Turkish property taxes, tax on rental income and property insurance

 

Basic property taxes

When you purchase property in Turkey, the following compulsory taxes and insurances apply:

  • Income tax (this is based on rental income and capital gains)
  • Inheritance tax
  • VAT (if there is a commercial aspect to the property)
  • Real estate tax (this is like the United Kingdoms Council Tax)
  • Real Estate Acquisition and Purchase Levy
  • Stamp duty (if the contract has a monetary clause)
  • Environmental tax
  • Corporate tax (if the property is bought by a company)
  • Earthquake insurance

If youd like more information, check the Turkish Revenue Administrations website, www.gib.gov.tr, or contact us for independent advice.

Gains on your property

Property in Turkey can give a property owner two kinds of gains.Rental income: If you earn rental income from your property, you must pay personal income tax. [link to section on personal income tax)

Asset appreciation: This is when the value of your property rises and you make a gain on the purchase price. If you sell your property during the five-year period after you bought it, you will be liable for personal income tax calculated on the difference between the selling price and the acquisition price (this is adjusted for inflation).

If an individual sells their property after owning it for five years, gains will not be subject to personal income tax.

If your property in Turkey was purchased before January 1 2007 by an individual and then sold within four years, the difference between the selling price and the acquisition price will be subject to personal income tax as a capital gain. However, after the four-year period, this is no longer applicable and properties are not subject to personal income tax.

As of 1 January 2010, 7700 Lira of the sale gain is exempt from income tax.

Taxes and required insurance

Foreign nationals and Turkish citizens are subject to the same amount of taxes or levies. Tax rates are updated regularly. See www.gib.gov.tr for the latest information.

Property tax

Annual Property Tax (which is like the United Kingdoms Council Tax) rates for cultivated or non-cultivated land, residential properties and commercial properties are 0.1%, 0.3%, 0.1% and 0.2% respectively.

Tax is determined on the declared value of the asset under the rate of a threshold determined by the government. Payments are made annually in two identical payments each May and November. Payments are collected by your local council. Each year, the tax base is revised by the Ministry of Finance, who factor inflation into the rate.

The new owner must declare the actual price paid to the seller to the local authorities by the end of the year in which the property is acquired.

The seller must pay the property tax in the year of the acquisition, but of course in following years this will be up to the buyer.

Important note: In some of Turkey's cities the property tax is double the normal rate. These cities are:

  • Adana
  • Icel
  • Ankara
  • Istanbul
  • Antalya City
  • Izmir
  • Bursa
  • Kayseri
  • Diyarbakir
  • Kocaeli
  • Erzurum
  • Konya
  • Erzurum
  • Konya
  • Eskisehir
  • Samsun
  • G.Antep
  • Samsun

Property sale-and-aquisition levy

Both the buyer and the seller are required to pay 2.0% levy each (total 4%), which is determined by the assets declared value, which cannot be less than the threshold determined by the authorities. It will be collected before the transferral of ownership takes place.

A levy for a new construction is again 2.0% each, and this is based on the reference value of the asset.   Please note that in majority of purchase transactions, sellers push the responsibility of both parties' taxes to the buyer.  That is to say buyer ends up picking the entire 4% on declared value.

Inheritance and succession tax

If a property in Turkey is transferred to another party by means of inheritance, or as a gift (ie, with no payment made for the property), the recipient of the property is subject to inheritance and succession tax.

This tax is calculated on the declaration submitted by the taxpayer (the new owner of the property).

Regarding inheritance, the declaration must be submitted within the following time period:

  • If the death happened in Turkey, while the taxpayer remains out of the country: six months.
  • If both the death and the taxpayer are outside of Turkey: four months
  • If the death occurs outside Turkey and the taxpayer is in a different foreign country: eight months

If a transfer is made gratis (ie, a gift), the declaration must be submitted within a month following the property transferral date.

The tax base is updated each year, and there are certain discounts for inheritance to immediate family. If a spouse or children (including legally adopted children) take over an inherited property, 109,971 Lira is subtracted from the tax base of each individual. If the sole heir is a spouse, the deduction will be 220,073 Lira. In the case of gifts, the deduction is 2535.

