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 certain investment options are able to obtain Turkish Citizenship (‘‘TC’’) for themselves and their families

Within this article, we will evaluate the most preferred investment types of the New Programme from 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 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” with serial number 80, which was published in the Official Gazette on December 29, 2017; 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 this amount shall solely be borne by the buyer.

On the other hand, a Council of Ministers Decision (numbered 2018/11674) was announced on April 30, 2018 which stipulates that the rate mentioned in the said Communiqué shall be decreased to 1.5%, to be applicable until the date 31.10.2018. As of the date of this article, there is not any official announcement or regulation to extend this period, though we expect it to be made soon as the government tends to reduce the rate from time to time to promote the market.

Value Added Tax (“VAT”):

VAT (KDV in Turkish) can be in question if the seller side is a legal entity (it does not apply if the seller is a real person). Although the actual VAT rate is 18% this has been temporarily reduced to 8% until the end of 2018. It should be added that 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.

Foreigners can be exempted from the VAT, in case 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,

Service Fee for “Circulation of Funds”:

This is an official transaction duty (“döner sermaye hizmet bedeli”) to be paid, which is 103,5.-TL for the year 2018. 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 483,5.-TL for 2018.

Preliminary Sales Expenses:

Seller and purchaser may execute a “Preliminary Sales Contract” (Promise to Sell) before 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 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. This again can be paid by one of the parties or both parties, depending on their agreement on the matter.

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.

Taxes regarding TC with Bank Deposit Investment Option:

The alternative route to obtain Turkish Citizenship laid down by the law within the new 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 published with the Official Gazette dated 31.08.2018 and numbered 30521, below Withholding Tax rates shall apply on deposit accounts until 01.12.2018;

FULL TAXPAYER REAL PERSON

1. Accounts opened after 31.08.2018 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: 16%
  • - Savings Accounts having a period of more than 1 year: 13%

2. Accounts opened after 31.08.2018 in TL

  • - 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%
LIMITED TAXPAYER REAL PERSON (Non-Resident)

1. Accounts opened after 31.08.2018 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: 16%
  • - Savings Accounts having a period of more than 1 year: 13%

2. Accounts opened after 31.08.2018 in TL

  • - 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 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. Nonetheless, for the time being, there is a ‘Wealth Peace’ law, and according to this regulation, it is possible to transfer such income and wealth with only paying 2% of the total amounts as tax in Turkey.

Turkey has double tax agreements in place with most of the countries and the tax payer 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.

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 is earned through businesses and employments inside Turkey only.


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