months, this maturity may extend up to 180+ months.
You can choose TL, USD, EURO or other convertible currencies as credit currency. However, there are certain restrictions on loans received in foreign currencies.
Is there a compulsory property insurance requirement?
According to the Disaster Insurances Law, “compulsory earthquake insurance” (DASK) should be made for the property. If this compulsory insurance is not provided, the title deed administrations and other public service providers will not carry out any transaction regarding the property. In addition to this compulsory insurance, the owner may, at his discretion, insure his property against risks including but not limited to theft, fire, and storm.
What are the other requirements for financing?
You must have compulsory earthquake insurance to protect your property. It is recommended that you take out life and housing insurance for other possible risks.
You do not have to vouch for the application. However, a surety or co-buyer may be required as additional collateral.
In the case of fixed-rate mortgages, a certain percentage of the prepaid amount may be charged a prepayment penalty.
After approval, what steps remain to complete the process?
There are three short stages to complete the process before the title deed.
If your loan application is approved by a financial institution (FI), an appraisal process will be initiated to determine the value of the property you receive and to verify its legal compliance. Valuation will be undertaken by FI and will be terminated within a few days.
- Pre-Contract Information Form
After the valuation process is completed, you must sign the pre-contract information form. According to the Turkish legislation on the mortgage, the credit contract should be signed within a reasonable time after the pre-contract information form is signed. The pre-contract information form contains all the details of your loan, payment plan, interest rate, principal amount, monthly installments and all fees.
- Signing of the Loan Agreement
You can sign the loan agreement, payment schedule and other loan documents within a reasonable period (one working day in practice) after the pre-contract information form is signed.
After you sign these documents, your guarantee documents are prepared by FI.
If all necessary documents are complete and accurate and submitted on time, this process will take an average of one week from the application date to the due date.
How to make the payment and deed process?
On the date of appointment, FI establishes a first-degree mortgage on the property after the registration of the title deed in the title deed office. FI then sends the credit amount to the seller’s bank account or sends a secured check to the seller for the credit amount.
Transaction costs – title transfer fee: 2% tax is required for the sale of immovable property. This fee is paid separately by both buyer and seller.
Is it possible to obtain a residence permit after acquiring the property?
“Foreigners and International Protection Law”, property acquired foreigners in Turkey, they get the right to apply to a short-term residence permit. Short-term residence permits are granted for a maximum of two years for each application. The applicant must provide a residence address when filling out the forms.
Is it possible to obtain citizenship after acquiring property?
As described above, the property acquired foreign individuals in Turkey, are entitled to apply for a short-term residence permit for up to two years. Turkish Citizenship Law and under the Regulation on the Implementation of the Turkish Citizenship Law, foreign individuals can obtain citizenship on condition that they have resided continuously in Turkey for five years before the application date.
However, the Regulation on the Implementation of the Turkish Citizenship Law has recently been amended, making it possible for a foreigner to acquire Turkish citizenship by acquiring a property worth at least US $ 250,000. In addition, (i) the establishment of condominium or easement for the immovable in question, (ii) the applicant has already been paid at least USD 250,000 or equivalent Turkish Lira or foreign currency; and (iii) not the transfer of the agreement for a period of three years or in addition, it has become possible to obtain Turkish citizenship by signing a sales commitment agreement through a notary public for a real estate provided that it is annotated to the land registry. Therefore, if the value of the property is US $ 250,000 or more, the foreign owner of this immovable will not need to wait 5 years to obtain Turkish citizenship after obtaining a short-term residence permit. Ownership of this property should be kept for a minimum of 3 years.
Under the Regulation, the title deed registry records should be accompanied by an annotation stating that the property in question will not be sold for 3 years. Therefore, if the foreign owner of the property acquires citizenship after purchasing the property, it will not be possible to sell the property within 3 years.
How to start utilizing services such as electricity and water?
A property owner can only apply for a subscription to public utilities (such as electricity, water, and sewerage connection) following a building permit. Therefore, if a building use permit is available, the new owner or tenant should apply to the relevant organization after the acquisition or lease of the property and agree on the use of the relevant public service. The new owner or tenant may benefit from these services following the conclusion of the service agreement and after payment of the subscription or deposit fee.
What tax obligations will I have if I hold the property for my use only?
Income tax applies only if you are renting your property and earning “rent income” or selling your property and earning “capital gain”. Therefore, you are holding your property in Turkey only for your use and if you do not lease to other natural or legal persons will not be subject to any income tax in Turkey.
