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Real estate related tax in Turkey

BERK ÇEKTİR b.cektir@todayszaman.com I am interested in buying property in Turkey. I would be grateful if you could provide some information about the Turkish tax system on real estate. If I buy a house in Turkey, what kind of property tax will I be subjected to? What property taxes are applicable if I own a house in Turkey? What am I really required to pay? Who has the authority to levy and collect these taxes? Is it the local government/municipality, or the central government that is authorized to collect the tax? Does Turkey have laws regarding delinquent property taxes and/or do they place liens on properties for unpaid taxes? How do enforcement measures work in reality? What is the priority for property tax liens; in particular do they have priority over mortgage liens? Is it possible for me to pay my property taxes together with my monthly mortgage payments and the landlord takes care of paying my property taxes, when they are due, to the tax authorities on my behalf? Thank you very much for your time and professional consideration.” What property taxes are you required to pay if you have real estate in Turkey? To make things easier, let’s talk about a house and not a plot of land or a farm because those properties may be subject to additional/different tax exemptions depending on size, purpose and type of ownership or the number of properties registered in a person’s name. For instance, there are exemptions for historic houses -- some real estate taxes are not applicable to historic houses at all. Equal treatment First of all there is a general rule of “equal treatment”: There is no difference between foreigners and Turkish citizens in terms of collecting taxes. Who levies the tax? It is the state. All taxes are decreed by law. Recently the municipalities in some cities, for example the Şişli Municipality in İstanbul, tried to levy a type of tax. Any kind of tax, whether it is collected by the local authority or by the government, must be levied by law. A municipality cannot simply make a decision to impose/levy a tax. Who levies and collects property-related taxes -- municipalities or the central government? It depends on the nature of the tax. The collecting authority is sometimes the municipality and sometimes it is the central government. Garbage removal, environmental taxes The garbage removal and cleanup tax is paid by residents of a property and not the owner. Like real estate tax, it is paid twice a year to the local municipality. The environment tax is added to your water utility bill every month. Some homeowners register their house under a company’s name. In that case, it is a different story, and I would recommend you consult a tax advisor. Transfer tax A transfer tax is paid when the ownership of a property is transferred to someone else. It was 3 percent for years and was recently raised to 3.3 percent and then again to 4 percent. Raising this tax is not rational at all because the value of the property also increases with time; therefore, the income of the state also increases pro rata. Obviously this was not enough to cover the hole in the budget, and officers in the Ministry of Finance were asked to make a list of items which could be raised and a genius put this item on the list. In any case, on the purchase of a property, both the seller and the buyer have to pay 4 percent transfer tax (purchase/sale) to the tax office. Note this is not 4 percent for both parties, but the buyer and seller pay 4 percent of the value of the property in total. Value-added tax If you are buying a brand new house from a construction company, you need to know how much value-added tax (VAT) you are paying. The level of VAT should be taken into consideration in terms of a VAT percentage with regards to a commercial delivery of a residential property. If a property’s net area is up to 150 square meters, then it is subjected to 1 percent VAT; if it is bigger then it is subjected to 18 percent VAT. Capital gains tax A capital gains tax is applied to any profit made on the sale of a property within five years following the purchase date. The government is now working on bringing a kind of partial exemption for capital gains tax on the sale of a property, but this has not yet been finalized. The owner of a property is supposed to declare its real value during the transfer of said property at the Title Deed Office. However, unfortunately, declaring a lower purchase price and registering a property at a value below its real and actual purchase price is tempting for both buyer and seller. This saves 4 percent of the price. In other words, both the seller and the buyer end up not paying a big part of the 4 percent purchase/sale levy by declaring a lower value on the deed as the purchase price. This should never be worth it when you think about the risks involved. If the tax office finds out that there is a difference between the purchase price and the declared value, both parties will be fined, will have to pay the difference between the tax paid and how much should have been paid, and on top of that interest will be applied to the difference. The risk is higher for the buyer than the seller if tax evasion is in question. This is because if the buyer decides to sell the property within five years from the date of purchase, and if the purchase price was declared to be lower than it was, the difference will be much higher than it should be and this will cause the amount of the tax owed to be much higher. The capital gains tax ranges from 15 percent to 35 percent for gains, and this might be costly for the person who buys a property at a false value. Another point that should be kept in mind is that if you mortgage your property, the amount shown on the title deed (tapu) may be important for financial institutions. Annual property tax A homeowner in Turkey has to pay an annual real estate tax which is charged at rates varying between 0.1 percent and 0.3 percent. The percentage depends on what kind of real estate we're talking about, whether it is cultivated land, uncultivated land, a residential building or a non-residential building. The officially assessed value of Turkish real estate is made on Jan. 1 of each year. In metropolitan cities such as İstanbul, Ankara and İzmir, the real estate tax may be higher than in other cities. Municipalities collect real estate tax, and tax is calculated on the basis of the declared value of the asset by the end of December in the year of acquisition. This is not a difficult process. Considering that the bureaucracy is still involved, you may want to appoint a lawyer or an accountant to take care of your tax payments in Turkey. Here is a question on the topic from a reader: Is it possible for me to pay property taxes together with the monthly mortgage payments and for the lender to take care of sending my property taxes, when they are due, to the tax authorities on my behalf? This is something between you and your bank or mortgage broker. Some of them provide this service and some do not. The real estate tax is paid annually, and it can be paid in two parts. For example, the real estate tax for the year 2007 was due on March 1; the first portion of the tax had to be paid by the end of May, while the second portion had to be paid by the end of November. Certainly, the government will not refuse if you want to pay the whole amount at once. However, it cannot be paid monthly, although there are some banks that accept tax payments. With a declaration sent to this bank, you can pay your real estate tax. Liability for overdue tax debts There is a complete database that enables officials to see if there are any pending or overdue debts, and the transaction will not be allowed unless a real estate tax clearance is granted by the tax office. This is another point you should be careful about when you purchase a property because the new owner is also responsible for any overdue real estate tax debt. Another reader asks: Does Turkey have laws regarding delinquent property taxes and/or are liens placed on properties for unpaid taxes? You may face difficulties if you do not pay these taxes in a timely manner. Records for properties are now kept in a database, and no transactions can be concluded until all pending and overdue tax is paid with interest. Furthermore, the authorities may start a collections process if the tax is not paid for a certain period of time, and they may place liens on properties with unpaid taxes. How do enforcement measures work? One thing that works perfectly in Turkey is the collection of taxes. Collection officers have the authority to access bank accounts, assets, etc., easily. A new system was implemented recently to enable the officers to see all unpaid taxes and levies; therefore, tax offices and municipal tax departments can notify the owner about unpaid taxes and levies. Other costs related to real estate There are some other types of taxes and duties as well as mandatory costs that you should take into consideration: An earthquake insurance policy is mandatory, and this has to be renewed every year. NOTE: Berk Çektir is a licensed attorney at law and available to answer questions on the legal aspects of living in Turkey. Please kindly send inquiries to b.cektir@todayszaman.com. If a sender’s letter is published, names may be disclosed unless otherwise expressly stated by the sender. DISCLAIMER: The information provided here is intended to give basic legal information. You should seek legal assistance from a licensed attorney at law while conducting legal transactions and not rely solely on the information in this column.

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