Property Purchase In Turkey:
Tax Procedure In Relation To The Declared Value Price

It is an undeniable fact that Turkey has become a major destination for foreigners purchasing property. According to the records of “General Administrative of Land Registries and Cadastral offices” (Tapu Kadastro Genel Müdürlüğü), as of 01.03.2009 a total of 74,405 properties have been transferred to foreign nationals. The Province of Mugla takes first place for the total land area purchased. In relation to the number of properties purchased, Mugla is in second place with 10,486 properties after Antalya.

With this number of property purchases, one component of the purchase, the transfer tax matter, has been a very important issue for foreign purchasers and generates much confusion. What should be done according to the legislation and what is done in practice has been different and this has been further exacerbated with the recent changes in the legislation.

According to the related law, the transfer tax levied 3% of the declared value is required to be paid equally (1.5 % + 1.5 %) by the parties of the transaction (the buyer and the seller). However, in practice, the parties can make different arrangements and can decide that only one of the parties will be held responsible for the whole tax amount.

Prior to 06.06.2008 taxation was based on the minimum value set by the municipality. The new regulation came into force on 06.06.2008. It has two very important implications:

1) The basis for the declared value and the set penalty: Clause 63 of the Charges Law (Harçlar Kanunu), states that the real sale-purchase price must now be the base for the property transfer tax.

With this new law in force, should the value of the property be declared at the land registry is over the municipality minimum value but lower than the real contractual price, and this is FOUND OUT BY THE AUTHORITIES, then the missing tax amount will be calculated based on the difference between the real purchase price and the declared one, plus 25% interest as a penalty; this penalty to be collected from the parties.

The Finance Ministry Office will have access to the records of housing loan companies, developers and also from the notary offices in order to establish the real purchase price. Even though this situation may come to light in later years, the said authorities could claim the difference in the tax amount plus 25% interest.

2) 5 year time scale (capital gain tax effect) The second set back of the low declaration is the effect on the tax base should the property be sold within 5 years.

According to Clause 80 of the Tax Procedure Law; the “re-evaluation tax” (equivalent to what we know as ‘Capital Gains Tax’ in England), is collected from the people who sell their properties within 5 years from the official purchase date. The tax base is the difference between the declared value on the title deed and the new purchase-sales value that will be registered on the land registry records when the property is re-sold.

The Turkish government publishes the re-evaluation rates for the tax basis at the beginning of each year. The new values to be declared are based on this rate of increase. As per the said regulation, the purchase value of the property has to be increased for each year; therefore capital income tax needs to be paid should there be a sale in the following years.

If the seller’s original Tapu shows an under declared value and the real (new) purchase price is to be shown on the new Tapu, then the difference would be considerably more.

However, the calculation of the tax level is done according to the income tax level. Therefore, there is an exemption level within this “re-evaluation tax” and for the year 2008, the Turkish Government set this exemption level as TL6,800.00 which is to be deducted from the difference. The remainder being the amount subject to income tax, at a percentage depending upon the difference and the income tax level of the person in Turkey.

Recently, the government has declared, with the 5th economic support package, that the rate of the property transfer tax is reduced from 3% to 1%. However this will be applicable for three months only until 30.06.2009. Within the said period, lower declaration may not be applied as the transfer tax is already reduced. We believe that, in terms of collection of the tax amounts, it would be more beneficial for the government to regulate low tax rates instead of collecting the amounts by way of tax loss controls.

Although the under declaration appears to be common practice ın Turkey, our advice would be to declare the real purchase price in order to avoid negative consequences. The parties should come to an agreement on this issue at the outset of the purchasing process before signing the sale-purchase contract.

For more information, or for further advice, please contact us:

 

DISCLAIMER: The information stated above is based on the information available to Acacia International and is according to the Turkish Legal System at the time of the issuance. The information provided is not intended to make any recommendations in relation to purchasing property in Turkey or any other matter which may be relevant under different legal systems.