Can I rent my property to third parties?
Turkish citizens and natural persons of foreign nationality are free to transfer their properties. They may sell, rent or lease their property to third parties.
Can the parties freely determine the rental?
Freedom of agreement is one of the main principles of the legislation on rent. Therefore, except for the mandatory provisions of the Turkish Code of Obligations (TCC), the parties may freely determine all contractual terms, including the rental.
Is it possible to regulate the rental?
The parties to the lease agreement may regulate the rate of issue of the lease. According to the TBK, the issuance rates for rents paid in Turkish Lira cannot exceed the Producer Price Index (PPI). However, the parties may set a higher rate of arrangement in the lease agreements and may apply this agreement upon mutual agreement.
In cases where the rent is determined as foreign currency, no changes can be made to the rent within the first 5 years.
However, if the lessee is a merchant or private/public legal entity specified in the TCC, this restriction shall not apply until 1 July 2020 for the rental of business premises.
Following the conclusion of the civil service agreement and after payment of the subscription or deposit fee, you can start to benefit from the public services.
Is it possible to rent in foreign currency?
The parties may designate a foreign currency for lease payments. As mentioned above, if the rent is designated as foreign currency, the rent cannot be changed within the first 5 years. After the end of the first 5 years, the expert will determine the rent according to (i) the Producer Price Index, (ii) the current status of the leased property, (iii) peer rent and (iv) changes in the exchange rate.
The law mentioned in the previous paragraph was recently amended by the Presidential Decree No 85. (Communique amending the Communique No: 32 on the Protection of the Value of the Turkish Currency). as well as other aspects of the Communiqué, the prices under the lease agreements signed by the person residing in Turkey, except in cases determined by the Ministry, can not be expressed in any foreign currency or is indicated not indexed in any foreign currency. The legislation does not apply to non-Turkish residents.
A secondary legislation, the Communique on the Amendment to the Resolution 32 (No. 2008-32 / 34) on the Protection of the Value of the Turkish Currency (Communique) (No. 2018-32 / 52) has been published. It provides details of the exception and details of the Decision.
The Communiqué reiterates the value of the agreement and the restriction for specifying any payment obligation in foreign currency or indexed to foreign currencies arising from lease agreements for real estate. However, this Communiqué makes an exception to this restriction. Accordingly, no longer immovable on lease agreements, resident but non-citizen party in Turkey, the people residing outside Turkey branches in Turkey, representative offices, offices or liaison offices or those people who are directly or indirectly 50% or Turkish subsidiaries and / or joint control and / or control under which they have a greater interest; or if the agreement is executed as a lessee by companies in free zones as long as it relates to its activities in free zones.
What is the maximum rental period?
There are no restrictions on the termination of the lease.
The parties may determine the duration of the lease agreement by mutual agreement. In case of failure to reach an agreement between the parties, the CMB shall regulate the issues regarding the extension of the lease agreement and determine the terms of termination.
An independent attorney will conduct the interviews on your behalf and will inform you of any penalties that may be incurred in time of payment or other delays.
Are lease agreements binding for third parties?
Lease agreements can be annotated before the relevant title deed registration. In such a case, tenants may claim rights against third parties, such as the new owner of the property. The annotation of the lease agreement, if the property is transferred to a third party or transferred to the lessee (the rental period specified in the contract) prevents eviction from immovable property.
How rental income is taxed in Turkey?
Rental income is subject to Income Tax.
Income Tax is calculated annually considering all rental income collected during the calendar year. Lease amounts collected in previous years and the current year are subject to tax as income of the year in which the lease is collected. The amounts collected in advance for the following years are subject to tax as income of the related year. Currency lease transactions made based on the income obtained in time, Turkey’s Central Bank on the day of the lease are translated into Turkish Lira using the prevailing exchange rate and tax also cut purchases accordingly.
Annual rental income is declared between March 1-25 of the year following the year in which the rental income is obtained using an annual income tax refund and is taxed at a rate of 15% to 35%. Income Tax is paid in two equal installments in March and June.
A certain portion of the rental income from residential property is exempt from Income Tax. The exemption amount for 2019 is TL 5,400.
Taxpayers who receive a rental income subject to withholding tax (please see the other question for details) will submit a tax refund if the gross amount of the rental income exceeds the upper limit of TL 40,000 for 2019. In determining this upper limit, the gross rental income subject to withholding tax as well as the residual rental income exceeding the exemption amount shall be taken into consideration together. Individuals may deduct some of their expenses from the tax within the scope of the declaration of rent income obtained during the calendar year.
