What property buyers need to know about tax in Turkey

You've spotted your dream property. You've got your finance arranged. You're already dreaming of holidays in the sun and drinking a cocktail by your swimming pool…

Sorry, we have to interrupt that lovely dream with some bad news. There are a few other things you'll need to think about before you can relax with your cocktail, and one of them is tax.

If you buy a property in Turkey, you're going to pay tax at some point - even if it's just the 1.5% buyer's tax and stamp duty (a sliding scale of 0.15 to 0.75%) on the purchase price. You'll also need to pay the property tax.

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Taxes to pay when you buy property

You're liable for the property tax for the year if you own a given property on January 1st. It's calculated on the notional value, not the declared value (usually the purchase price), and that value is calculated by the local council. The notional value is usually below market value. Taxes in most areas are set at between 0.1% and 0.3% of the notional value per year - more in metropolitan cities - so on a small flat you might pay as little as EUR 100 a year. Even a large villa could see taxes around €750 - what you'd pay on a tiny flat in London or Paris.

There are some exemptions from property tax for those living in small properties (under 200 square metres) if this is their only property. "Relatives of warriors and martyrs" might not cover many foreign buyers, but there are also exemptions for widows, disabled, and pensioners. Property tax can be paid annually or in two instalments - but not all municipalities have the same payment dates; check at your town hall. You can usually pay in cash at the council office, or online.

Unpaid tax stays with the property, not the owner, so you should make sure the previous owner isn't in arrears. Most lawyers will suggest you include a clause in the sales contract that protects you from liability for their debts.

Taxes when you buy property in TurkeyPercentile from property price
Property registration tax (since 2018 it’s 3% split between buyer and seller)1.5%
Stamp duty0.15-0.75%
Annual property tax0.1-0.3% (double in big cities)
Agency fee0.3%
Insurancetbd

Getting income from property

If you resell your property, or rent it out, you'll encounter other taxes. The Turkish authorities have tightened up the rules on rental over recent years, so you will need to set up a separate business and get a business licence (vergi levhasi). You'll then be taxed at the business rates for your rental income. In 2019 these are 15% up to 18,000 lira (about $3,000), then 20% up to 40,000 lira ($7,000), 27% up to 98,000 lira (nearly $17,000) and 35% on income above that level.

You can deduct some expenses, such as management fees, insurance, and repairs and maintenance, but not finance costs. You'll also need a Turkish accountant to do your returns - probably costing around €600 in the first year including applying for the licence. Financial reports have to be filed monthly - and you also need to report the names of guests using a government system. (It can all be time consuming and frustrating, which is why a high percentage of owners use a management company to handle their rentals for them.)

Taxes when you sell your housePercentile from the house price
Capital gains tax (within 5 years of ownership)15-30%
Capital gains tax (after 5 years of ownership)0
Selling tax (3% split with the buyer)1.5%

You'll also need to think about capital gains tax if you resell. CGT is payable on the difference between the sales price you get and the price you paid for the property, less any professional fees (such as estate agents' and lawyers' fees) and any improvements you made to the property during the time you owned it. It's payable on the same sliding scale as business taxes, from 15% up to 35% - but after five years' ownership, it drops to zero. If you're planning on holding your property for the long term, that's definitely good news.

Say no to false declarations on the price

Don't get involved in false declarations on your purchase price. Some builders or vendors will try to get you to declare a lower price. That helps them out, but means if you sell, you'll end up paying extra tax - in fact, you'll end up paying tax on their profit.

But that's not the worst that can happen. The Turkish state is now cracking down on abuses; for instance municipalities are comparing actual sales prices to fair value. There's a big penalty to be paid if you're caught - depending on the difference between the price declared on the deeds and the fair value. You could end up paying 25% of the difference in penalty tax; and that applies to both sellers and buyers.

To be or not to be a resident?

However, as well as knowing the basics, you'll need to know how they play out in terms of your personal situation. For instance, if you are non-resident - spending less than six months of the year in Turkey - you are only liable on Turkish-derived income, such as property rental income. But in this case, you'll also potentially be liable for tax in the country where you are tax resident. Fortunately, Turkey has an extensive list of double taxation agreements, so if (for instance) you're a resident of the UK, China, the USA, Germany, France, Iran or Qatar, you can set off the tax you paid in Turkey against your domestic tax bill. You won't be charged twice.

On the other hand, the moment you become resident, you're liable for Turkish tax on your worldwide income. So, you want to be quite sure you don't do so accidentally by overstaying your six months in any one year.

You may also find your 'home' tax office wants its share of capital gains tax. For instance, if you're resident in the UK, even if there's no CGT to pay in Turkey on a property you've owned for ten years, the British tax man will want a cut. Make sure you do your homework before you take the decision to sell!