Value Added Tax (VAT), Katma Deger Vegisi (KDV) in Turkish, is an expenditure tax on the supply of goods and services and imports. VAT is a tax generated by the creation of added value in the production stages of goods and services. VAT is taxed on goods and services produced by manufacturers and passed on to consumers. Consumers transfer the tax to the government by paying VAT on the goods and services they purchase. VAT is an indirect tax, which means that consumers pay the tax, but producers pay the tax to the government.
VAT is an important factor in real estate transactions and can cause price changes. Therefore, it may be necessary to calculate it before buying a house in Turkey so that you won’t be shocked by the change in the amount before and after VAT is added. Let’s explore together how VAT works in Turkey.
What is VAT?
Value Added Tax, or VAT for short, is an expenditure tax on the delivery of goods and services, which is paid by the one who delivers the goods and services but imposed on the one who receives them. The rates start from %1 and go up to %20 depending on the sector.
Tax is the money that people in a society and the companies owned by people pay to the government as required by law, the rate of which is determined by the government. Different taxes have been enacted according to each function. The state is obligated to repay the tax revenue by providing all kinds of services to society. Therefore, VAT exists in most countries, however, the percentage rates are different in each country.
VAT is not a requirement in all places, and exports are often exempt from VAT. VAT is typically implemented as a destination-based tax, where the rate is based on where the consumer resides and applied to the selling price.
What are the Types of VAT in Turkey in 2023?
According to the Revenue Administration of Turkey, there were three kinds of VAT rates, %1, %8, and %18. However, these rates have recently been revised to 1 percent, 10 percent, and 20 percent, respectively. The VAT rate for basic consumer goods and services is %1, %10 for other goods and services, and %20 for luxury goods and services.
VAT on real estate;
- A 1% value-added tax is valid for cheap residential properties of less than 150 square meters.
- 8 % and 20 % VAT are applied for expensive residential properties over 150 square meters.
- The VAT rate is fixed at 20% for the sale of commercial real estate and land.
However, it is possible to obtain VAT exemption when certain conditions are met.
Who is Eligible for VAT Exemption in Turkey?
Certain entities are eligible for VAT exemptions in Turkey, provided they meet the following criteria:
- Foreigners not residing permanently in Turkey.
- Turkish citizens with residency permits or work permits, who have lived in another country for a period exceeding six months.
- Organizations without established headquarters or legal residences in Turkey.
However, it is essential to be aware that Turkish citizens living abroad, who are employed by Turkish institutions or establishments, do not qualify for VAT exemption.
What are the Conditions to be Qualified for VAT Exemption?
To benefit from the VAT exemption law, there are some conditions that citizens and foreigners must fulfill. These conditions can be listed as follows;
- Only newly built real estate purchases from construction companies are accepted.
- The sale price must be given in foreign currency
- The purchased real estate cannot be sold to another person for one year. In case the real estate is sold, the VAT amount will be collected.
We think it would be useful to elaborate a little more on the first point. You cannot benefit from the VAT exemption with a second-hand apartment you buy in Turkey. To benefit from this exemption, you must purchase a brand-new apartment built by a construction company that has not seen a title deed transaction before.
Is Residential Property VAT Exempt?
Yes, in some cases the purchase of a residential property can benefit from an exemption from value-added tax. The condition is that the payment for the property must be in foreign currency. In addition, the property must be newly built and not have a title deed record. In other words, to benefit from the VAT exemption, you must be the first owner of a freshly built house paid for in foreign currency.
Importantly, the VAT exemption does not apply to the transfer of ownership of the property, which is subject to a different tax. The buyer must still pay the transfer tax, which is currently 4% of the purchase price.
If you are a foreign buyer who is interested in purchasing a residential property in Turkey, it is recommended that you consult with a tax advisor to ensure that you are aware of all of the applicable taxes and regulations.
What Documents Does a Turkish Citizen Need for VAT Exemption?
Turkish citizens who are eligible for VAT exemption on the purchase of residential property in Turkey need to provide the following documents to the seller or developer:
- A copy of their Turkish passport.
- A copy of their residence permit or work permit.
- A document proving that they have been living abroad for at least six months.
This document can be a copy of their passport showing their entry and exit stamps, or a letter from their employer or school stating that they have been working or studying abroad for at least six months. If the Turkish citizen is married, they must also provide a copy of their spouse's passport and residence permit or work permit.
What Documents Does a Foreigner Need for VAT Exemption in Turkey?
Here are the documents needed by a foreign person for VAT exemption in Turkey:
- A copy of your passport.
- A copy of your residence permit or work permit.
- A document as proof that they do not have a place of residence in Turkey. This document can be a copy of your passport showing the entry and exit stamps or a letter from the Provincial Directorate of Immigration Management of where you live or work.
- A document that is proof of payment of the purchase price in foreign currency. This document can be a copy of the bank transfer receipt or a letter from the bank stating that the purchase price was paid in foreign currency.
- Documentation that the property is a new residential property, which can be a copy of the transfer receipt or a letter from the bank. This can be a copy of the title deed, which is tapu in Turkish, or a letter from the developer stating that the property is a new residential property.