VAT Exemption for Foreigners' Residence and Workplace Purchases in Türkiye
Introduction
It is known that legislative amendments have been made for the acquisition of Turkish citizenship by foreigners within the scope of the Turkish Citizenship Law No. 5901 in order to encourage the sale of residences and workplaces to foreigners. In parallel with the aforementioned approach, Article 7 of Law No. 6824 on Restructuring of Certain Receivables and Amendments to Certain Laws and Decrees added a subparagraph to the first paragraph of Article 13 of Value Added Tax Law No. 3065 (“VAT Law”) and introduced a VAT exemption for foreigners' residence and workplace purchases. This exemption entered into force on 08.03.2017 to be applied as of 01.04.2017. Within the scope of Article 13/1-i of VAT Law, it is possible to apply for VAT exemption under certain conditions in the sales of residences and workplaces to foreign real and legal persons and Turkish citizens living abroad. In this article, the conditions regarding the VAT exemption and important issues regarding the process are explained.
Buyers within the Scope of Exemption
To benefit from the exemption provided under Article 13/1-i of VAT Law, the delivery within the scope of the sales transaction must be made to the persons and institutions listed below:
- Turkish citizens living abroad for more than six months after obtaining a work or residence permit (except for Turkish citizens residing in foreign countries due to the business of the said departments, institutions, organizations, and undertakings which are affiliated to official departments and establishments or enterprises and undertakings headquartered in Türkiye),
- Real persons of foreign nationality who are not resident in Türkiye,
- Institutions that do not have their legal and business headquarters in Türkiye and do not generate income in Türkiye through a permanent establishment or a permanent representative.
In addition, it is possible for buyers who meet the conditions to benefit from the exemption to purchase more than one residence or workplace within the scope of the exemption.
Regarding the non-resident condition for foreigners, it should be noted that under Article 4 of the Income Tax Law No. 193, those who have their domicile in Türkiye and those who reside in Türkiye continuously for more than six months within a calendar year (temporary departures do not interrupt the period of residence in Türkiye) are deemed to be residents of Türkiye.
Under the Communique, Seller taxpayers who will deliver residences or workplaces within the scope of the exemption should obtain the documents certifying that the buyers are within the scope of the exemption from the buyer before delivery. However, in practice, it is seen that these documents are submitted to the tax office by the buyer and the VAT Exemption Letter is obtained and given to the seller.
Conditions of Exemption
Persons and institutions within the scope of the exemption provided pursuant to Article 13/1-i of the VAT Law may benefit from the exemption by satisfying the exemption conditions detailed below:
First delivery of an immovable property in the form of a residence or a workplace ready for use
To benefit from the exemption, the immovable property sold must be defined as a residence, workplace, apartment, or similar in the building license.
To benefit from the exemption, the residence or workplace must be delivered ready for the use of the buyers. In real estate where a condominium easement can be established, it is also required that the condominium easement is established.
The exemption is applied to the first delivery to be made by the taxpayer who built the residence or workplace. Deliveries made to another person by purchasing from the constructor are not considered as the first delivery and cannot benefit from the exemption.
Bringing the Purchase Amount to Türkiye in Foreign Currency
To benefit from the exemption, at least 50% of the purchase amount must be paid to the seller before the date of issuance of the sales invoice and the remaining part must be brought to Türkiye in foreign currency by the buyer within 1 year at the latest. Within the scope of this condition, it is necessary to certify that the amounts have been brought to Türkiye. Although it is essential that the transactions are made through a bank, it is also possible for the buyer to bring the amount physically. In case the amount is brought physically, the proof is provided with a document to be obtained from the Customs Administration. It is also possible to pay the amount brought from abroad in foreign currency to the seller in Turkish Lira. It is important that the foreign person to whom the invoice will be issued within the scope of the sales transaction and the person who brings the foreign currency are the same person.
Holding the Residence or Workplace for at Least 3 years
The last condition of the exemption is the condition of holding the purchased residence or workplace for 3 years from the date of title deed registration. In this context, the buyer should not sell the purchased residence or workplace for 3 years. Otherwise, the VAT not collected on time will be paid by the transferor together with the deferral interest.
In this context, in order for the exemption to be applied, a transaction must be established at the title deed office. The seller notifies the Land Registry Office of the sale within the scope of the exemption. Upon this notification, the Land Registry Office shall place an annotation in the declarations section of the title deed register stating that if these residences or workplaces are disposed of within 3 years, the tax not collected on time shall be paid together with the default interest calculated at the rate of deferment interest according to Article 48 of the Law No. 6183.
Application of the Exemption even if the Exemption Conditions are not fulfilled
If it is determined that the exemption is applied without fulfilling the conditions stipulated in Article 13/1-i of VAT Law, the buyer shall be jointly and severally liable with the taxpayer for the tax not collected on time, tax loss penalty, and default interest.
Seller’s Declaration and Return Process in Case of Benefiting from Exemption
Sales made by applying for the exemption within the scope of Article 13/1-i of VAT Law are declared in the relevant line of the VAT declaration for the taxation period in which the residence or workplace delivery is made. In the "Delivery and Service Amount" column of this line, the VAT excluded amount of the price of the residences or workplaces subject to the exemption, and in the "VAT Charged" column, the total VAT amount shown in the documents related to the purchases and expenses related to these residences or workplaces are written. In addition, the sellers notify the sales within this scope within each taxation period with the relevant form attached to the VAT declaration.
VAT refund related to the exemption is made after the entire amount is brought to Türkiye and paid to the seller. In refund requests arising from the delivery of residences or workplaces, sellers can apply with the necessary documents.
Conclusion
Within the scope of Article 13/1-i of VAT Law, it is possible to apply for VAT exemption under certain conditions in the sales of residences and workplaces to foreign real and legal persons and Turkish citizens living abroad. In order to meet the conditions explained in this article, it will be important that the payment plan and title deed processes are carefully planned and that the communication between the seller and the buyer includes this exemption.
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