As per Article 13(i) of the VAT Law, the real estate sold as first delivery to foreign persons and institutions not resident in Turkey is exempted from VAT.

Dear Fortune readers,

I would like to hereby share with you my assessments on the exemption regulation set out in the VAT Law concerning the immovable property purchased by foreign real or legal persons in Turkey. As known, the principle of reciprocity sought for the acquisition of immovable property or limited real rights by foreign real persons in Turkey was abolished through an amendment made to the Land Registry Law in 2012, considerably facilitating the acquisition of immovable property by foreign real persons in Turkey. In parallel with the aforementioned regulations, the regulation on the implementation of the Turkish Citizenship Law was amended in 2017 and 2018 so as to encourage the sale of houses and workplaces to foreigners and the foreigners purchasing immovable property with a minimum price of USD 250,000 or shares for real estate investment trust at a minimum amount of USD 500,000 and keeping them for three years were granted the right to Turkish citizenship. These regulations aimed to destock new houses constructed in recent years and put a stop to the shrinkage experienced in the sector.

On the other hand, it is essentially impossible for foreign legal persons to acquire immovable property in Turkey as per Article 35 of the Land Registry Law (apart from easement or usufruct). Corporations which are incorporated as per the respective laws of foreign countries and hold a legal entity may acquire immovable property and limited real rights in Turkey only within the framework of the provisions of special laws (the Law for the Encouragement of Tourism, the Law on Industrial Zones and so on). Corporations which are incorporated in Turkey, hold a legal entity and have fifty percent of the shares or more in the foreign companies incorporated abroad or are authorized to appoint or dismiss the majority of persons holding the right to management may acquire immovable property and limited real rights only to engage in the fields of activity stipulated in their articles of association (apart from the acquisition of immovable property and limited real rights in special investment zones such as organized industrial zones, industrial zones, technology development zones and free zones).

Conversely, if the aforementioned ratio is lower than fifty percent, these corporations may purchase any and all kinds of real estate just like Turkish companies irrespective of them being relevant to their field of activity.  Subparagraph (i) was added to Article 13 of the Value Added Tax Law in 2017 to exempt Value Added Tax from the deliveries of houses or workplaces to the foreign real persons not resident in Turkey and the institutions whose headquarters and place of business is not in Turkey and which does not make any profit in Turkey through their workplaces or permanent representatives on the condition that this provision applies to the first delivery of the buildings constructed as houses or workplaces and their prices are brought into Turkey in foreign currency.

However, as specified above, it is not legally possible for the said corporations to acquire immovable property except for the real estate covered by the provisions of special laws. Therefore, I would like to state that the regulation of exemption set out in the VAT Law does not apply to these transactions to say the least.

Leon Aslan Coşkun