TAXES & COMPULSORY INSURANCE

Basic property-related taxes

With regards to real estate in Turkey, following taxes or compulsory insurances are in question:

• Personal income tax (based on rental income and capital gains)
• Inheritance and succession tax
• VAT (if a commercial delivery takes place)
• Real estate tax (similar to the Council Tax in the UK)
• Real Estate Acquisition and Purchase Levy (at the time of purchase or sale)
• Stamp Duty (if a contract with a monetary clause exists)
• Environmental tax (collected through water utility bills)
• Corporate tax (in case of a commercial transaction of a company)
• Earthquake insurance (a nationwide contribution rate is applied)

What gains can be attained through property? Are those gains taxed?

A real estate property may enable an individual to obtain two types of gains.

Firstly, you can rent it out and earn rental income. In that case, you are to pay a personal income tax. Please see the section regarding personal income tax below for more information.

Secondly, the market value of your asset may rise and hence you can attain a gain. If you sell out your real property in the four-year-period following the acquisition date, you shall be subject to personal income tax based on the difference between the selling price and the inflation-adjusted acquisition price. Producer Price Index (PPI) is applied to acquisition price for Inflatin adjustment excluding the months in which property is acquired and sold out if the inflation exceeds 10%. However, YTL 6,000 of the gain attained from sale is exempted from income tax starting from 1st January 2006.

For sales by individuals after the 4-year-period following the purchase, no personal income tax is charged on the gains to be attained.

On the other hand, firms which are subject to corporate tax are exempt from any corporate tax relating to the real estate-based gains, real estate sale-and-acquisition levy, and VAT, if they sell a real estate that they have owned for at least two years and add the gaining to their capital.

Taxes and Compulsory Insurance

Foreign nationals and Turkish citizens are no different in terms of taxes or levies to be charged.

Tax rates may be updated on a periodic basis. The rates as of January 1, 2006 are presented below.

Real Estate Tax

Annual Real Estate Tax (a tax similar to the Council tax in the UK) rates for cultivated land, uncultivated (for building) land, non-residence-purpose buildings, and residential buildings are 0.1%, 0.3%, 0.2%, and 0.1%, respectively.

Tax is calculated on the basis of the declared value of the asset which could not be less than a threshold determined by tax authorities. Tax payments are made in two equal instalments in the period March-to-May and November each year and those are collected by the local governments (municipality). The tax base is annually updated by a coefficient determined by the Ministry of Finance taking into account the inflation rate.

The new owner of a property has to declare the actual price, which has been paid to the seller, to the municipality by end-December in the year of acquisition.

Real Estate Tax of the property in the year of acquisition is paid by the seller whereas the consecutive years’ taxes are paid by the buyer (new owner).

On the other hand, the Real Estate Tax rates for properties in the following provinces (metropolitans) are two-fold the normal rates stated above.

• Adana • Ankara • Antalya • Bursa • Diyarbakir • Erzurum • Eskisehir • G.Antep

• Icel • Istanbul • Izmir • Kayseri • Kocaeli • Konya • Samsun

Real Estate Sale-and-Acquisition Levy

Each of buyer and seller is to pay real estate sale-and-acquisition levy of 1.5%, based on the declared value of the asset (This value cannot be less than the threshold determined by authorities). It is collected in prior to the transfer of ownership at TAPU office.

On the other hand, for the registry of a new building constructed on a land, a levy of 1.5% based on the reference value of the asset is to be paid.

Inheritance and Succession Tax

The transfer of property within Turkey, from one to another without any payment or by inheritance are subject to Inheritance and succession tax.

Taxpayer is the person who acquires property by inheritance or gratis.

Inheritance and succession tax is assessed on the declaration submitted by taxpayer.

In the case of inheritance, the declaration should be submitted in four months starting with the date of death. If the death occurs in Turkey and the taxpayer is outside of Turkey, the declaration period is extended to six months. In the case of occurrence of death and being of taxpayers outside of Turkey, the declaration period will be again four months. However, when the death occurs in a foreign country and the taxpayer is in another foreign country, the declaration period is extended eight months.

In the case of transfers by gratis, the declaration should be submitted in one month following the date of acquisition of the property.

The tax base is updated annually. There are some discounts for inheritance to daughters, sons and spouses. In case a spouse and children including legally adopted ones are to take over an inherited property, then an amount of YTL 83,139 is deducted from the tax base of each person. In case only a spouse is the heir, the amount of deduction from the tax base is YTL 166,375. In case of successions without reciprocity (gifts) the amount of deduction is YTL 1,919.

