VAT -Value Added Tax (known as Katma Deger Vergisi in Turkey) can be a significant cost for people looking to buy real estate. It is usually included in the sales price offered by real estate developers. It is paid directly to the government at the time of delivery of the property.
Investing in foreign real estate usually entails a slew of additional taxes and costs. Foreign nationals used to pay VAT at rates ranging from 1% to 18% when purchasing residential or commercial property in Turkey.
Fortunately, Turkey has loosened taxation procedures and laws for international property buyers to boost real estate development around the country. On April 1, 2017, the government enacted a law exempting foreign property buyers from paying VAT in Turkey. The sale of residential property VAT exempt is now possible.
The Turkish government has exempted foreign investors from paying the 18% value-added tax (VAT) on real estate purchases. Foreigners can now take advantage of outstanding investment opportunities. There are many benefits such as stamp duty reductions, VAT savings, and Turkish citizenship after purchasing a property worth $250,000.
Eligibility for VAT Exemption in Turkey
Property exempt from VAT are available to those who qualify:
- Foreigners who do not live in Turkey on a permanent basis
- Turkish citizens with residency or work permits who have been living in another country for more than six months
- Organizations that have not established any headquarters or legal residences in Turkey.
It is important to note that Turkish citizens living in other countries who work for Turkish institutions or establishments will not be eligible for VAT exemption.
What conditions must foreign property buyers meet to qualify for VAT exemptions?
• The VAT exemption is directed towards new-build property purchases. Buyers who purchase resale properties are not charged VAT.
• A foreign currency must be used to pay for the purchase.
• Buyers cannot sell their property for a year after purchasing. The exempted VAT will be collected if the real estate is sold within one year.
Types of VAT based on Property Type
In Turkey, there are three different types of VAT rates: either 1%, 8% or 18%. The rate on residential properties exempt VAT sales varies based on the project location.
• 1% VAT is valid for cheap residential properties less than 150 sqm properties.
• 8% and 18% VAT is for expensive residential properties over 150 sqm properties.
• However, The VAT rate is fixed at 18% in commercial properties and land sales.
Is residential property VAT exempt?
Individuals who are eligible are allowed their first residential or commercial property VAT exemption in Turkey. This means that they pay in foreign currency and keep their VAT exempt property within one year after receiving the title deed.
Documents Required in Order to Be Eligible for the Exemption
• A copy of the foreigner's passport. (Copy of turquoise card for people who lost their Turkish citizenship)
• A tax document stating that the person who will purchase the property is not residing in Turk.
From Turkish citizens:
• Work permit or equivalent documentation obtained via Turkish consulates or official embassies.
• A document proving the citizen's presence in another country for more than six months before the real estate purchase.
From organizations that have not made any profits in Turkey:
• A document proving the organization's current activity. An apostille should be attached to this document.
• A document proving that this company makes no money in Turkey.
Documents required for those who bring foreign currency to Turkey from abroad
• If the price is paid from outside Turkey via a bank, it must be transferred to a Turkish bank. The debit receipt must be delivered to the relevant authority.
• If the price is paid with a credit card which is issued by a foreign bank, the Turkish bank must obtain a written document proving that the money was brought from abroad.
• If the price is paid in cash from outside Turkey, a written document should be obtained from the relevant Customs Administration.
Updated October 15, 2019
In some countries like Iran and some African and European Countries, it is difficult to apply for VAT exemption due to the foreign exchange transfer. Hence, the Revenue Administration of the Ministry of Treasury and Finance made an amendment in the Official Gazette. The following are the specifics of the amendment:
If you need to make a foreign currency transfer within this area, VAT exemption will be applied:
- If the bank receipt of the transfer contains information about the buyer and the purchased property.
- If the buyer sends a consent letter to the seller detailing the agreement between both parties about the purchased property.
Note: The price paid in cash or by bank transfer must be credited to the seller's account.
All the above documents must be submitted in a fair amount of time prior to the sale.
Letter of Undertaking
This document is given to the sales office and contains the buyer's promises about VAT exemption. At the time of sale, this paper might be signed.