PROPERTY PURCHASE & SALE IN TURKEY FOR FOREIGNERS
A. INTRODUCTION
Turkey boasts an attractive and dynamic real estate market offering various opportunities for foreign investors. However, there are several crucial aspects to consider when engaging in property transactions. Moreover, regulations concerning the matter often undergo changes within our legal framework. This information note aims to contribute to foreign investors making more informed and secure transactions when buying and selling real estate in Turkey by focusing on essential areas of attention.
B. POINTS TO CONSIDER IN PROPERTY PURCHASE & SALE
- Formal Requirements
According to the prevailing legislation in Turkey, official contracts aiming to transfer property ownership must be executed exclusively at the Land Registry Directorates where the property is located. Additionally, it is possible to sign a “real estate presale agreement” before a notary public before the official sale, yet ownership of the property is acquired only through the execution of an official sale contract at the Land Registry Directorate and the subsequent registration process. Any deficiency in formal requirements could jeopardize the property’s ownership rights and may lead to potential legal risks and complications in the future. Therefore, it is imperative that official sale contracts be prepared and reviewed by a specialist to avoid such risks.
- Encumbrances on the Property
Another crucial aspect is to check for encumbrances on the property before purchasing it. Encumbrances refer to any restrictions, obligations, or encumbrances such as mortgages affecting the property’s ownership. Before entering into sale contracts, it is essential to verify from the relevant Land Registry Office whether the property is subject to any limited property rights, mortgages, or any impediments to its sale.
- Zoning Status
Conducting a detailed investigation into the zoning status of the property before purchase is vital. The zoning status determines the construction activities and usage purposes allowed in that area, thereby playing a critical role in evaluating the investment potential of the property. If the zoning status is favorable, the property’s value may increase, and its potential return on investment in the future could be high. Checking the zoning status is crucial not only for compliance with legal requirements but also for preventing potential legal issues.
Understanding the future development plans of the area where the property is located will assist a foreign investor in making the right investment decision. It is undeniable that a property situated in an area compliant with zoning plans and open to potential future developments holds a higher value.
- Citizenship
Foreign investors in our country are granted the right to acquire Turkish citizenship through exceptional procedures upon purchasing real estate worth $400,000 or more. For this purpose, it is necessary for foreigners to state in both the citizenship application and the property title deed that the real estate was acquired for this purpose and that they will not sell the property for three years. Upon completion of the title deed procedures, an eligibility certificate will be issued for the property owner by making an application to the relevant authorities, and subsequently, a short-term residence permit or citizenship can be requested.
If the property is intended for citizenship and/or residency purposes, it is crucial to fulfill all necessary legal procedures and ensure comprehensive completion of information and documents when acquiring a property from areas designated as permissible for foreign investors within the framework of the legislation.
- Market Value & Appraisal
Accurately determining the actual market value of the property is crucial in property transactions to facilitate fair price determination, enhance negotiation opportunities, and mitigate the risk of overpaying. To determine the market value accurately, researching the prices of similar properties in the area where the property is located and seeking professional assistance from real estate experts and consultants to determine a fair and accurate price is necessary.
Obtaining an appraisal report to assess the property’s physical condition is also advisable. This report provides information on the property’s ownership status, technical specifications, structural integrity, existing and potential defects, maintenance requirements, and potential costs.
- Tax Aspects
| Title Deed Fee | For all transactions conducted at the Land Registry Directorates, there is a fixed capital fee and a title deed fee that must be paid.
As of 2024, for title transactions involving foreigners, an approximate fixed capital fee of 6,000 TL (approximately $190) and a title deed fee of 4% of the property value are charged. As a general rule, the title deed fee is split between the seller (2%) and the buyer (2%). |
| Property Tax
|
According to our real estate law, any residential property, commercial property, or land within the borders of Turkey is subject to property tax. Therefore, foreigners purchasing property in Turkey are required to pay property tax.
This tax is applied as follows: one thousandth for normal buildings, two thousandths for commercial properties, three thousandths for land, and one thousandth for vacant land. If these properties are within the boundaries of metropolitan municipalities and contiguous areas, the applicable rate is doubled. Property tax payment commences one year after the property purchase and is paid in two equal installments in May and November. |
| Income Tax | Two types of income can be obtained from real estate purchased by foreigners: rental income and property sale income.
(i) Rental Incomes If the recipient of rental income is a foreign individual, it is subject to property income tax. If there is no double taxation agreement in force between Turkey and the country where the foreign property owner resides, the property is subject to taxation, otherwise, the relevant provisions of such an agreement are applied. Foreign individual investors who engage in continuous real estate buying and selling in Turkey are considered traders and are subject to income tax as commercial income holders, regardless of the number of years they hold the property. Those foreign investors who do not engage in real estate buying and selling on a continuous basis are subject to capital gains tax on the profits they make from buying and selling. Individuals who sell their real estate within 5 years from the purchase year are required to declare their profit as “capital gain,” while those who hold the property for 5 full years are exempt from taxation. If the recipient of rental income is a foreign company operating in Turkey, it is subject to withholding tax only on the rental income obtained from properties or buildings owned within the Turkish borders. (ii) Sale Incomes If a foreign individual is engaged in continuous buying and selling procedures, the profit is considered commercial income, and the income derived from the sale of the property is subject to capital gains tax. In case of selling property by foreign companies considered limited taxpayers, the income obtained will be evaluated within the scope of corporate tax, and the corporate entity will be required to pay corporate income tax. The income from the purchase and sale of the property will be subject to a corporate tax rate of 25% for the year 2024. |
| Value Added Tax (VAT)
|
The initial delivery of residential or commercial buildings and property delivered to Turkish citizens who have resided abroad for more than 6 months by obtaining a work or residence permit, foreign nationals who are not residents in Turkey, and institutions that do not earn income in Turkey is exempt from VAT if the price is brought into Turkey in foreign currency. Buyers who meet the exemption conditions can purchase multiple properties under the exemption. |
C. CONCLUSION
In conclusion, real estate transactions in Turkey can be complex and may pose certain risks, especially for foreign investors. Furthermore, foreign investors may experience various hardships due to their lack of knowledge of our real estate law when acquiring and selling properties in our country.
Therefore, before embarking on these processes, seeking legal advice and support from a specialized lawyer, staying updated on the current legislation to guide the investor, and managing the application and transaction process to prevent potential issues are crucial. Our law firm would be pleased to provide professional guidance on these matters, helping you effectively manage your legal processes.
The information provided in this information note does not constitute legal advice on any specific issue and is not intended as legal consultation. Please feel free to contact us for our legal opinions on the matter.
