While selling or buying a real estate, it is always appropriate to know in advance some special provisions of Act of Taxes and Act of Fees in order to avoid any future dispute.

Those who buy real estate shall check whether the real estate has any unpaid tax debt belonging to previous years. The price of sale shown in the registries is also important regarding real estate taxes and fees to pay.

For those who sell real estate, the sale price shown in the registries is important to determine the relevant income tax and fees. In case of sales made by companies, it is important to know whether the income of this sale is exempt or not from the income tax.

In this issue of our newsletter on real estate taxes, we will briefly explain real estate tax duties in the light of the concerns above.

In Turkey, the matter of real estate tax regulations is particularly important regarding two aspects. First, the real estate tax which is collected from real estates, and second the fees to be paid in real estate sale transactions.

When is the real estate tax paid?

According to the provisions of the Act no 1319 on Real Estate Tax, buildings, lands and territories are subject to real estate tax. Real estate tax is paid in two equal instalments, first in the months of March-April-May, and the second in the month of November. Taxpayers may, if they wish so, pay the whole amount in advance or in the first instalment period.

How is real estate tax calculated for lands and terrains?

According to the provisions regarding determination of the minimum unit value of the Act no 213 on Tax Procedure, real estate taxes are to be calculated by evaluation commissions on the basis of minimum unit values determined for every quarter and for every village for the territories not subdivided, according to the values of quarters, avenues and streets of different value (avenues, streets of different value in touristic zones and parcels and blocks to be determined by governors) for lands, and territories; on the basis of the values determined for every type of land (barren land, bottom land, wetland) in countries, on the basis of the values to be calculated according to the principles jointly set forth by the Ministries of Public Works and the of Settlement on the construction costs of square meter for buildings.

In 2008, real estate taxes shall be calculated according to the schedule below:

Real estate tax rates	For the zones within the boundaries of municipalities and adjacent zones Rates (per thousand)	Normal Rates
Buildings (residential)	2	1
Buildings (other)	4	2
Lands	6	3
Territories	2	1

According to the General Notice Nr. 52 on Act of Real Estate Tax, the amounts of taxes to be paid by taxpayers in 2008 for buildings, lands and territories will be calculated by increasing 3, 6 % the tax amounts of 2007 which is half of the evaluation amount for 2007 which was 7, 2 %.

Besides, for new taxpayer in 2008, the amounts to be taken basis for assessment of taxes for buildings, lands and territories will be calculated by taken into consideration the amounts to be found by increasing 3, 6 % the 2007 value which was determined by increasing 3,9% the square meter unit value for 2006 which was the half of the proportion of re-evaluation of the values of lands and territories evaluated in 2005.

Schedule of real estate fees:

Real Estate Fee Amounts	Rate (per thousand)
In real estate sales (both for seller and buyer)	15
In transfers of real estates -for transferor- and in transfers of real estates, easements and land charges for investing of them as capital in capital companies -for transferees-.	15
For real estates to be distributed by cooperative housing societies, on the value of registration in the names of partners	1.8
In successions of real estates to successors	9
In transactions of parcelling out, subdivisions or consolidation of real estates, on the amount of registered values	9
Transactions including hypothecation or additional guarantees, on the amount of debt	3.6
In annotations of simple lease and usufructuary lease contracts into registries on the amount of contractual lease period or if there is no contract or no period is mentioned in the contract, on the amount of one year lease price	5.4
In registration of buildings to be re-constructed on lands and territories, on the amount of real estate tax	15
In transfers and acquisitions of real estates against a price or according to a lifelong support contract or barter contract, on the amount to be taken basis in the calculation of real estate tax provided that this amount is not below the transfer and acquisition price (in compulsory executions and or in elimination of joint ownership, on the amount of sale, in expropriations on the value of evaluation) -both for transferor and transferee-	15

Reference: General Notice on Act of Fees no 54 (annexes)

Persons who are exempt from real estate taxes:

People who own only one house square measure of which does not exceed 200 m2, people who do not have any other income than their retirement pension and unemployed people, housewives and disabled people are exempt from real estate tax. In case these people will own more than one house, they will be charged with real estate tax for all their houses.

A Temporary Exemption:

According to the provisions of the Act of Promotion of Tourism Industry, income tax or companies tax taxpayer companies which are granted tourism company certificate will be temporarily exempt from real estate tax for five years for the buildings dedicated for purposes set forth in the act and for the buildings of their companies since the termination of construction of buildings or in case of dedication of buildings to this purpose, since the following year of the year in which tourism company certificate is granted.

Taxpayers who do not pay their taxes on time – except for exempt people or companies mentioned above- shall pay a default penalty for every month of every delayed instalment according to the provisions of the Law on the Procedure on Collecting Public Credits no 6183.

According to the Council of Ministers Decision (2007/13033) on the determination of the value added tax amount applicable to goods and services, in construction contracts for social security services and for residences the square measure of which do not exceed 150 m2 and in cooperative housing societies without any limitation, the VAT rate shall be 1%.

Another exception is regulated for people who have a rent income. People who have a work place rent income exceeding the sum of YTL 19.800 in total in 2008 shall declare this income. However people who have a rent income of YTL 7,000 monthly or YTL 84,000 annually will not pay income tax for this income.

