Acquiring Real Property In Turkey With VAT Exemption As A Foreigner Or Non-Resident
Acquiring Real Property In Turkey With VAT Exemption As A Foreigner Or Non-Resident
by Selin Çağla Onat, Ege Özyeğin and Yiğit Yıldız
The foreign interest in acquiring real property in Turkey is continuously increasing. According to TÜİK data, 18,189 residence units were sold to foreigners in 2016, 22,234 in 2017, 39,663 in 2018, and 45,483 in 2019 respectively. Despite the effect of the pandemic, house sales reached 40,812 in 2020 and 43,372 as of October in 2021. Numbers alone clearly demonstrate how foreigners' interest in acquiring real estate in Turkey is growing. It can be said that some legal regulations such as the abolition of the principle of reciprocity in the sale of real estate to foreigners, the granting of citizenship in an exceptional way by the President's decision, and the VAT exemption have important effects on this increase. In this article, we’ll go through application procedure for acquiring Turkish citizenship based on real property purchases of non-residents and foreign companies that do not have permanent representatives in Turkey.
According to Article 13/i of the Value Added Tax Law “On the condition that it is applied at the first delivery of the buildings constructed as residence or workplace and the funds are brought in to Turkey in foreign currency, except for the ones specified in the subparagraph three of the first paragraph of the third article of the Income Tax Law, delivery of residences or workplaces to Turkish citizens living outside of Turkey and those who have work or residence permit of more than six months, real persons of foreign nationality who are not residents in Turkey, and residence or workplace deliveries made to institutions that do not have a legal and business center in Turkey and that do not earn a profit in Turkey through a workplace or permanent representative are exempt from tax.”
The determinations regarding the implemantations of VAT-exemption are regulated in Article II/B.12 of VATGUT (Value Added Tax General Implementation Communiqué).
Even though it is not clearly stated in the VAT Law and VATUGT, the buyers who will benefit from the exemption must meet the condition of being a limited taxpayer in accordance with the income and corporation tax laws. Thus, it can be said that the purpose of the exemption is to encourage foreign capital to invest in residences and workplaces in Turkey.
According to Article 7 of the Law No. 6824, the exception is applicable as of 01/04/2017 and at the first delivery to be made by the taxpayer builder of the residence or workplace. Whether the exception conditions are met or not should be followed closely during and after the delivery.
Within this scope, there are some conditions that need to be met in order to be able to benefit from the tax exemption:
1- Property-Related Requirements
The exception is applied only during and for the first delivery of real properties constructed as residences or workplaces. In short, residences or workplaces defined including shops, apartments and offices are considered within the scope of the exception. For example, even if the other conditions are met, an immovable that is qualified as "land" cannot benefit from the exception. At the same time in order for the immovable to benefit from the exemption, there must be a construction permit and the construction servitude must be established in residences or workplaces. First delivery legally means that the purchase of the real estate must be directly from the builder. It is clear that the delivery of the residence or workplace will not be considered as the first delivery if it is purchased from the constructors and sold to an initial owner. Since there are two separate deliveries in construction agreements in return for land share, it is not possible to apply for an exemption there. However if the constructor can actualize the conditions set forth in Article 13/i of the Value Added Tax Law, they can benefit from the exemption within the scope of construction agreements in return for land share. (Istanbul Directorate of Tax Administration dated 22/07/2019 and numbered 39044742-130-591162 Ruling)
- The exception can be used for real properties purchased before 01.04.2017 with a preliminary contract for sale, only if it is sold after this date in the title deed, provided that the conditions specified are met.
- It is possible to benefit from the exemption within the framework of the procedures and principles in VATUGT for the real estate which construction servitudes have been transferred for the purpose of obtaining a loan or for real estate that has been reclaimed from the construction servitudes financing company depending on the loan payment. The person who will benefit from the exemption is the taxpayer who built the residence or workplace. (Ankara Directorate of Tax Administration dated 23/07/2019 and numbered 84974990-130[13-2017/12-İ]-245905 Ruling)
- Because the sale of any immovable property built and leased to the buyers listed in VATUGT may be deemed first delivery, the delivery of the abovementioned immovable may be exempt from VAT if additional conditions are met. (Kocaeli Directorate of Tax Administration dated 10/09/2018 and numbered 97726449-130-103600 Ruling)
- The first delivery of the real estate must be in the form of a physical delivery. In other words, it must be supplied to the buyers in a ready-to-move-in condition. However, the physical delivery condition is not sought in the delivery of condominium-owned residences or workplaces.
