Turkish Citizenship with Investment Scheme from a Turkish Tax Perspective
According to the recently amended Regulation Regarding the Application of Turkish Citizenship Code, foreigners who qualify for certain investment options are able to obtain Turkish Citizenship (‘‘TC’’) for themselves and their families.
As Ketenci&Ketenci we can thoroughly advise on your tax-related questions and requirements with respect to Turkish Citizenship by investment as well as further new tax liabilities as a new Turkish citizen once the TC is obtained.
Within this article, we will evaluate the most preferred investment types of the New Programme from the Turkish tax law perspective.
Taxes related to TC with Property Investment:
According to the amended Turkish Citizenship law, Foreign persons proceeding with a real estate investment in Turkey of a minimum $250,000 USD (or its equal value in Turkish Lira) on the condition not to sell the property for 3 years will be able to apply for TC.
Whereas applicable taxes and charges which may accrue during the property purchase transaction are as below;
Property Transfer Tax:
According to the “General Communiqué on the Code of Official Charges” the transfer tax rate is 2% over the sales price, which is levied on both the seller and buyer side. We should note that sometimes in practice, parties mutually agree that all 4% shall solely be borne by the buyer.
There are also ancillary governmental costs for property investment ranging around 3000 USD and more depending on the chosen property itself. We can provide you with further exact property-related costs and calculations once you choose/identify the investment property.
Value Added Tax (“VAT”):
According to the Turkish tax law, if the seller side is a legal entity all transactions made in Turkey are subject to VAT (KDV in Turkish). Generally, the VAT rate is 18% and property sales including residential properties, offices etc. are all subject to the VAT tax calculated over the sales price.
It should be added that the VAT rate for properties under 150 m2 which are located outside the metropolitan municipalities and which are not considered as luxury or first-class constructions is 1%. The VAT would be paid by the Buyer in practice.
VAT Exemptions for Non-Resident Foreigners
Even though the general VAT rate is 18% on sales, foreigners can be exempted from the VAT. We can also advise you accordingly so you could be fully exempted to pay 18%VAT additionally.
As a first time foreign buyer, you may be exempted to pay VAT (Value added tax) in Turkey provided that all the below conditions are met:
- The property shall have not been sold before to any party (the buyer shall be the first person to buy)
- The buyer shall not be residing in Turkey at the time of purchase transaction,
- The property shall be a residential or commercial unit or building.
Once the foreigner applicant shall meet these conditions, the purchaser does not pay %18 VAT and obtain the property at a reduced price.
Service Fee for “Circulation of Funds”:
This is an official transaction duty (“döner sermaye hizmet bedeli”) to be paid, which is 194.-TRY for the year 2021. This amount is multiplied by a number between 0.5-2.5 depending on the location of the real estate. This should be paid jointly by the parties (but it is usually the buyer who pays).
Service Fee for Transfer of Ownership: This is a fixed rate which is 128.-TRY for 2021.
Preliminary Sales Expenses:
Seller and purchaser may execute a “Preliminary Sales Contract” (Promise to Sell) before the Turkish Notary Public, to safeguard the sales of the property and the realization of the transfer transaction at a certain date. In this case, Notary fees shall be paid by the seller and/or purchaser, depending on their mutual agreement. Additional Stamp Duty fees would also arise when such a contract would be signed before a Turkish Notary public.
If such contract is also annotated with the property records at the respective Title Deed Office, this will grant either party the right to demand the execution of the actual sales transaction on the agreed date, in which case an “annotation fee” will be in question. The annotation fee is 5.4 ‰ over the sales price, which is levied on both the seller and buyer side. This again can be paid by one of the parties or both parties, depending on their agreement on the matter.
Taxes regarding TC with Bank Deposit Investment Option:
The alternative route to obtain Turkish Citizenship laid down by the law within the TC scheme is to deposit $500,000 USD (or its equal value in Turkish Lira) in cash, to be kept for at least 3 years in one of the major Banks operating in Turkey.
As for the taxation of the amount deposited with the Bank, as per the Presidential Decree below Withholding Tax rates shall apply on deposit accounts;
Full & Limited Taxpayer Real Person
1. Accounts opened in Foreign Currency
- For Checking Accounts and Savings Accounts having a period of 6 Months (including the 6. Month): 20%
- Savings Accounts having a period of utmost 1 year: 20%
- Savings Accounts having a period of more than 1 year: 18%
2. Accounts opened in TRY
- For Checking Accounts and Savings Accounts having a period of 6 Months (including the 6. Month): 5%
- Savings Accounts having a period of utmost 1 year: 3%
- Savings Accounts having a period of more than 1 year: 0%
Aftermath: Taxation as a Turkish Citizen
Turkish Tax Laws define any person who has a domicile in Turkey or lives in Turkey more than six months per year (except for certain situations) as a tax-resident.
The worldwide income of a resident person would only be subject to Income Tax in Turkey provided that such abroad generated income would be transferred into Turkey. Other than that Turkey will not impose any taxes with respect to worldwide income.
Turkey has double tax agreements in place with most of the countries and the taxpayer will not be liable to pay additional taxes in Turkey if the tax in question was already paid in another jurisdiction having a tax agreement with Turkey. To prevent double taxation, and in order to attract foreign investment, Turkey has concluded many treaties for the avoidance of double taxation with more than 60 countries including Canada, France, Iran, Jordan, Pakistan, Portugal, the United Arab Emirates, the United Kingdom, the United States of America ext.
It is important to note that capital gains resulted from property sales, which was held for more than 5 years, are exempt from Income Tax.
Turkey applies progressive Income Tax at different rates ranging between 15% to 35%, for the incomes resulting from employment or other incomes that are earned through businesses and employments inside Turkey only.
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