As of 1st January 2006 the applicable tax base brackets and rates are as follows

Tax Base Brackets (Based on the value of the inherited asset)	Inheritance Tax Rate	Succession Tax Rate (When no reciprocity exists)
First  YTL 130,000	1%	10%
Next  YTL 280,000	3%	15%
Next  YTL 600,000	5%	20%
Next  YTL 1,200,000	7%	25%
Amount above YTL 2,210,000	10%	30%

Please note that a levy of 0.9% of the value of the property is also charged while the inherited property (or the gift) is being transferred into the name(s) of the new owner(s) at TAPU Offices.

Environmental Services Tax (EST)

For residential properties, local water suppliers charge an EST of YTL 0.13 per one m3 of water used.

For non-residential buildings, the EST is a flat rate and ranges between TL YTL 13 and YTL 1,537 per year.

The rates for metropolitan cities, on the other hand, are YTL 0.16 / m3 of water used by residential properties and a flat rate of YTL 16-to-YTL 1,921 for non-residential properties.

Preparation of wills and transfer of property to the heirs

Wills prepared by foreign nationals in their own countries can be executed in Turkey so as to transfer the ownership of a property to the individual(s) stated within the wills.

To carry out the property transfer pursuant to a will, a heir has to gather a court letter confirming the will from the relevant court of his/her own country and to have it ratified at the Turkish Consulate General. Then he/she has to submit that letter to the relevant court of the province in Turkey where the property is located. Then, the Turkish Court issues an official document which allows the transfer. Finally, the heir presents the document granted by the Court to the Tapu Office as well as other documents required for the transfer of ownership.

These transfers are exempt from any military clearance and the other restrictions applied to foreign nationals.

Please note that transfer of ownership of a property to an heir is subject to inheritance tax. Thus, if the heir sells out his inherited property, he is not subject to any personal income tax based on the capital gains.

Divorce settlements

When a married couple gets divorced and one of the parties is to transfer the ownership of his/her property (or a share) into the name of the other party, then this transaction is not subject to any tax.

Similarly, in Turkey, subsistence payments to be made by a divorced party to the other party are all tax exempt.

Your UK pensions

Your UK pensions are not be taxed in Turkey. Furthermore, such an income is not gained as a result of a commercial activity carried out in Turkey. In this regard, you can freely transfer your pensions to Turkey. You can either have your pension transferred to your bank account in Turkey or prefer getting cheques sent to you.

Please note that an average Turkish household lives on an average monthly income much less than an average UK pension. Thus, your pension itself will allow you to have a financially-comfortable life in Turkey.

Agreements for the Avoidance of Double Taxation

Agreements between the Republic of Turkey and 61 countries (including the UK) for the Avoidance of Double Taxation can be reached through the web page of Revenue Administration. (Unfortunately in Turkish)

For Agreement between the United Kingdom of Great Britain and Northern Ireland and the Republic of Turkey for the Avoidance of Double Taxation in English please visit our investment pages.

Agreement between the United Kingdom of Great Britain and Northern Ireland and the Republic of Turkey for the Avoidance of Double Taxation was signed on May 9, 1986 and published in the Official Gazette on November 30, 1988.

The comprehensive agreement has effect

a) In the United Kingdom for

i) Income and Capital Gains Tax from 1989-90,
ii) Corporation Tax from 1 April 1989.

b) In Turkey from the fiscal year beginning 1 January 1989.

Avoidance of Double Taxation on Income Derived from Property

According to the ‘Agreement Between the United Kingdom of Great Britain and Northern Ireland and The Rebuplic of Turkey for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains’ dated December 19, 1986;

a) Income derived by a resident of UK from immovable property (including income from agriculture or forestry) situated in Turkey is taxed in Turkey. The associated income may be the direct use, letting or use in any other form of immovable property

b) The term ‘immovable property’ has the meaning which has under the law of Turkey. The term in any case include property accesssory to immovable property, livestock and equipment in used in agriculture and forestry, fisheries, rights to which the provisions of general law respecting landded property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural forces; ships, boats, and aircraft are not be regarded as immovable property.

c) The above provisions also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent services.

According to Article 23 of the aforementioned Agreement, Turkish tax payable under the law of Turkey and in accordance with the agreement, whether directly or by deduction, on income or chargeable gains from sources within Turkey are allowed as a credit against any UK tax computed by reference to the same income and chargeable gains by reference to which the Turkish tax is computed.