2- Buyers Who Qualify for Exemption
Foreign nationals who are not residents in Turkey (real persons of foreign nationality who are not Republic of Turkey citizens and are not settled in Turkey, or are not considered as settled according to the Income Tax Law No. 193), but pursuant to Article 28 of the Law No. 5901, natural persons who are given residence permit and who are not settled in Turkey can also benefit from this exception.
*** According to Article 4 of the Income Tax Law No. 193, persons residing in Turkey and who resided in Turkey continuously for more than six months in a calendar year (temporary departures do not cut the residence period in Turkey) are considered settled in Turkey and cannot benefit from the exception. However, according to Article 5 of the Income Tax Law No. 193, “businessmen and scientists who come to Turkey for a specific and temporary task or work…“ Even if they spend more than 6 months in Turkey, are not considered as “settled” in Turkey and are eligible for the exception.
- Turkish citizens live in a foreign country for more than six months after getting a work or residency visa (except for Turkish citizens living in foreign countries due to work of the said offices, institutions, establishments and enterprises, which are affiliated with official offices and institutions or organizations and enterprises headquartered in Turkey) Having a valid work or residence permit as of the exemption date, receiving the work or residence permit at least six months prior to the date of delivery within the scope of the exception, and being abroad for at least six months between the date of receipt of the work or residence permit and the date of delivery within the scope of the exception are eligible for the exemption if they meet the requirements.
-Institutions that do not have their legal and business centers in Turkey and do not report any income in Turkey through a workplace or permanent representative can benefit from this exception.
*** The legal center is the location indicated in the by-laws, statutes, or contracts of taxable institutions. The business center is the location where transactions are managed fom in terms of business.
3- Documents that Seller Must Collect from Buyer to Qualify for the Exemption
a- Documents required from Foreigners
-Photocopy of passport issued by the country of nationality (photocopy of blue card for persons who lost their Turkish citizenship by obtaining permission to leave)
-A document that can be obtained from the Provincial Directorate of Immigration Management of the place where the residence or workplace is located, indicating that the natural person of foreign nationality has not settled in Turkey.
-Entry-exit records to be obtained from the police department, indicating that the natural person of foreign nationality did not stay in Turkey for more than 6 months
-The title deed of the residence-workplace purchased by the foreigner or the immovable sales contract
-Document showing the residence issued by the official authorities of the country of nationality of foreign person
b-Documents required from Turkish citizens
-A resident permit or document obtained from the official authorities of the country of residence, or a document demonstrating the existence of a work permit obtained from the official authorities of the relevant nation.
- Document showing that person has been abroad for at least six months from the date of obtaining a work or residence permit
- The document issued by the Turkish Embassy or Consulate in the relevant country, showing that it is not within the scope of subparagraph 2 of the first paragraph of Article 3 of the Income Tax Law.
c- Documents required from legal entities
- A document obtained from the official authorities of the country where the legal center of the institution is located stating that the entity is active
- A document obtained from the tax office of place where the residence or workplace is located, stating that the legal and business center is not in Turkey and that entity does not generate income in Turkey through a workplace or permanent representative.
*** Sellers who will deliver the residence/workplace within the scope of the exception must obtain the abovementioned documents from buyers before delivery.
4- Number of Properties that Can Be Purchased
Buyers who meet the requirements can take advantage of the exemption by purchasing more than one property within the exemption's scope.
5- Value of the Property
- In order for the VAT exemption to be applied during the delivery of the property, the buyer must pay at least 50% of the purchase price to the seller by transferring the funds in to Turkey within one year of the sale invoice being issued.
In such a case, it's important that the installments satisfy these amounts and don't exceed the time limits set in installment purchases.
- Foreign currency brought into Turkey prior to the date of publication of Law No. 6824 in the Official Gazette on March 8, 2017, will not be classified as foreign currency brought into Turkey within the scope of this exception.
However, foreign currency brought to Turkey before this date for the purpose of buying a certain real property and is already paid to the seller, if documented, can be accepted as foreign currency brought within the scope of the exception.
