If you are buying a property in Turkey, it's essential to familiarise yourself with the local tax system. In addition to the taxes and fees paid immediately when purchasing the property, there are also regular taxes that need to be paid to the state annually or monthly. In this article, we will discuss these in more detail.
Council Tax
The first regular fee to be paid is the council tax, known as emlak vergisi in Turkish, which translates to "property tax."
The rates of the council tax are calculated based on the cadastral value of real estate, including both land and buildings, as indicated in the TAPU (the title deed issued by the Cadastral Office of Turkey). The specific rates are regulated in Articles 8 and 18 of the state's Property Tax Code and vary depending on the size of the town, as well as the type and location of the property.
In large cities (like Adana, Aydin, Ankara, Antalya, Balikesir, Bursa, Van, Gaziantep, Denizli, Diyarbakır, İzmir, Kayseri, Kahramanmaras, Kocaeli, Konya, Malatya, Manisa, Mardin, Mersin, Muğla, Ordu, Sakarya, Samsun, İstanbul, Tekirdağ, Trabzon, Hatay, Şanlıurfa, Erzurum and Eskişehir) the real estate tax is two times higher than in smaller regions: 0.2% versus 0.1% for residential properties; 0.4% versus 0.2% for commercial properties. For plots with no building permit, this fee is 0.2% in larger cities and 0.1% in smaller towns; for plots with a permit it’s 0.6% and 0.3% accordingly.
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Properties priced above TL 9 967 000 (USD 426 300 at the rate of early June 2023) are subject to a luxury housing tax at a progressive rate of 0.3-1%.
In absolute numbers, the fee may not appear too disturbing. For instance, if a flat or a house has a cadastral value of USD 400,000 in a megapolis, the property tax in Turkey will amount to USD 800, excluding the land tax. It's important to note that the cadastral value and taxes are estimated in Turkish liras.
A typical cheap two-bedroom flat in a small town will be taxed at $175 per year. If the building is listed as a cultural heritage building in Turkey, the taxable base increases by 10%.
If the property does not have a technical passport (Iskan in Turkish), it automatically falls under the category of plots with a building permit. Consequently, the relevant tax rate will apply. Once the passport is obtained, the building and the plot change categories, resulting in a change in the tax rate.
To calculate the real estate tax in Turkey, an owner should contact the municipality with the certificate of title or find it out through the taxpayer's personal account. Each municipality sporadically reassesses the properties' cadastral value, so the amount may vary from year to year.
Council tax can be split in two equal parts and paid in May and November, or it can be paid in one go. Failure to pay taxes results in a fine.
Insurance
Natural disaster and earthquake insurance also fall under regular property maintenance expenses. The total amount is based on the size of the flat or the house, typically costing about $2 per square foot. The property is usually insured once a year.
Rental Income Tax
Foreign property owners, on a par with Turkish citizens, can rent out their housing on a long-term basis. To do it legally, a landlord should submit the notarized rental agreement to the District registry office of the Ministry of the Interior (Nüfus Müdürlüğü). There, the owner is required to register the tenants at their residence address.
Property rental is considered a commercial activity, so it is subject to a rental income tax (Emlak Kira Geliri Vergisi). If the owner is officially employed in Turkey, rental income is included in the overall income tax base; if not, only the rental income is taxable.
The income tax scale in Turkey is progressive, with rates varying from 15% to 40%. When calculating the tax, property maintenance expenses are excluded from the income earned. Property maintenance includes utilities, insurance and repair costs, and mortgage interest. For the fiscal year 2023, properties with profits of no more than TL 21,900 (USD 930) per year for a residence and TL 35,000 (USD 1,500) per year for commercial property won't be taxed. If the income exceeds these amounts, the tax rate is determined based on the total income less the minimum untaxed amount of income.
Tax Rates:
- 15% on an income of TL 32,000 (USD $1,370);
- 20% on an income of TL 32,001–70,000 (USD $1,370–$3,000);
- 27% on an income of TL 70,001–250,000 (USD $3,000–$10,700);
- 35% on an income of TL 250,001–880,000 (USD $10,700–$37,600);
- 40% — the maximum rate applying to all income over TL 880,000 (USD $37,600).
The individual tax amount can be calculated on the Turkish Tax Service’s official website.
Legal entities are taxed at a flat rate of 20% on rental income. As a result, it may be more profitable to register expensive real estate in the name of a legal entity. However, one should consider the maintenance costs of a legal entity, as the tax savings may be significantly less than anticipated.
There are some restrictions on short-term rentals in Turkey. Since 2017, a law stipulates that only legal entities with a special licence can rent out their properties. Therefore, it is legal to rent out housing through special management companies.
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How to Pay Property Taxes
To pay the fees, a taxpayer needs an Individual Taxpayer Identification Number (ITIN). Without it, no one can buy a property or be taxed. Obtaining the number is easy - an online application is enough to get one.
Almost every fee, except the council tax, can be paid via the tax office website. After entering your TIN number, you can select the desired payment option. Once the transaction is successful, a payment notification will appear on the screen. It is advisable to save the electronic receipts for record-keeping.
Taxes can also be paid in person at the town hall near the property's location. In such cases, the taxpayer should have a property ownership certificate on hand.
Property tax in Turkey for foreigners is not burdensome, as most foreign investors are exempt from double taxation. Turkey has signed double taxation agreements with 85 countries, including Russia, Belarus, Ukraine, and other CIS countries, the US, the Czech Republic, Bulgaria, Israel, and several others. This means that if a citizen of these countries owns real estate in Turkey, it is taxable only in Turkey and not subject to double taxation.
In a Nutshell
Buying property in Turkey is an affordable investment for nationals of many countries. The annual property tax is low, amounting to 0.2% of the cadastral value of a flat or house in large cities and 0.1% in smaller ones. However, rental income for individuals can reach up to 35%, depending on their earnings, but it can be reduced by deducting property maintenance costs.
Cover photo: Alev Takil (Unsplash)
