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Real Estate Retention Phase

According to the Law on Foreigners and International Protection in Turkey, real estate owner foreigners can obtain residency permission if each application can cover a maximum period of two years. And while the application is submitted, it is significant to have the address declared.

It is also necessary to obtain a compulsory real estate valuation report, not just for getting Turkish citizenship but also for real estate sales in which buyers and sellers are foreigners. The real estate valuation report is valid for three months starting from the date it was issued.

Turkish Citizenship by Real Estate Investment

Foreign nationals who acquire real estate in Turkey gain the right to get Turkish citizenship through property investment in Turkey.

The Turkish government has made many laws to make the citizenship acquirement process easy and fast for foreigners without waiting for five years.

The requirements are;

  • Purchasing real estate worth $400,000
  • Establishing condominium and condominium easement for purchased immovable
  • Turkish citizenship is provided only under the condition of not selling the property for at least three years.

Electricity and Water Services of Purchased Real Estate

Real Estate owners may start the subscription process after getting the occupancy permit to benefit from public services, such as electricity, water, and sewage systems.

The new property owner should apply to the public institutions and sign a service contract after the real estate acquisition. After the service contracts and payment of subscriptions or deposit fees are signed, the person can benefit from the services.

Income Tax in Own Use of Real Estate Owner

There is an implementation of income tax on the means of earning through renting or selling real estate property. That's why real estate retention for personal use and not renting out to any person does not require income tax payment.

Sale or Rent of Real Estate

Real estate owners are free to transfer their property to any third party or to sell rent or collateralize their property. Yet, that is possible if the owner does not sell their property for three years after acquiring the real estate property for Turkish citizenship. By renting out the real estate which is bought to acquire Turkish citizenship with investment, the owner can gain a stable rental income.

Rent Amount of the Real Estate

The parties have freedom of contract, and they have full liberty to decide the rent amounts. But in Turkish Lira, it is not allowed to determine the rent in foreign currency. However, for people who reside outside Turkey and have business in Turkey, it is permitted to determine the prices in foreign currency in the contract if the agreement relates to its activities in free zones.

Increase Rates in Real Estate Rent

Both parties involved have the freedom to regulate the rental rate amongst themselves. In Turkish Law, the rent rate in the Turkish Lira does not exceed the Consumer Price Index.

In cases where the rent amount could be determined in foreign currency, the rent could not be changed in the next five years. But the restriction was ended in July 2020 for roofed workplaces.

Renting of Real Estate by Currency

The rent amount needs to be written only in Turkish Lira and no other foreign currency. However, people residing outside Turkey with establishments in Turkey can use foreign currency if the agreement relates to its activities in free zones.

Real Estate Rental Times

The parties do not have restrictions for terminating the lease agreement, and they can mutually decide when the agreement will end. In case of the absence of agreement between the parties, the Turkish Code of Obligations regulates the terms of the extension and termination of the lease.

Building of Real Estate Lease Agreements to Third Parties

As there is a possibility of annotation in the real estate agreement before the title deed registration, the tenants may act as new owners and claim rights against third parties. After the annotation process, if the real estate is transferred to a third party, the tenant's eviction from the property is prevented.

Taxation of Real Estate Rent Income

Income obtained with renting the property has an income tax on it which is declared annually by calculating the rental income in a year. If the income is not taxed from the previous year, it is calculated as the income of the current year and collected with this year's tax.

If the income is obtained after the determination of the rent amount in foreign currency, the Central Bank of the Republic of Turkey calculates the foreign exchange rate of the day. Later the rent is received, and it is converted into Turkish Lira. Then the income tax is calculated and collected. Annual rental income is taxed and charged at a rate of 15% to 40% in Turkey. The income tax is paid in two equal installments in March and June.

Conditions under which tax is exempted as of 2021 are;

  • The first TRY 6.600 of the annual rent income of residents, providing the underlying property, has been left as accommodation,
  • The first TRY 18.000 of capital gains, excluding the gains generated from the sale of marketable securities or other capital market instruments.

For taxpayers who obtain rental income from the workplace, exceeding 40,000 TL as of February 2021, a declaration is required. It is possible to deduct some expenses from the tax in the calendar year with the declaration of the rental income.

There are two methods used by taxpayers associated with tax-deductible expenses, stated in the legislation, as ‘real’ and ‘lump’ expense methods:

1. Tax Deductible Expenses- Actual Expense Method

Using the actual expenses methods can be deducted from the gross amount of rental income.

  • Lighting, heating, water, and elevator expenses,
  • Insurance expenses relating to the rented property and rights,
  • Management costs,
  • The interest of debts relating to the rented property and rights with 5% acquisition value of the rented house for five years beginning from the acquisition date,
  • Depreciations,
  • Taxes, fees, charges, and special assessments paid for the rented property and rights as well as charges paid by lesser to municipalities for participation,
  • Repair and maintenance expenses,
  • Rent of the house accommodated by the leaser who rents their property (not allowed for taxpayers not residing in Turkey),
  • Cost of damages and compensations,

Above mentioned expenses corresponding to income exempted from tax amounting to 5,400TL are not counted as tax-deductible expenses.

2. Tax Deductible Expenses - Lump-sum Expense Method

Taxpayers, who have opted for the lump-sum method after deducting the exception amount from their rental income, set off the expenses at 15% of the remaining amount against actual expenses. In the case of leasing rights, one cannot opt for lump sum expenses, and taxpayers who choose the mentioned expense method can not prefer the actual expense methods before three years elapse.

The Tenant is a Commercial Earning Company or Merchant

Making a 20% deduction from rental payments will be made to legal entity tenants and traders and is deposited in the tax office on behalf of the lessor.

If the real estate is leased to a company or a person with commercial profit, and if the rent income exceeds the annual declaration limit, the property owner must make a declaration with the annual income tax return.

While making the declaration, it is must to remove deductible expenses and deduct the amount deducted by the lessee from the tax amount to be calculated over the remaining amount after the discounts and declare the remaining portion in two installments to the tax office in March and June.

VAT on Rental Income

Value-added tax does not apply to rental income as the income arising from the renting of real estate does not have any commercial activity or any connection with the commercial enterprise and is not subject to value-added tax.

Lease Agreement and Stamp Tax

Lease agreements signed in Turkey are considered as monetary value, the rate of 0.189% - 0.948% on the total amount in the lease agreement Stamp Duty is paid. Lease agreements signed between two people are counted as exempt from stamp duty, and the tax is not calculated.

Registration of the Lease Agreement to the Land Registry

Lease agreements have no requirement to be registered on the title deed. However, since the registration of the agreement is a monetary value, the title deed fee of 0.683% is paid over the total rental amount during the registration process.

Real Estate Tax

  • In Turkey, land, terrain, and real estate owners pay property tax, and tax rates depend on the type and location of the property.
  • Real estate taxes at different rates are collected for settlements, businesses, arable land, and other lands with the classification of ordinary regions and metropolitan municipality borders and surrounding areas.
  • Property taxes calculated by the municipalities are based on the value determined in the streets and avenues where the property is located.
  • The property tax amount for real estate is obtained from the municipality of the property’s location.
  • The real estate tax is to be paid to the municipality after the purchase of new real estate at the beginning of the year of sale.
  • The real estate tax is paid in two equal installments; the first one is in March and April, and the second is in November.
  • Besides the Property Tax, there is a contribution to the protection of cultural property tax charged with property tax and claims of 10% of property tax.

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