To encourage property sales to foreigners, amendments have been made to the legislation regarding the acquisition of Turkish citizenship for foreign nationals under the Turkish Citizenship Law No. 5901.

In line with this approach, the Law No. 6824 on the Restructuring of Certain Receivables and Amendments to Some Laws and Decree-Laws introduced a VAT exemption for foreign buyers on residential and commercial property purchases through the addition of a new clause to Article 13 of the VAT Law (Law No. 3065).

This exemption, which became effective on April 1, 2017, provides that foreign individuals and entities, as well as Turkish citizens living abroad, can benefit from VAT exemption under certain conditions when purchasing property. This article explains the requirements and key details of the VAT exemption process.

Eligible Buyers for the Exemption

To qualify for the exemption under Article 13/1-i of the VAT Law, the property sale must be made to one of the following individuals or entities:

1. Turkish citizens who have lived abroad for more than six months with a work or residence permit (excluding those working abroad on behalf of government offices or institutions, or entities headquartered in Turkey),

2. Foreign individuals who are not resident in Turkey,

3. Entities without a legal or business center in Turkey and that do not generate income through a permanent establishment or representative office in Turkey.

Moreover, buyers eligible for this exemption can purchase multiple properties (residential or commercial) under the exemption, provided they meet the necessary conditions.

For foreigners, the non-residency requirement is clarified under Article 4 of the Income Tax Law No. 193. This article stipulates that individuals who reside in Turkey or stay in the country for more than six months in a calendar year are considered residents of Turkey (temporary absences do not affect residency status).

The sellers, who must verify that the buyers meet the exemption requirements, should request the necessary documentation from the buyers before the property title deed transfer. In practice, however, buyers often present these documents to the tax office, obtain a VAT Exemption Certificate, and then provide this to the seller.

Conditions for the Exemption

To qualify for the VAT exemption under Article 13/1-i of the VAT Law, buyers must meet the following conditions:

1. First Transfer of a Property Ready for Use as Residential or Commercial PropertyThe property must be classified as a residence, office, apartment, or similar use according to the building permit to qualify for the exemption. Additionally, the property must be fully delivered to the buyer in a ready-to-use state. In properties with established condominium ownership, the title must also be established.A critical point, often misunderstood, even by some legal professionals, is that the VAT exemption is not restricted to a foreign buyer’s first property purchase in Turkey. Rather, the exemption applies to the developer company’s first delivery of the property. This means the exemption can only be claimed when a developer sells a newly constructed property to a foreign buyer for the first time. Secondary sales or resales by individual owners do not qualify for the exemption.

2. Payment in Foreign Currency Transferred to TurkeyTo benefit from the exemption, at least 50% of the payment must be transferred to Turkey before the invoice date, with the remaining balance transferred within one year. The transfer of funds to Turkey must be verified. While transactions should ideally be processed through banks, physical transfers of funds are also permissible if documented by customs authorities. Payment to the seller in Turkish Lira is acceptable as long as the funds were initially brought in as foreign currency. It is also essential that the individual making the payment matches the buyer listed on the sales invoice.

3. Property Retention Period of at Least 3 YearsBuyers must retain ownership of the property for a minimum of three years from the date of registration with the land registry. If the property is sold before this period, the initially exempted VAT must be repaid with interest. To enforce this, the Land Registry places a note on the property record, stating that if the property is sold within three years, unpaid VAT with interest will be collected from the seller.

Consequences of Failing to Meet Exemption Conditions

If it is found that the exemption was applied without meeting the necessary conditions under Article 13/1-i of the VAT Law, any unpaid taxes, tax penalties, and late fees are jointly collected from both the seller and buyer.

VAT Rates for Residential Property Deliveries in Türkiye: Legal Framework, Tables, and Practical Examples

Foreign investors who plan to purchase real estate in Türkiye often focus on property prices, location, rental potential, or eligibility for residence permits and Turkish citizenship by investment. However, one of the most important financial aspects of a property purchase is Value Added Tax (VAT – KDV), which may apply depending on how and from whom the property is purchased.

Before explaining the VAT rates applicable to residential property deliveries in Türkiye, it is important to clarify a key legal distinction that frequently causes confusion among foreign buyers.

The VAT rules explained in this article generally apply only to newly constructed residential properties delivered by construction companies, developers, or other corporate entities that sell real estate as part of their commercial activity. Under Turkish tax law, companies are required to issue an invoice (fatura) when selling property within the scope of their business operations. Because an invoice must be issued, these transactions are treated as taxable supplies, and therefore VAT must be calculated according to the applicable VAT rates.

In contrast, VAT is generally not applied when a property is sold by a private individual (real person) who is not engaged in real estate trading as a commercial activity. When a property has already been registered at the land registry and is later sold by its individual owner, the transaction is usually considered a second-hand property transfer.

In such cases:

• The seller does not issue a VAT invoice

• The transaction is not subject to VAT

• Instead, the parties pay title deed transfer tax (Tapu Harcı)

Currently, the title deed transfer tax is 4 percent of the declared property value, which is typically shared between the buyer and the seller unless otherwise agreed.

