Capital Gains Tax when Selling Real Estate

Not a lot has been written about this subject yet; nevertheless it is very important for everybody who is buying real estate in Turkey. I strongly recommend reading this article carefully if you sold a property with profit in the last year. In this case it is very likely that you are obliged to fill in a Capital Gains Tax return form in March 2011.

This Capital Gains Tax only applies to profit made from selling real estate, in Turkish: 'değer artış kazancı'. The tax will be calculated dependant on the tax return form you submit. The tax service will not automatically contact you for this; it is your responsibility to submit the form.

So what if you don't?

As long as you don't get caught, very little will happen; however the tax services can penalise you up to five years in retrospect for not submitting the Capital Gains Tax forms and demand the tax still be paid with interest. For your information: penalties and reclamation interests as applied by the tax services are exorbitant in Turkey.

You are obliged to report the profit of selling a property within five years of purchasing it (for homes purchased before 2007 this is four years) to the local tax office; you will be charged Capital Gains Tax if the profit exceeds a tax exempt threshold set by the government, in 2010 this was 7,700.- TL.

To summarize:

Any real estate owner, who acts privately, owes the government Capital Gains Tax if:

1) a profit is made,

2) the real estate is sold within five years (four years for homes purchased before 2007) of purchase and

3) the total profit exceeds the tax exempt threshold for each calendar year; the threshold is set separately for each year.

You are obliged to report the amount by which the threshold is exceeded by submitting a form (Turkish: 'beyanname') at the local tax office. In case of more than one property sale within one calendar year, the total amount to exceed the threshold must be reported. The profit is calculated by subtracting the purchase price (as registered at the TAPU office) from the sale price.

The tax return must be done by March of the following calendar year.

The tax services will charge a Capital Gains Tax of 15 to 35% of the amount exceeding the tax exempt threshold; on top of this 10% of the amount exceeding the threshold is retained as fund unit ('fonpayi'). For more details about the Capital gains Tax rates I recommend the following website www.abc-consultancy.com

The Capital Gains Tax should not be confused with the local council real estate tax. The limitation for Capital Gains Tax is five years from the date of purchase, as registered by the TAPU office, for selling private properties. In effect property sold in 2004 can no longer be taxed for Capital Gains Tax; there is however no limitation for local council real estate tax. Both the buyer and the seller are individually liable for paying the local duties.

In case a seller is not private but acts on behalf of a company, corporate tax of 20% will be due on the invoiced amount of profit (the difference between the registered amount of purchase and the invoiced selling price); and of course the invoiced VAT is due. It is self-explanatory that all companies must invoice the sale of a property. There is not tax exempt threshold or limitation for companies.