As of January 1 2010 the following tax base brackets apply:

Tax Base Brackets Inheritance Tax rate Succession Tax Rate
1st 160,000 L
1%
10%
Next 350,000 L
3%
15%
Next 770,000
5%
20%
Next 1,500,000
7%
25%
Above 2,780,000
10%
30%


Note that a tax of 0.9% of the propertys value is charged while the inherited or gifted property is being transferred to its new owner.

Environmental services tax

Residential properties in Turkey are subject to an Environmental Services Tax (EST) of 0.16 Lira/m3 by their water supplier.

For commercial properties, the EST ranges between 16 and 1,900 Lira annually.If your property is in one of Turkeys big cities, residential property owners can expect to pay 0.20 Lira/m3 of water and commercial property owners will face charges of 20 – 2375 Lira/m4 of water.

Vehicle tax

Motor vehicle owners must pay a yearly tax that ranges between 13 and 32,646 Lira. The amount is dependent on the volume or horse power of a vehicles engine, as well as its age. Motor Vehicle Tax is paid twice-yearly, in identical payments in January and July.

Category
Tax rate
 
Lower limit
Upper limit
Motorbikes
13
977
Cars
45
14,689
Minibus, truck, bus
160
2200
Aircraft
3915
32,646


Corporate tax

Corporate bodies are required to pay 20% of the prior years profits.

Value Added Tax (VAT)

The general rate for VAT is 18%, although certain goods and services are taxed at 1 or 8%.

Commercial delivery of a residential property with a net area of up to 150m2 is subject to 1% VAT, while commercial delivery of properties which are over 150m2 are subject to 18% VAT.

Special Consumption Tax

Certain goods with an effect on the environment are subject to Special Consumption Tax (SCT). These include:

  • Fuels, industrial oils, petroleum products and petro-chemicals
  • Vehicles (including land, sea and air)
  • Alcoholic drinks and tobacco products
  • Other goods including caviar, some cosmetics and perfumes, some electronic and electrical devices and printed materials.

Stamp duty

Stamp duty is charged on a broad range of transactions. Stamp duty rates, where applied to contracts with a monetary clause, and tenancy contracts, are 0.75% (of the amount detailed in the contract) and 0.15% (of the rent), respectively.

Personal income tax

The chief personal incomes that are subject to tax are commercial income, agricultural income, wages, self-employment income, rent and interest.

Turkish tax law excludes a certain amount of annual rental income from individuals renting out their residential properties. This year, income up to 2600 Lira is excluded from income tax. This also applies for 2009 rental income. Note that a fixed rate of 25% for maintenance is deducted from taxable rental income.

If you earn more than this exempted amount and fail to declare this fact to your local authorities, you could face some harsh penalties. Make sure you register with your local tax authority and declare this rental income. Declare this income between 1 and 25 March, and the income tax must be paid in two equal payments in March and July. Any 2009 rental income needs to be declared between 1 and 25 March 2010.

Cumulative Income (TL) Income Tax (for 2010 income)  
Lower Limit Upper Limit    
0 8800 15% of income  
8800 2200 1320 for the previous slice plus 20% of the rest
22,000 50,000 3960 for the previous slice plus 27% of the rest
50,000 - 11,520 for the previous slice plus 35% of the rest


Referring to the above table, youll see your rental income as well as the capital gain from your property sale (within the five-year period after its purchase) will be subject to income tax.

You must declare your yearly rental income to your tax authority each year, as well as declaring your capital gain as soon as your property sale goes through.

Most tax offices in Turkey are automated and have comprehensive internet-based systems. This means you can head down to your local tax office and fill in some forms, or you can download the relevant forms online, and then submit these to the tax office.

Individuals (both foreign nationals and Turkish citizens) who earn solely rental income in Turkey can send their tax returns via the internet to tax authorities offering online services. For more information please call us to find out how you can complete your return.

Social insurance

Turkeys social security laws state that agricultural workers, self-employed, wage earners and civil servants must register with Bag-Kur, SSK and Emekli Sandigi. These schemes are compulsory.

 

Final note - tax bands and brackets are subject to regular change, therefore please read the above as indicative of rates and tax principles in Turkey.  For most up to date rates, refer to official Government sites.