How is the Income of Foreign Real Persons Obtain from Real Estate Taxed?

When foreign real person investors constantly trade real estate in Turkey, they are considered as merchants and pay income tax as trading profit recipients regardless of how many years they have held the real estate in question. Investors who donot constantly trade real estate, that is, who aredeemed to be increment value income recipients arenot taxed if they sell the real estate they have purchasedafter 5 years,regardless of how much they earn. PwC Turkey Real Estate Sector Leader Ersun Bayraktaroğlu explained to Explore Turkish Realtyhow foreign investors’ real estate income is taxed. 

Despite the real estate market shrinking globally due to the pandemic, the latest figures show that foreigninvestors continue to be interested especially in propertysales in our country. The sale of real estate toforeigners is an investment tool that mediates thearrival of the new titleholder who owns it into thecountry, not the loss of an asset from the country…In this respect, foreigners who purchase real estate inTurkey have to be subject to the requirements of thelocal legislation regarding this asset in the country. Taxemerges as an important element in this legislation.Foreign real estate purchasers, who are subject totitle deed fees, value-added tax and stamp dutyduring the real estate commerce process (during the deed transfer), pay Income Tax from the income they earn by selling the real estate they own, or from the rental income they earn by renting it out. The income tax to be paid by real persons tradingreal estate for what they earn from this transactionis calculated on a progressive tariff that starts with15% and goes up to 40% of the total net income ingiven a calendar year. The income tax application in real estate commerce differs according to the income type (trading profit or increment value income).

Real persons who obtain rental income from real estate have to pay income tax on their annual rental income as real property income regardless of whether they are citizens or foreigners. The total rental income actually collected within a calendar year must be declared with an annual income tax return in March of the following year, and the tax calculated over the income tax tariff starting with 15% and up to 40% must be paid in two equal instalments in March and June.

Although we will not go into detail in this article, it is useful to remind one that the taxation of the statement of rental income is different in terms of whether it has a residential or workplace status and there are different procedures regarding the expenses

to be deducted for the declaration of net income. The taxation of real persons who have the equity share of a real estate company or the participation share in the real estate investment fund who owns the real estate is different from that of those who have the title deed, which I tried to explain above. Equity share or participation share in the investment fund can earn two types of income for its owner: the right to receive “dividends” over the income of the company / fund in which the shares or fund are owned, and the ability to sell these shares / fund and earn “commercial income” from it.