Foreign landlords in Turkey must file taxes by March 25

Diyadin Yakut* - ISTANBUL

The tax treatment of income elements gained by foreigners from any source of income has usually been at the top of the international tax agenda and extensively debated worldwide by experts, academics and tax practitioners alike.

In Turkey too, all tax laws, from the inception of the Turkish Republic to the present day, incorporate the concept of “foreigners” into the technical context of taxation via the definition of tax liability in two distinct ways.

Strictly speaking, tax laws designate tax liability as unlimited tax liability and limited tax liability and proceed to envisage different tax treatment processes for these aforementioned liabilities.

Since the subject matter of this article is the tax treatment of income derived from the rental of immovable properties and rights in Turkey by limited liable taxpayers (non-residents), it is wiser to confine the scope solely to the definitions made in the Turkish Personal Income Tax Law (PITL) with regard to tax liability and its implications when applied to income gained from immovable properties and rights.

The PITL employs residency criterion to distinguish between unlimited and limited tax liabilities. Residents are, according to the PITL, individuals with legal permanent residence in Turkey and those who reside in Turkey for more than six months during one calendar year, with the exception of Turkish citizens who live and work abroad for a government agency or a company headquartered in Turkey and are still deemed unlimited liable taxpayers. These individuals are all treated as unlimited liable taxpayers.

Non-residents, on the other hand, are individuals that reside abroad - excluding citizens working for the government or a company headquartered in Turkey. Expatriates such as businessmen, scientists, experts, employees of other governments or journalists who come to Turkey to perform a temporary and definite work as well as those who have arrived for the purpose of education, medical treatments, rest and travel are also considered non-residents, regardless of their time of stay in Turkey.

While individuals deemed unlimited liable taxpayers are subject to taxes on their worldwide income, those who are counted as limited liable taxpayers are held responsible only for their earnings and revenues obtained in Turkey. Accordingly, non-residents, namely the limited liable taxpayers, wherever they live and whichever country they have citizenship in, are subject to taxation on their income derived from immovable properties leased in Turkey.

In article 70 of the PITL, income obtained from the renting of immovable properties and rights is deemed as “immovable property income” and income earners are held responsible for the taxation of that income.

Exemptions and deductions

Article 21 of the PITL states that immovable property income earners are eligible to benefit from an exemption amount of 3,600 Turkish Liras for the year 2015 provided they don’t have any obligation to file a tax return due to their commercial, agricultural or professional activities and their total income derived from other types of activities does not exceed the 106,000 liras.

The concerned article of PITL regulates that non-resident taxpayers are offered to choose a deduction method to clarify the net amount of income derived from immovable properties; namely lump sum and actual expense methods.

Tax withholding, declaration and payment of rental income

Non-resident taxpayers do not file any tax return for their income from immovable properties that is subjected to withholding tax by those specified in article 94 of the PITL even in the case they have an obligation to submit an annual tax return for other types of income elements. 

After fulfilling the necessary requirements, the annual tax return shall be submitted to the tax office that the representative of the non-resident taxpayer is registered with or in the case there is no such representation, shall be submitted to the tax office of the province or district where the concerned immovable property is located. The tax return concerning income elements derived during 2015 shall be submitted between March1-25, 2016. The payable tax calculated and eventually assessed shall be paid in two equal installments, one in March 2016 and the other in July 2016.

Net income derived from immovable properties and rights demonstrated in the annual tax return after all sorts of deductions and exemptions will be subject to progressive tax rates ranging between 15-35 percent, as specified in article 103 of the PITL.

Several major factors such as a new law put in place in May 2012 that abolished the reciprocity criterion for the sale of immovable properties to foreigners and lifted some other additional restrictions; recent designation of Istanbul as an international financial center by the Turkish government to turn this city into a regional financial hub; and finally the declaration of grand construction projects within the context of wider urban transformation plans are likely to attract more and more investors willing to put their money into the Turkish real estate market and make the taxation of income derived from the renting of immovable properties by foreigners one of the hottest topics of the tax agenda in the coming years.


*Diyadin Yakut is a tax inspector at the Finance Ministry.