If you intend to invest in property in Turkey, it is vital that you are aware of the various property taxes you will need to pay connected to the property you own.
For buy-to-let investors in Turkey, this is particularly important because you will need to deduct the amount you pay in taxes from the rental return you are likely to receive on a property.
Tax Rules For Non-Residents In Turkey
Let’s say you are a foreign investor looking to buy a property in Turkey. You find your ideal property in Istanbul, complete the purchase process and have a tenant in place.
The next thing you will need to find out is how much tax you need to pay on your Turkish-sourced income. Shareholders will be taxed separately on all sources of income received from a Turkish property investment.
How Income Tax On Property Is Calculated In Turkey
Your net income from your property will be aggregated and taxed at progressive rates. It is important that you keep up-to-date with your liabilities because unlike the UK, for example, tax bands in Turkey change annually.
A non-resident will be taxed at rates of between 15% – 35% but the good news is that any expenses that are connected related to the running of the property will be tax deductible such as boiler repairs and any management fees, which is why it is actually more cost effective to hire a property management company like us to take care of the paperwork.
The non-resident taxpayer can deduct 25% of the gross income as expenses without the need to provide proof of the money spent. Exemptions may also apply to income which falls below a certain threshold. The tax free allowance is currently trl3,200 per shareholder.
Net rental income can be deducted in the following ways:
1. Actual Tax Deduction
You can deduct real expenses e.g. heating; water expenses; management costs; insurance; interest expenses and depreciation amongst other expenditures from your gross rental income.
2. Lump Sum Tax
With this option you can choose to deduct 25% of your gross income. If you choose this method of deduction you will not be able to change to option one until after two years.
Capital Gains Tax In Turkey
Capital gains from the sale of immovable property in Turkey is exempt from income tax after five years of holding the property.
If you own a property in Turkey for less than five years you will be required to pay income tax on the money you receive. Again there are exemptions on income that falls below the tax free allowance of trl3,200.
VAT On Property In Turkey
You will be pleased to know that property owners will not be required to pay VAT on the sale of real estate unless they happen to be estate agents or another corporate entity.
Real Estate Tax In Turkey
Real estate tax in Turkey is similar to the taxes you may pay in any country to the local government.
The tax is calculated on the value of property (land or buildings). The tax rate varies depending on the classification of the property.
Residential properties and land are taxed at 0.1% of their value. The tax rate is 0.1%. The tax rate is 0.3% for building sites or vacant land.