VAT EXEMPTION

As it is known, Value Added Tax, or simply VAT, is an expenditure tax that is paid by the deliverer of goods and services, but charged to the recipient. It varies from 1% to 18%. However, in some cases stipulated by the law, there may be an exemption from the VAT amount. In our article below, we will explain the VAT exemption that foreigners, who are among the VAT exemptions, can benefit from in the purchase of the real estate.

A. WHAT IS A VAT EXEMPTION?

The basic regulations about VAT exemption are contained in the VAT Law and Value Added Tax General Implementation Notice.

Turkish citizens who have been living abroad for more than six months after obtaining a work or residence permit provided that it is applied on the first delivery of buildings constructed as residences or workplaces following Article 13/I of VATK and the price is brought to Turkey in foreign currency (except for GVK 3/2) and residence or workplace deliveries 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 do not make a profit in Turkey through a workplace or permanent representative, are exempt from value-added tax. The determinations regarding the application of the said exemption are made in Section II/B.12 of VATUGT.

According to article 12.2.2 of KDVUGT, it is envisaged that the condition of bringing the price to Turkey in foreign currency is mainly realized through banks. The proof of this will be through the bank receipt. In addition, it is possible to make payments of this amount by credit card, and it will be possible to prove it with a receipt or letter from the bank in Turkey to which the amount has been transferred.

B. HOW CAN I BENEFIT FROM THE VAT EXEMPTION?

VAT exemption is applied to foreigners at the first delivery of the residence or workplace. For these real estate to be subject to delivery, the building must have a building permit and must be delivered ready for use. In case the residence or workplace is purchased from the builders and sold to someone else, the sale cannot be considered as the first delivery.
Buyers to Benefit from Exemption

Recipients who will benefit from the exemption
• Turkish citizens living abroad for more than 6 months by obtaining a work or residence permit (except for Turkish citizens residing in a foreign country due to the works of the said offices, institutions, establishments, and enterprises affiliated to official offices and institutions or organizations and enterprises headquartered in Turkey),
• Real persons of foreign nationality who are not settled in 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
• It is applied in the first deliveries of residences or workplaces.
• It is possible for buyers who meet the conditions to benefit from this exemption to purchase more than one residence or workplace within the scope of the exemption.

 

REPATRIATION OF THE COST TO TURKEY IN FOREIGN CURRENCY

A. WITHIN WHICH PERIODS MUST THE CONSIDERATION BE BROUGHT TO TURKEY?

For the VAT exemption to be applied in the delivery of residence or workplace, the price must be paid in advance or at least 50% of the price must be brought to Turkey by the buyer in foreign currency and paid to the seller before the date of issuance of the invoice for the sale, and the remaining part must be paid to the seller within 1 year at the latest. A VAT refund regarding the exception is made after the entire amount is brought to Turkey and paid to the seller.

A letter of undertaking stating that the buyer has accepted his/her obligations to benefit from VAT exemption shall be signed at the stage of the sale.

B. CONFIRMATION THAT THE CONSIDERATION HAS BEEN BROUGHT TO TURKEY

It is a basic method to bring foreign currency abroad by transferring it to a bank in Turkey. In case the foreign currency is transferred to a bank in Turkey, the transfer transaction is documented with a bank receipt or a Foreign Exchange Purchase Document. Payment can be made with credit cards issued by banks abroad. However, it is necessary to prove that the foreign currency related to the payments made with these credit cards has been brought to Turkey with a receipt or letter to be given by the relevant bank in Turkey.

It is also possible to bring foreign currency abroad to Turkey physically by the buyer, and in this case, the documents obtained from the Customs Administration are used to prove that the foreign currency has been brought to Turkey.

In addition, in case the foreign currency is physically brought to Turkey or transferred from abroad to the buyer's account in Turkey, the said amount must be paid to the seller through the bank and this payment must be documented with a bank receipt. It is also possible to pay the price brought from abroad in foreign currency to the seller in TL.

Foreign currency brought before the date of 08/03/2017, when Law No. 6824 was published in the Official Gazette, cannot be considered as foreign currency brought to Turkey within the scope of this exception. However, the foreign currency paid to the seller before this date to purchase a certain residence or workplace is considered foreign currency brought to Turkey regarding the residences or workplaces subject to delivery within the scope of the exception, provided that it is certified.

C. EXPANSION OF REMITTANCES FROM SWIFT-EXCLUDED COUNTRIES SUCH AS IRAN

An additional paragraph was added to Article 12.2.2.2 of KDVGUT in the Official Gazette on October 15, 2019, so that citizens of countries such as Iran where banking activities are restricted can benefit from VAT exemption. With this additional paragraph, facilities were provided for the citizens of the relevant countries to benefit from VAT exemption in the purchase of the real estate.

To take advantage of this convenience:
• Include the necessary information about the buyer and the real estate to be purchased on the bank receipt,
• A consent letter must be signed between the buyer and the seller for the sale of the real estate in question.

NOTE: The sale price, paid in cash or transferred via bank, must be transferred to the seller's account and all required documents must be submitted within a reasonable time before the sale.

D. FAILURE TO DISPOSE OF THE RESIDENCE OR WORKPLACE WITHIN 3 YEARS

To apply an exception in the delivery of residence or workplace, a transaction must be established in the title deed. Those who make sales within the scope of the exemption notify the Land Registry Directorates that the sale of residences or workplaces is made as an exemption from VAT within the scope of article (13/i) of Law No. 3065. Upon this notification, an annotation is placed in the declarations section of the land registry by the land registry offices that if these residences or workplaces are disposed of within 3 years, the tax not collected on time will be paid together with the deferment interest rate( Article 48 of the Law No. 6183). If the house or workplace received within the scope of the exemption is disposed of within 3 years, the tax that cannot be collected on time is paid to the tax office of the place where the immovable is located, together with the delay interest calculated at the rate of deferred interest following Article 48 of the Law No.

E. FAILURE TO MAKE THE REQUEST PER THE PROCEDURE

In case it is determined that the exemption is applied even though it does not meet the conditions stipulated in Article 13/I of Law No. 3065, the taxpayer and the buyer are jointly responsible for the tax, tax loss penalty, and delay interest.
Within the scope of the exception, at least 50% of the price of the house or workplace subject to delivery must be brought to Turkey in foreign currency by the buyer and not paid to the seller before the date of issue of the sales invoice, and the remaining part within one year at the latest. Otherwise, the tax that cannot be collected on time is sought from the buyer together with the seller, together with a tax loss penalty and late interest.

F. VAT REFUND REQUESTS ARISING FROM THE DELIVERY OF RESIDENTIAL OR WORKPLACE

The following documents are required for return requests arising from residence or workplace deliveries:
• Standard refund request petition
• VAT List for the period in which the exception was declared
• VAT list loaded directly belonging to the right to return transaction
• Requested VAT calculation table
• Sales invoices list
• The documents listed in the notification (11/B-12.1.3) that the sellers must provide before delivery
• Bank receipts proving that the entire foreign currency was brought to Turkey or documents received from the customs administration and bank receipts proving that it was paid to the seller
• Deed registration sample about sales

As U&T Law, we carry out your Estate transactions with great care with our expert lawyer staff. We provide reliable service to foreigners who own or want to buy real estate in Turkey. You can reach us at the following contact addresses and get legal and procedural support in these processes.