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Inheritance and transfer tax, motor vehicle tax and real estate tax can be counted as the essential equity taxes, in an other saying, the essential capital or wealth taxes in the Turkish tax system. But, real estate tax is the most important type of tax among the equity taxes applied in Turkey.
Real estate tax is always a main subject of current debates regarding a great number of people because of being a constant tax, changable extent and its calculation.
Real estate tax in Turkey is the general term of three sub-property taxes including structural property tax and two different types of land taxes as ‘’Arsa’’ and ‘’Arazi’’. Arsa is a place where its hugeness is parcelled by the local management which means Arsa type empty land is close to the city while Arazi is more deserted field.
These terms can seem unfamiliar to you because each country, each nation applies its own system. As happened in many other subjects, real estate taxes, types and regulations change from country to country. So let’s break the confusion!
Why is Real Estate Tax not Stable?
Even if some countries such as England and Italy apply stereotypical methods dividing properties into certain category types, in Turkey, the real estate tax for each property is determined separately. The main reason for this is that real estate doesn’t consist of standard types as it happens in motor vehicle tax, in other words, each property has a specific value so that it is required to calculate each property separately. Another reason is economic fluctuations on the property prices either positively or negatively depending on surrounding features.
On the other hand, you will see that Turkey takes a step forward as a budget-friendly country when you compare Turkey equity tax to the other nations. When we have a look at the percentage of equity tax in total taxes, with the rate of %12.7, England is the most challenging country while such countries as U.S.A, South Korea, Canada, Australia, Israel, France and Japan get equity tax between %12 and %8.5. The average of OECD countries is 5,6 and with a rate of 4.9, Turkey has a lower equity tax, even from OECD countries.
Also, jumping up at the Turkish population each year and rushing of both local and foreign people into big cities such as Istanbul where the city has approximately 20-million popultion bring new construction activities and constant sales. That’s why capital appreciation of the properties either in oldtowns or newly-made settlements grow up all the time, there can be even increasing value between months. In this perspective, the determination of property valuation is more important rather than the European countries. According to EVK (Emlak Vergi Kanunu – Real Estate Tax Law), Value determination is repeated once in every 4 years. Since 4-year value determination will not show true results in the big cities that property capital appreciation grows very fast, the Ministry of Treasure and Finance determines an average valuation rate each year and real estate taxes increase related to half of this valuation rate. Besides, you start to pay real estate tax one year later once you buy a property in Turkey. With these aspects, the real estate tax system are familiar with Great Britain. Despite low inflation rate, value determination in Great Britain repeated once in every 5 years are updated according to the inflation rate until the next value determination.
The Rates of Real Estate Tax
Depending on what kind of investment you prefer, the rates of real estate tax are different. If your purpose is to make a property investment, the current rate is %0.1 for residential units and %0.2 for other building types. These rates get double in the big cities of Turkey. Officially, there are 30 big cities issued by the government which means their population is more than 750.000 people. So, Istanbul, Ankara, Antalya, Trabzon, Bursa and West coast of Turkey and the other big cities, the rate is %0.2 for residential and %0.4 for other building types.
For example, when you purchase a $250.000 property or a group of property to apply for Turkish citizenship, without calculating exterior features of the property such as view, floor, location, the proximity to transportation links and so on, the core price is only $500 per year! The real estate tax is paid in two pieces that means $250 every 6 months. In this way, you can get a Turkish passport, good rental returns, and many properties in Turkey. It’s nothing when compared to beneficial sides and incomes.
On the other hand, rates are %0.2 for Arsa and %0.4 for Arazi in the big cities. But foreigners are not allowed to make a land investment. If you want to invest in land property, setting up a company with Turkish identity in Turkey is a must.
To learn more about land investment and the steps of setting up a company in Turkey, don’t forget to watch one of previous videos of Serif the Broker ‘’How to set up a company in Turkey?’’ or detailed info of ‘’How to Set up a Company in Turkey?’’ in Buyer Guide section.
Does Real Estate Tax Start Automatically?
It doesn’t start automatically. To activate your property tax, you need to declare your property to real estate department of municipality where your property belong to. It is a compulsary process. You don’t pay any real estate tax in the first year of declaration. Your tax starts from 2nd year directly. On the other hand, if you don’t declare your property at the year when you purchase the property, then you can declare in the 2nd year with a penalty. So, first year declaration is the legal period, you get penalty for every following year. The only documents for making declaration are your title deed, the copy and translation of your passport. If you apply for Turkish citizenship and it’s approved by the government. You can do the same process with your title deed and Turkish identity card as well. There is not any fee for declaration.
What If You Miss the Payment Period of Your Real Estate Tax?
As mentioned at the beginning, it is paid in two pieces which are May for the first payment and November for the second payment. In case you don’t pay real estate tax on time, %1.6 default interest is added each month on your real estate tax amount. As you can pay directly from the municipality, you can also pay your real estate tax online via bank account of the municipality.
How is the Rate of Real Estate Tax Determined?
Many factors are affecting the real estate tax of a property. While determining a tax value, building type and class, the proximity to business and living centers and facilities such as parks, schools and hospitals in addition to transportation networks, its position to the squares, coasts, main streets, availability of electricity, gas and water infrastructures, size, the number of floors, rooms, bathrooms, its facade, availability of elevator, central heating system and air conditioning and its view are taken into consideration.
How is Value Determination Made?
There are plenty of value determination types based on property price, cost price or the amount of average income. Among them, Property price plays a prioritized role. According to the property price model, recent sales of apartments that have the same features in the neighborhood determine your property value. This is the main Turkish value determination model. In case of not being apartments with the same features, then apartments with similar features are taken into consideration with some additional or discount amounts depending on the difference between your apartment and the issued one.
However, if there is no sale currently for a long time, then the cost price method is valid. It is a complicated calculation but essentially based on the cost of building by adding %20 profit + purchased price of the land, then property price can easily be found after sharing the total amount to the apartments. The value will change more or less depending on the apartments’ position, size, view, etc.
If this method is not possible as well, then value determination is found through the amount of average income. This method is based on the prediction of annual return beforehand. It is calculated focusing on its return and return capacity for future + inflation rate in time. This method is mostly applied to industrial and commercial buildings. Real estate tax regulations in France are generally based on this model at the same time. The real estate tax is defined after value determination is found by one of these three methods. Also, real estate tax map of the location organized by the tax office is used for determining the amount clearly.