The limit for house income for income tax exemption is determined as YTL 2.400 for 2008 according to art 21 of Income Tax Act (General Notice on Act of Income Tax, series no. 266). People who have a house rent income will benefit from the exemption for income of YTL 2.400 annually. However in case if an annual house rent income exceeds this amount, taxpayer shall declare this income. In this case a deduction at source of 20% will apply to this rent income.

The issue of real estate tax is also important in sale transactions. Especially those who buy a second hand real estate shall check whether real estate taxes belonging to previous years are paid or not; in other words, whether the real estate has any tax debt. Because, the last paragraph of article 30 of the Real Estate Tax Law puts that: “Transferor and transferee are jointly liable from unpaid real estate taxes belonging to previous years for transferred or assigned building or territory. The right to recourse of the transferee to taxpayer is conserved. Registration offices shall inform the related municipalities of transfer or assignation transactions within the evening of 15th day of the month following the transaction.”

Those who buy real estate in 2007 do not pay real estate tax for 2007. In this situation their real estate tax duty initiates from 2008.

The value of real estate in the registries is particularly important regarding the taxes to pay. Considering from a viewpoint of income tax regulations, if the acquired real estate is sold within 4 years of the acquisition, the income is considered as a “value increase income” and is subject to income tax. For those who intend to resell the real estate that they buy within four years, it would be appropriate not to show the buying price lower as it will be taken basis for tax calculation. Otherwise, the difference of this amount and the resell price within four years will appear as profit in the registries and will be subject to taxation. From a viewpoint of fees, as of the beginning of 2001 the values of real estates on the basis of fees are increased, if there is a difference between the effective buying price of real estate and registered price, it is possible to request the correction of the amount of the moment of transaction. This fact is of particular importance for public officials regarding “declaration of property”, and for taxpayers regarding “where did you find” examinations.

Incomes obtained from real estate sales are subject to income tax according to the following tariffs:
• 15% for up to YTL 7.800
• YTL 1.170 for YTL 7.800 of the amount up to YTL 19.800 and 20% of the amount exceeding this sum
• YTL 3.570 for YTL 19.800 of the amount up to YTL 44.700 and 27% of the amount exceeding this sum
• YTL 10.293 for YTL 44.700 of the amount exceeding YTL 44.700 and 35% of the rest of this sum

Companies can be exempt from corporate tax for 75% of the income obtained from real estate sales. To benefit from this advantage, companies shall satisfy the following conditions:
• Real estate shall be registered in the name of the company since at least two years (in case of real estates acquired by transfer or division of companies or by using pre-emption rights, the time passes at the transferred or divided company shall also be taken into account in the calculation of the two year period);
• The part of sale income for which the exemption applies shall be deposited in a funds account in debtor side of the company until the end of fifth year following the sale (if any amount is transferred to another account excluding for the purpose of increase of capital or any amount withdrawn from the capital or transferred by limited taxpayers to the main company within five years from the exempted amount, taxes which cannot accrue for this reason are deemed to have come to naught);
• Incomes obtained from the sales of the real estates by companies which are engaged in real estate and rent trade are beyond the scope of the exemption.

According to the article 17/4 of the Value Added Tax Act no 3065, in case if companies sell their real estate after two years or more, they are exempt from the VAT.

Real Estate Fees

As to the amount of the fee, in real estate sale transactions both seller and buyer shall pay 15 per thousand of the sale price in the registries.

While transferring the title deed of a real estate to successors, successors shall pay 9 per thousand of “title deed fee” out of the minimum rate of real estate tax. Incomes to be obtained from sales of any inherited real estate (land, territory, building, shop and store) are not subject to income tax.

Different regulations

According to the 4th section of the Act no 213 on Tax Procedure “taxpayers shall declare the buildings and territories which were forgotten in general registrations to tax office within the end of the financial year in which tax is started to be collected according to the feedback of the registration work.” In cities and towns taxpayers shall also declare to tax offices newly constructed buildings, buildings started to be partially used before being completed, changes in lands and buildings, reversions of lands with revenue into land without revenue and vice versa.

In order to compensate the huge financial losses accrued because of earthquakes in Marmara Region and neighbourhood on17th of August 1999 and on the 12th of November 1999, special communication taxes and special transaction taxes which are also known as earthquake taxes had applied in many areas such as mobile phones, tax declarations, football pool tickets, National Lottery tickets, fly tickets, custom and passport procedures. Special communication tax still applies at a rate of 25%.

The Act nr 4481 on Creation of Some Liabilities and Some Changes in Tax Acts In order to compensate the huge financial losses accrued because of earthquakes in Marmara Region and neighbourhood on17th of August 1999 and on the 12th of November 1999 has been published on the Official Gazette and entered into force on the 26th of November 1999. By this act, a one-time additional tax payment was set forth on declared basis of income taxes and corporate taxes in 1998 year which exceeded a certain amount, on buildings, lands and territories, on motor vehicles and on mobile phones.

In conclusion we should mention that, in real estate sale transactions, there are lots of special and exceptional situations regarding tax and fee regulations. For this reason and in order to avoid any payment of penalties or fines, it would be appropriate to consider these issues while making transactions.