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SELLİNG PHASE

Are there any different principles applicable while selling a property owned by a foreign real person?

There is no difference regarding the principles of a property sale by a foreign real person and a Turkish citizen. However, if the purchaser is a foreign real person, the procedure as set forth under “acquisition” above, will apply.

Should I pay income tax if I decide to sell my property?

Yes. Capital gains derived from the disposal of properties, which have been acquired by individuals in return for an acquisition amount and which are held for less than five years, are subject to income tax. Thus, no Income Tax is calculated for the capital gains obtained from the property sales after 5 year holding period.

 

How is capital gain taxed in Turkiye?

Individuals deriving capital gain from the property sales have to declare their income on a yearly basis with Income Tax declaration. The tax base is the positive difference between the sales price and the acquisition value. While determining the earnings to be taxed, “expenses incurred due to disposal and remained under the responsibility of the seller”, and “Taxes and charges paid” are separately deducted in addition to the cost amount of the property. Acquisition cost is indexed with monthly inflation rates for determination of net capital gains. Please note that, the cost adjustment can only be made if the increase in Producer’s Price Index (PPI) is at least 10%. Moreover, of the capital gains obtained during a calendar year, TRY 11.000 is exempt from income tax for the year 2017.

 

How is title deed charge calculated at the time of disposal?

Similar to the fee calculated and paid at the time of acquisition, title deed fee at the rate of 1.5% until 30 September 2017 (after this date 2% will be applied) is also applicable over the sales price for buyer and seller separately. Fee has to be paid to the tax office before the transaction made at the registrar.

 

Should I add VAT to my selling price?

If the owner of the property is an individual who is not dealing with commercial activity, no VAT is applied. However, if the purchase and sales of properties are made within a business organization that can perform this activity on a regular basis, property sales will be subject to VAT. Please note that Turkish Ministry of Finance classifies sales activities of individuals as made within business organization if an individual makes more than one sale within one calendar year or one sales per year in the consequent years.

 

*Before making any transaction, consult your advisor for the latest double tax treaty provisions!

 

 

Do my tax liability changes if I am the shareholder of a company holding a property in Turkiye?

Yes. As being a non-resident individual shareholder of a Turkish company, you may obtain “dividend” income from your Turkish investment. Or, at the time of disposal, you may obtain “capital gain” from the sale of your Turkish Company shares.

Your Turkish company holding a property in Turkiye will be subject to Corporation Tax at the rate of 20% over its all yearly income. After tax profit can be distributed to the shareholders after setting aside first and second degree legal reserves. Please note that Turkish REIT’s are exempt from corporate tax. So, REIT’s can distribute all their after legal reserve income without any corporate tax burden.

 

At the time of profit distribution, Turkish company has to withhold Income Tax for their non-resident shareholders at the rate of 15%. This rate can be reduced to 10% or even 5% if there is a Double Tax Treaty between Turkiye and the Country on which the shareholder is resident. Please also note that withholding tax rate for the dividend distributions of Turkish REIT’s is 0%. So, if you have a Turkish REIT shares and receive profit from these REIT’s, no withholding tax will be calculated at the time of profit distribution. The withholding tax calculated by the distributing Turkish Company will be the final tax burden for the non-resident shareholder at the Turkish level.

 

If non-resident shareholder decides to sell his/her shares in the Turkish Company, capital gains in principle would be taxable. If the Turkish company is a public company such as Turkish REIT’s, capital gains will be taxed via withholding by the intermediary banks or brokerage houses. The withholding tax rate for public companies is 0%. So, no capital gains tax is calculated for the disposal of shares of the Turkish Companies by non-residents. All other share disposals will be subject to capital gains at the rate up to 35%. Again, in the case of “Double Tax Treaty” between Turkiye and shareholders’ country, capital gains would be avoidable. In most of the treaties, sale of Turkish company shares after 1 year holding period would limit Turkiye’s taxation rights. But, before making any transaction please consult your advisor for the latest double tax treaty provisions.

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