For foreign investors, this distinction is extremely important because the tax burden when purchasing a newly built property from a developer may differ significantly from purchasing an existing property from an individual owner.

Therefore, the VAT rates and tables explained in this article mainly apply to first-time deliveries of newly constructed residential units by construction companies or other corporate sellers.

Legal Basis of VAT Rates in Türkiye

The legal framework governing VAT rates is regulated under Article 28 of the Turkish Value Added Tax Law (KDV Kanunu).

According to this provision:

• The standard VAT rate for taxable transactions is 10 percent.

• The government has the authority to increase this rate up to four times or reduce it down to 1 percent.

• Different VAT rates may be determined for various goods and services.

Based on Council of Ministers Decision No. 2007/13033, VAT rates applicable to goods and services are determined as follows:

Within this regulatory framework, residential property deliveries have historically been taxed depending on several factors, including:

• property size

• construction license date

• metropolitan municipality status

• building classification (luxury or first class construction)

• land unit tax value

• whether the project is part of an urban transformation program

Because these factors have changed several times over the years, determining the correct VAT rate can sometimes be complex.

An additional technical concept that must be understood is the land unit tax value per square meter (TL per m²) determined by municipalities. This value refers to the official tax value of land per square meter, not the total land price of the property. Some VAT thresholds depend on this value.

Basic VAT Rule for Residential Units

Historically, the VAT structure for residential units in Türkiye has been based primarily on property size.

However, regulatory changes introduced additional criteria for certain periods, particularly in metropolitan municipalities and luxury construction projects.

VAT Rates for Construction Licenses Issued Between 1 January 2013 and 31 December 2016

VAT Rates for Construction Licenses Issued Between 1 January 2017 and 1 April 2022

VAT Rates for Urban Transformation Projects

Urban transformation projects (kentsel dönüşüm) follow a slightly different VAT regime.

VAT Rates for Construction Licenses Issued After 1 April 2022

Following regulatory reforms introduced in 2022, the VAT system for housing was simplified.

This framework currently applies to many newly licensed construction projects in Türkiye.

Practical VAT Calculation Example

Example scenario:

A construction company receives a building license on 1 June 2022 for a residential project located in Tunceli.

Two apartments are sold on 8 October 2024.

VAT Calculation

For the 120 m² apartment

VAT rate: 10%

600,000 × 10% = 60,000 TL VAT

For the 160 m² apartment

VAT must be calculated separately for the portion exceeding 150 m².

Formula:

(900,000 × 150 / 160 × 10%) + (900,000 × 10 / 160 × 20%)

Total VAT:

95,625 TL

VAT in Land-for-Construction Agreements

In land-for-construction agreements (arsa karşılığı inşaat), two separate taxable transactions occur.

1. The landowner transfers a land share to the contractor.

2. The contractor delivers residential or commercial units to the landowner.

These are treated as mutual deliveries (trampa) under Turkish tax law.

The fair market value must be determined according to Article 267 of the Turkish Tax Procedure Law.

When calculating the taxable base, the following elements must be considered:

• production costs

• general administrative expenses

• relevant cost allocations

VAT Withholding in Building Inspection Services

Another important VAT rule concerns building inspection services (yapı denetim hizmetleri).

Key principles include:

• Building inspection companies issue invoices to the construction license holder (usually the landowner).

• The contractor cannot deduct the VAT from this invoice as input VAT.

• If the landowner is a VAT taxpayer, 9/10 VAT withholdingapplies.

Why VAT Planning Matters for Foreign Investors

Foreign nationals often purchase property in Türkiye for:

• residence permits

• Turkish citizenship by investment

• rental income

• international portfolio diversification

Understanding VAT obligations is essential when calculating the true total cost of property acquisition.

Incorrect VAT calculations may lead to:

• unexpected tax liabilities

• financial penalties

• disputes with developers or tax authorities

Professional legal and tax guidance significantly reduces these risks.

Legal Assistance for Real Estate Investments in Türkiye

At Bayraktar Attorneys, we provide legal services to foreign investors throughout the entire real estate acquisition process.

Our services include:

• real estate due diligence

• verification of construction licenses and zoning status

• VAT and tax analysis for property transactions

• title deed procedures

• residence permit applications

• Turkish citizenship by investment applications

Our goal is to ensure that foreign investors can acquire property in Türkiye securely and in full compliance with Turkish law.

Declaration and Refund Process for Sellers Utilizing the Exemption

For sellers applying the exemption under Article 13/1-i, the exempted sales are reported in the relevant line of the VAT return for the tax period when the property is delivered. The “Delivery and Service Amount” column shows the sale price excluding VAT, while the “VAT Incurred” column includes the total VAT shown on related purchase and expense documents. Sellers are also required to report these transactions using the related form attached to their VAT return for each tax period.

The VAT refund can be requested after the full amount has been transferred to Turkey and paid to the seller. Sellers may submit the necessary documents to claim refunds arising from property sales after full payment.

Conclusion

Under Article 13/1-i of the VAT Law, foreigners and Turkish citizens residing abroad can benefit from VAT exemption on property purchases, provided they meet the necessary conditions. The process requires careful planning of the payment and land registry procedures, as well as effective communication between the buyer and seller to ensure compliance with this exemption.