VAT EXCEPTION REGARDING THE PURCHASES OF IMMOVABLES IN TURKEY BY FOREIGN REAL AND LEGAL ENTITIES 2 December 2022

VAT EXCEPTION REGARDING THE PURCHASES OF IMMOVABLES IN TURKEY BY FOREIGN REAL AND LEGAL ENTITIES

What is the VAT exemption right granted to foreign real persons and entities?

The principle of reciprocity, which is required for foreign real persons to acquire real estate or limited real rights in Turkey, was abolished with the 2012 regulation in the Land Registry Law.  In addition, citizens of 183 countries determined by the Cabinet Decision taken pursuant to Article 35 of the Land Registry Law, amended by Law No. 6302, have the right to own real estate in Turkey. Foreign nationals who are not residents in Turkey provided that it is applied on the first delivery of buildings constructed as residences or workplaces by adding subparagraph (i) to Article 13 of the Value Added Tax Law in 2017, and the cost is brought to Turkey in foreign currency. The deliveries of residences or workplaces made to real persons and to corporations whose legal and business center is not in Turkey and which do not earn income in Turkey through a workplace or permanent representative are exempted from Value Added Tax.

Is it possible for legal entities to acquire real estate in Turkey?

Pursuant to Article 35 of the Land Registry Law, it is not possible for foreign legal persons to acquire real estate in Turkey (except for easement or right of use). Commercial companies established in foreign countries according to their own laws and having a legal personality can acquire real estate and limited real rights in Turkey only within the framework of special law provisions (such as the Tourism Promotion Law, Industrial Zones Law, etc.). It should be strongly reminded that the scope of these special laws cannot be followed for the acquisition of real estate, and it is very important that the legal processes are carried out by lawyers who are experts in their field.

Despite the foregoing, companies with legal personality established in Turkey, which, in accordance with Article 36 of the Land Registry Law, hold the power to appoint or dismiss the majority of the fifty percent or more shares of foreign companies established abroad, or the majority of persons with management rights, excluding real estate ownership and limited real rights acquisition in special investment zones such as organized industrial zones, industrial zones, technology development zones, and free zones, only to carry out the activities specified in their articles of association. If the said ratio is below fifty percent, these companies can purchase real estate even if they are not related to the field of activity, just like Turkish companies.

To Whom or which legal entities does the VAT exemption apply?

According to subparagraph (i) of Article 13 of the Value Added Tax Law; "On the condition that it is applied on the first delivery of the buildings constructed as residences or workplaces and the price is brought to Turkey in foreign currency, except for those specified in the second paragraph of the first paragraph of the 3rd article of the Income Tax Law, Turkish citizens who have lived abroad for more than six months with a work or residence permit, delivery of residences or workplaces made to real persons of foreign nationality who are not resident in Turkey, and to institutions that do not have a legal and business center in Turkey and that does not make a profit in Turkey through a workplace or permanent representative" are exempt from tax. The determinations regarding the application of the said exemption are in Article II/B.12 of the Value Added Tax General Implementation Communiqué. made in the section.

Accordingly, they will be able to benefit from VAT exemption:

• Turkish citizens who have been living abroad for more than six months with a work or residence permit,
• Foreign natural persons who are not residents of Turkey,
• Institutions that do not make a profit in Turkey through a workplace or permanent representative whose legal and business center is not in Turkey can be counted.

However, it should be reminded again that VAT exemption is not recognized for immovables that foreign legal entities will acquire in Turkey "within the scope of special law provisions".

In which immovables is VAT exemption applied?

According to Article 7 of the Law on Restructuring of Certain Receivables and Amending Certain Laws and Decrees with the Force of Law No. 6824, the exception is applied as of 01/04/2017 and at the first delivery to be made by the taxpayer who built the residence or workplace. In addition, the exemption can still be benefited from, provided that the specified conditions are met for the residence or workplace, which was purchased before 01.04.2017 with a promise of the sale contract, but whose sale was made after this date in the title deed. The first delivery of the residence and workplace must be in the nature of actual delivery. In other words, the real estate must be actually delivered in a ready-to-use condition for the use of the buyers. However, the actual delivery condition will not be sought in the delivery of residences or workplaces where a condominium is established.

How many immovables can benefit from the VAT exemption?

It is possible for buyers who meet the conditions to benefit from the exemption to acquire more than one residence and workplace within the scope of the exemption. There is no regulation that a single immovable can benefit from this exception.

Can those who choose the way of acquiring Turkish citizenship through real estate acquisition benefit from VAT exemption?

On behalf of real persons who want to buy immovable for the acquisition of Turkish citizenship, VAT exemption can be applied for the immovables they will buy as long as they meet the necessary conditions for citizenship in this way. In this way, you can find our article on the acquisition of Turkish citizenship by real estate acquisition, which includes detailed information about citizenship acquisition.