Turkey: Foreign Investment In Real Property In Turkey And The Recent Changes In The Legal Regime

1- Introduction and Legal Basis

Turkey has always been a friendly environment for foreign investment and has been allowing foreigners to buy real property since 1934 with certain restrictions and requirements.

A major change towards pro-foreign investment occurred in 2012 and the reciprocity requirement was abolished. According the reciprocity principle, a foreign real person was only allowed to acquire real property in Turkey if the country of which such foreigner is a citizen also allowed Turkish citizens to purchase real property in the said country. However, this requirement has been lifted in line with the EU principles.

According to the Article 35 of Title Deed Law; real persons of foreign nationality that are citizens of the countries designated by the Council of Ministers may acquire real property and limited real rights in Turkey only in circumstances justified by Turkey's bilateral relations and national interests, provided that the local legal regulations are not violated. The total surface area of the property and limited real rights acquired by a foreign real person may not exceed 10% of the total surface area of Turkey and may not exceed 30 hectares per person throughout Turkey. However, these restrictions do not apply when establishing mortgage in favor such foreign real persons. The Council of Ministers is authorized to increase the above-mentioned thresholds by two-folds.

Currently, Turkey gives opportunity to the citizens of 183 countries to buy real property in Turkey as determined and announced by Council of Ministers.

Companies established in foreign countries in compliance with relevant laws of such countries may only acquire real property and limited real rights if specific laws in Turkey allow so (e.g. laws for incentivizing tourism). However, this restriction does not apply when establishing mortgage in favor such companies.

Real persons of foreign nationality and companies with legal personality established in foreign countries in compliance with the laws of their respective countries are required to submit to the approval of the Ministry of Environment and Urban Planning within 2 years, a design project for the development of the non-built-up property they have purchased.

Companies established in Turkey with legal personality, in which foreign real persons, legal entities incorporated in accordance with the laws of the respective foreign countries or international organizations, hold 50% or more of the shares or have the power to assign or dismiss the majority of the management, may acquire ownership of property and acquire and exercise limited real rights only in order to conduct the business activities which must be specifically indicated in their articles of association. Same rule applies in cases of indirect ownership of shares or appointment rights in other companies.

2- Brief Information on the Procedure for Purchasing Real Property in Turkey

Real property is acquired/transferred by way of executing a formal written sale contract before the relevant land registry. Transfer of ownership takes effect after registration with the relevant land registry.

Foreign buyers may also prefer to enter into "promise to sell agreement" which must be signed before a public notary in Turkey to take effect; however, this agreement is a preliminary contract and does not transfer the property, but only constitutes the obligation to do so. "Promise to sell agreements" may be annotated with the land registry to bind the third parties.

3- Most Recent Regulations

Turkey continues to offer attractive opportunities to foreigners investing in real property. Most recently, important incentives have been promogulated by the Council of Ministers.

The most eye-catching incentive has been the opportunity to become a Turkish citizenship by buying a real property in Turkey. According to the recent amendment made on the Law on Citizenship, a foreigner may acquire Turkish citizenship on condition that he/she buys a real property with a value of at least USD 1,000,000 provided that an annotation is made on the title deed which restricts re-sale for 3 years.

Below are the other major changes in the real property regime occurred recently:

  • Stamp tax have been decreased.

    According to the Council of Ministers Decree numbered 2017/9759, stamp duty for "promise to sell agreements" has been decreased from %0.948 to %0. Similarly, the stamp duty for residential property sales agreements with advance payment, as regulated under Consumer Protection Law has been decreased from %0.948 to %0.

    Moreover, according to the Council of Ministers decree numbered 2017/9973, the stamp duty arising from construction agreements in return for revenue sharing or in return for independent condominium unit is decreased to 0.
  • Exemption from Value Added Tax

    Foreign real persons not residing in Turkey and companies established in foreign countries, which do not have a workplace or representation office in Turkey and which do not generate income in Tukey are exempt from value added tax of 18% on direct residential or workplace sales in which the buyer pays the purchase price from abroad in foreign currency and keeps the real estate in its ownership for at least 1 year.
  • Land Registry fees have been decreased.

    According to the Council of Ministers Decree numbered 2017/9973, the land registry fee paid separately by both the seller and the buyer has been reduced from 2% to 1.5%, however only to be applicable until 30.09.2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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