There are two methods that taxpayers can use when determining the rent income base to be taxed about the tax-deductible expenses. These:
- Actual Expense Method
If the actual expense method is used, the following expenses incurred about the leased properties may be deducted from the gross rent amount:
- Lighting, heating, water and elevator expenses
- Administrative expenses,
- Insurance expenses for rented properties and rights,
- Interest expense on debt made and spent for rented properties and rights,
- 5% of the purchase amount of the rented property for five years (this discount, which corresponds to 5% of the purchase amount, will only be applied to the income obtained from the related property, the non-deductible portion will not be considered as excess expenditure),
- Real estate tax, taxes, fees, and loincloth, as well as the share of expenditures made to municipalities,
- Repair costs,
- Rents and other real expenses paid by property lessors,
- Renting accommodation or accommodation units (excluding rent paid by taxpayers who do not reside abroad),
- Damages, losses, and indemnities.
The portion of these expenses corresponding to the tax-exempt income cannot be deducted.
- 2. Lump-sum Precedent Method
Taxpayers who prefer the lump sum exemption method cannot deduct the lump sum expense equivalent to 15% of the remaining amount after deducting the exemption from rent income. Taxpayers who prefer this method cannot use the actual expense method for the next three years.
What if my tenant is a company?
Legal entities are required to calculate the withholding tax at the rate of 20% on rental payments for properties leased by natural persons and pay the relevant amounts to the tax office of the subsidiary. Real persons receiving the relevant rental income shall deduct these taxes deducted from their income from the tax calculated on their annual declared earnings.
Should I apply VAT to my rental income?
No. Rental income from persons residing in properties that are not engaged in any commercial activity or that are not part of the business organization is not subject to VAT. Therefore, as an individual owner, you do not need to add VAT to this income.
If I sign a rental agreement, will the stamp tax apply?
As noted above, in practice, it is the monetary value of the lease agreements, including the agreements signed in Turkey, the rate of 0.189% on the total amount specified in the lease agreement “Stamp Duty” which is needed. On the other hand, since the rent agreements signed between the two individuals are exempt from stamp duty, no tax is calculated.
Is it obligatory to register the lease agreement to the land registry? What will be the financial responsibility if we carry out the registration?
No. There is no such obligation. However, if the parties decide to register the land registry fee at the rate of 0.683% over the total rental amount, this fee shall be calculated and paid to the Tax Office.
Should I pay the estate tax for all properties that I have in Turkey? How and when?
Yes. Land and property are subject to tax in Turkey, the taxpayer is the owner of the structure.
Property tax rates vary depending on the type and location of property (whether the property is within the boundaries of a metropolitan municipality). The tax rates currently in force according to these criteria are as follows:
|Metropolitan Municipality borders and surrounding areas||2%||4%||6%||2%|
Property tax is calculated over the values determined by the municipalities for streets and avenues. Therefore, you should check the tax value of your property with the relevant municipality.
The property tax liability for persons who purchase property begins at the beginning of the year following the year of sale.
Property tax paid in two equal installments, the first in March, April or May; the second is in November.
Also, as an additional obligation, “the contribution to the protection of immovable cultural property” is collected at the rate of 10% of the annual property tax collected together with the property tax.
Are there different principles that apply to the sale of properties owned by foreign natural persons?
There is no difference between the principles regarding the sale of a property by a natural person of foreign nationality or a Turkish national. However, if the buyer is a natural person of foreign nationality, the procedure set out above under the heading of “ACQUISITION STAGE” shall apply.
Should I pay income tax if I decide to sell my property?
Yes. Capital gains on the disposal of properties acquired by individuals for a certain amount and held for less than five years are subject to income tax. Therefore, after 5 years of holding, no Income Tax is calculated for capital gains from the sale of property.
How capital gains are taxed in Turkey?
Individuals earning capital gains from property sales are required to declare their income annually with the Income Tax declaration. The tax base is the positive difference between sales price and acquisition value. In determining the profits to be taxed, in addition to the cost of the property, the expenses incurred as a result of the disposal and remain under the responsibility of the seller and the taxes and fees paid shall be deducted separately. The acquisition cost is indexed to monthly inflation rates to determine net capital gains. It should be noted that the cost adjustment can only be made if the increase in the Producer Price Index is at least 10%. Furthermore, an amount of TL 14.800 from capital gains during a calendar year is exempt from income tax for 2019.
How is the deed fee calculated at the time of disposal?