- If the remaining part of the price of the property is not brought into Turkey by the buyer within a year, the tax which was not collected on time will be collected both from the seller and the buyer as a penalty. In terms of tax law, the seller is also free of his tax obligations so he can request compensation from the buyer, but must prove that the delay was not caused by seller.
- The key is to transfer the foreign currency into Turkey by transferring it to a Turkish bank. The transaction is documented by a bank receipt. Payment can also be made with credit cards issued by banks abroad. In this case, it is necessary to document that the foreign currency is brought to Turkey with a receipt or letter given by the relevant bank in the country. In this receipt, information about the property regarding the delivery as well as the buyer should be included.
- If the person transferring the foreign currency into the country is a third person other than the buyer, the seller must give consent. Foreign currency can also be brought to Turkey physically. In this case, proof that the funds were brought into Turkey must be provided by documents obtained from the customs administration.
- If a portion of the price of the property is paid to the seller with a loan from a Turkish bank, an exemption in the delivery of unit is not possible because the condition of bringing the value in to Turkey in foreign currency, as stipulated in Article i of the VAT Law, will not be met. However, there is an exception if the funds are transferred into Turkey by using a loan from a bank that does not operate in Turkey.
- Bringing Eurobonds to Turkey, generally defined as long-term debt instruments and offered for sale in foreign currencies in international markets, is accepted within the scope of this exception. Therefore, it is not possible to apply for an exemption within the scope of Article 13/i of VAT Law in the deliveries of residences and workplaces in return for eurobonds.
6- Procedure to be followed during Deed Transfer
For sales within the scope of this exemption, the land registry directorate must be notified that the VAT exemption of Article (13/i) of the Law No. 3065 will be applied to the sale. Following this notification, the land registry directorate will note an annotation in the declarations section of the land registry, stating that if the property is sold within a year, the tax not collected on time, as well as the default interest calculated at the rate of deferred interest, will be paid in accordance with the Article 4 of Law No. 6183.
7- VAT Refund
According to Article 32 of the VAT Law, VAT in tax-free transactions is subtracted from the VAT to be computed over the taxpayer's taxable transactions in line with Articles 11, 13, 14, and 15 of the Law, as well as Article 17/4-s. There will be no taxable transaction if the calculated tax is less than the tax to be deducted, and the non-deductible VAT will be returned by the Ministry of Finance and Customs according to established criteria, if claimed before the end of the second calendar year following the transaction. The refund process is made after the entire amount is brought to Turkey and paid to the seller. Refund requests not exceeding 5,000 TL are fulfilled without seeking a CPA report, inspection report and guarantee if the relevant documents are submitted. If a guarantee is given the taxpayer's return request is fulfilled and the guarantee is resolved according to the result of the tax inspection report or the CPA (certified public accountant) report.
8- Acquisition of Turkish Citizenship
"An immovable purchased at the Notary for at least 250.000 USD or equivalent in foreign currency/TL provided the property will not be sold for three years, or that the condominium or floor servitude has been established, and for which at least 250.000 USD or equivalent foreign currency/TL amount has been deposited in advance," according to Article 20/b of the Regulation on the Implementation of the Turkish Citizenship Law. Foreigners have the opportunity to acquire Turkish citizenship by decision of the President pursuant to Article 12 of the Turkish Citizenship Law No. 5901 in cases determined by the Ministry of Environment and Urbanization, in which the contract is annotated to the land registry with the commitment that the contract will not be transferred or canceled for three years.
There is no provision preventing VAT exemption in the deliveries of real estate to be purchased for the purpose of obtaining Turkish citizenship. However, the conditions set forth in clause i of Article 13 of the VAT Law and VATGUT must be met.
In conclusion, strict adherence to the conditions is necessary both during and after the delivery phase.
If all the above mentioned conditions are met, natural persons who are not residents in Turkey, and companies that do not keep a legal or business center in Turkey which do not generate income through permanent representation (those who are limited taxpayers in terms of income and corporate tax) can benefit from the TAX exemption during the first delivery of real estate properties.
-Income Tax Law
-Value Added Tax Law and Implemantation General Communique
-Corporate Tax Law and Communique
-Turkish Citizenship Law
-Regulation on the Implementation of the Citizenship Law
-Statistics by TÜİK
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