Value-Added Tax Exemption for Foreigners with respect to Real Estate Buyings in Turkey
In recent years, there are numerous economic and legal attempts in Turkey for the promotion of foreign investments. One of these attempts is the Value-Added Tax (VAT) exemption which is envisaged to be applied as of 1 April 2017, in order to attract the attention of foreigners to the large scale investments in construction sector which has a prominent place in Turkey’s economy.
The abovementioned VAT exemption has been granted a legal base by way of amendment of Article 13 of VAT Law No. 3065 in 23 February 2017. The scope and conditions of implementation of this exemption, which is an important issue for our foreign clients who wish to buy real estate in Turkey, has been regulated in the “General Application Declaration for VAT” (Declaration) issued by the Ministry of Finance.
In this article, conditions of implementation of the VAT exemption envisaged within the scope of amendment to the Law No. 3065 will be explained concisely by way of a compilation of the detailed provisions of the Declaration.
2) Conditions of Implementation of the Exemption
Deliveries and services which are exempt from VAT are regulated in Article 13 of Law No. 3065. The conditions required for the foreigners to be subject to the exemption provided for the real estate buyings of foreigners from Turkey are as follows:
a. The building in question must be a house or a workplace.
b. The building must be delivered for the first time.
c. The money must be brought to Turkey in foreign currency.
d. The buyer must be a foreigner who does not reside in Turkey or an establishment which does not have its headquarter or centre of business in Turkey and does not gain profit in Turkey through a workplace or a permanent representative. Additionally, other than the foreigners, Turkish citizens who reside abroad for more than six months after getting a work and residence permit can benefit from this exemption, provided that they are not within the scope of subparagraph 2 of first paragraph of Article 3 of Income Tax Law.
In order to document that the natural person buyer is within the scope of the exemption, the seller must get from the buyer the documents indicated below before the delivery of the house or the workplace:
1. The copy of the buyer’s passport granted by the buyer’s country of nationality (the copy of the blue card in respect of persons who lost their Turkish citizenship by way of permission),
2. A document provided by the tax office of the place of house or workplace, indicating that the foreign natural person in question does not reside in Turkey.
In order to document that the legal person buyer is within the scope of the exemption, the seller must get from the buyer the documents indicated below before the delivery of the house or the workplace:
1. A document obtained from the official authorities of the country of establishment’s headquarter indicating that the establishment and its functioning still continues,
2. A document provided by the tax office of the place of house or workplace, indicating that headquarter and centre of business of the establishment is not in Turkey and the establishment does not gain profit in Turkey through a workplace or a permanent representative.
The points below regarding the conditions of implementation should be carefully considered:
2) Bringing the Money to Turkey
The main method of bringing the money to Turkey is to transfer the money to a bank in Turkey and document the procedure with the related bank receipt. The payment can be made with credit cards provided by the banks abroad; in that case, the fact that the foreign currency related to the payments made with the credit card has been brought to Turkey must be documented through a bank receipt or letter provided by a related bank within Turkey.
Secondly, the money may be brought to Turkey in cash. In that case, the procedure must be documented with papers provided by customs administration.
The money which is brought to Turkey through bank or in cash must be paid to the seller via a bank and the payment must be documented with a bank receipt.
The money which is brought to Turkey in foreign currency may be paid to the seller in Turkish liras.
3) In case that the House or Workplace Sold Out in One Year
In order for the exemption to be utilized, completion of procedures in land office is obligatory. During these procedures, the directorate of land registry is notified that the sale is exempt from VAT and thereafter the directorate annotates to the declarations section of the land register that if the subject house or workplace is sold out in one year, the tax which was not collected back then shall be paid with the default rate.
This tax to be paid in case that the immovable is sold out in one year shall be paid to the tax office of the place of immovable. Land office cannot complete transfer procedures unless the official letter indicating that the payment is made and transfer is possible is taken from the tax office.
Tax and default interest shall not be collected in respect of transfers to be made following the expiry of one year period.
4) Non-conformity with the Conditions of the Exemption
In cases where the exemption is applied in the absence of required conditions, the seller and the buyer shall be conjointly responsible from the payment of the uncollected tax, default interest loss of tax punishment.
In cases where at least 50% of the money before invoice, and the rest in one year at most following invoice is not brought to Turkey in foreign currency and not paid to the seller, the seller and the buyer shall be conjointly responsible from the payment of the uncollected tax, default interest loss of tax punishment.