Similar to the fees calculated and paid at the time of acquisition, the 2% deed fee (reduced to 1.5% until 31 DECEMBER 2019) is calculated on the sale price and collected separately from the buyer and the seller. This fee must be paid to the tax office before proceeding with the registrar.
Should I add VAT to my sales price?
VAT is not applicable if the seller/owner of the property is an individual who is not engaged in any commercial activity. However, if the purchase and sale of properties is carried out by a commercial organization capable of carrying out this activity regularly, property sales are subject to VAT. Please note that the Treasury and Finance Department classifies the sales activities of these individuals as a business organization if the individual sells more than one sale within a calendar year or sells once a year in successive years.
If I am a shareholder of a company that owns property in Turkey, does it change my tax liability?
Yes. If you are a Turkish company shareholders who are not resident in Turkey, you can get dividend income from your investment in Turkey. Or at the time of disposal, you can earn capital gains from the sale of your Turkish company shares.
Your Turkish company which owns property in Turkey shall be subject Corporate Tax on annual earnings (22% for 2019 and 2020; 20% for the following year). Following the separation of first and second-degree legal reserves, the profit after tax may be distributed to the shareholders. Please note that Turkish Real Estate Investment Funds (TRIF) are exempt from corporate tax. Therefore, the TRIFs may distribute all of their remaining income without any tax burden after the legal reserves are set aside.
During the profit distribution, the Turkish companies, for shareholders not residing in Turkey must make income from the 15% withholding tax. If Turkey and the country of residence of the shareholders of the Double Taxation Agreement exists, this rate may be reduced to 10% or even 5%. Please note that the withholding tax rate for dividend distributions of Turkish TRIFs is 0%. Therefore, if you have a TRIF share and receive profits from these TRIFs, no withholding tax will be calculated in the profit distribution. The withholding tax calculated by a Turkish company engaged in the distribution, there will be a final tax burden in Turkey for shareholders who do not reside in Turkey.
Shareholders not residing in Turkey, if sell its stake in the Turkish company, is becoming taxable capital gains in practice. If the Turkish company is a publicly-traded company such as Turkish Real Estate Investment Trusts, capital gains are subject to withholding tax by the intermediary banks or intermediary institutions.
Withholding tax is 0% for publicly traded companies. Thus, in the case of Turkish companies to the disposal of shares by individuals not resident in Turkey will calculate any capital gains tax. If shares are disposed of in other ways, capital gains tax of up to 35% may be applied. Moreover, shareholders between Turkey and the country’s “Double Taxation Agreement” In case of signing, can be avoided capital gains. Most of the Agreement, one year after the retention of the sale of shares of Turkish companies, which limits the taxation rights in Turkey. However, before taking any action, consult your advisor for advice on the provisions of the double tax prevention agreement.
If you are a shareholder of a company that owns properties in Turkey, your tax liability will vary.
E) PROCEDURE OF CITIZENSHIP BY INVESTMENT IN TURKEY
With the decision published in the Official Gazette dated 19.09.2018, the financial and investment costs during the transition to Turkish citizenship were reduced. Accordingly, foreigners who are buying at least USD 250,000 worth of real estate in Turkey will directly be Turkish citizens.
How does the application process for Turkish citizenship work?
If you purchase a real estate of at least USD 250,000, your application for Turkish citizenship will be processed by applying to the General Directorate of Land Registry and Cadastre. The General Directorate of Land Registry and Cadastre checks that the properties sold are worth at least USD 250,000. You have to prove that you have purchased a property worth 250 thousand USD with a report from a CMB (Capital Markets Board) licensed real estate appraisal company.
The report you receive from any real estate agent or consulting firm is not valid. The Title Deed Office gives approves citizenship within 3 to 7 days. As soon as your application is approved, you must apply to the Immigration Office for a residence permit without making an appointment. After the approval of the Immigration Office, you must apply to the General Directorate of Population and Citizenship Affairs on the same day with a confirmation paper and residence permit.
This process is followed by the Citizenship Information Offices in Istanbul and Ankara. Your application will be completed in 46 to 60 days.
Can my family be a Turkish citizen?
Yes. You, your spouse and all children under the age of 18 can be Turkish citizens.
Can I buy more than one real estate to reach the USD 250,000 limit?
You can buy more than one real estate with a total value of at least USD 250,000. But you must apply for all at the same time. If the values declared to the General Directorate of Land Registry and Cadastre exceed USD 250,000, your application for citizenship is accepted.
What is the responsibility of the Ministry of Environment and Urbanization?
Real estate appraisers will confirm whether the value of the property declared above the title deed exceeds USD 250,000. The Ministry shall request the annotation facility from the General Directorate of Land Registry and Cadastre. Payment of the properties you purchase must be made by bank transfer to the property owner.
How should I calculate the USD and TL exchange rates?
General Directorate of Land Registry and Cadastre calculates the value of immovable property in USD by using the effective selling rate of Turkey’s Central Bank on the date of the transaction.
How long will the citizenship process be finalized?
If the documents required for citizenship applications are complete, your application is concluded within 45 to 60 days. The government has opened private offices to reduce this time.
Will I get citizenship exactly when I meet all the requirements?
The citizenship approval process is linked to the verification and finalization of national security archives that you do not pose a threat to national security.
Can I get Turkish citizenship by buying a commercial property with guaranteed rent?
You can buy any property with a total value of more than USD 250,000.
I do not have time to come to Turkey. How can I get Turkish citizenship?
You can make this process even before coming to Turkey by giving power of attorney to a trusted consulting company.
How many people can apply for one title deed?
Only one person and their first-degree relatives (spouse and children under 18) can apply for citizenship.
I bought real estate in Turkey before. Can I apply for citizenship now?
Applications can be made with real estate purchases and investments after 18.09.2018.
Do I have to waive my existing citizenship when I am a Turkish citizen?
No, depending on your state regulation, Turkish law allows for dual or multiple citizenship.
If I get Turkish citizenship, do I have to do compulsory military service?
Your child under the age of 18 is obliged to do military service when he reaches the military age. Persons with dual citizenship may perform military service in one of the two countries of nationality. If you have completed your military service, you may need to prove it with a certificate. Persons over the age of 22 must apply to the General Directorate of Population and Citizenship Affairs to determine whether they are a special requirement.
Which nationalities are accepted for Turkish passport?
All citizens can apply to a Turkish passport who purchase property in Turkey.
Can my child over the age of 18 also benefit from citizenship?
Can I get citizenship for my disabled child over the age of 18?
You can get citizenship by certifying that your child needs care.
Money coming to Turkey from abroad, have to come by the bank? I am an Iranian citizen and cannot send money to the bank.
This issue is not clear yet.
The citizenship process may take up to 2 months. Can I get a residence permit in the process?
As soon as your application is approved, you and your 1st-degree family members will be granted a residence permit on the same day without any waiting period. (No. 6458/31-J)
Is it possible to have dual citizenship in Turkey?
Yes, Turkey is allowing dual citizenship, but you should contact your consulate of your nationality. Some countries, such as India, China, and Saudi Arabia, can restrict dual citizenship.
How can I become a Turkish citizen if I am not a citizen of any country (stateless)?
You can apply for Turkish citizenship if you purchase a property worth at least USD 250,000 with a document proving your statelessness (travel document issued by the United Nations).
Is there any critical point to know?
The Ministry wants to ensure that the minimum value is USD 250,000. Certified real estate appraisal experts value real estate to avoid price fraud. Therefore, there may be deviations of up to 20% between the selling price and the valuation. Therefore, considering this, we recommend that you make calculations and buy real estate.
Process of Becoming a Turkish Citizen by Investing
- Opening a Bank Account: An account must be opened on behalf of the investor.
- Investing: Necessary investment transactions such as title deed transfer, cash deposit, purchase of government bonds/shares should be realized.
- Residence Permit Application: Applicants are required to obtain a residence permit during their application for citizenship. During this period, residence permit holders can continue to live abroad as long as they wish.
- Application for Turkish Citizenship: You can apply for Turkish citizenship immediately after obtaining a residence permit. You are not required to come to your presence in Turkey during the application process or consultation.
Required Documents to Apply for Turkish Citizenship by Investment
- Application form
- State identity card (passport, identity card, birth certificate, sample of birth registration, etc.)
- 4 passport photos of each family member
- Birth certificate
- Residence permit or valid tourist visa registered on your passport
- If married, the original of the official documents proving the identity and family ties of the spouse and children under 18 (marriage certificate, birth certificates of children).
- If the spouse or relatives are citizens of the Republic of Turkey, photocopy of their ID card and residence address in Turkey
- Payment receipt for application
- Evaluation report
- Payment Receipt to showing payment worth USD 250,000
- Notarial deed or certified property purchase commitment
Chief editor of Invest Guide Turkey. Graduated from the Business Administration programme on 2014 and works as a journalist in the field of Foreign Investments in Turkey for 5 years.