Overview Of Acquiring Citizenship Through Real Estate Investment

In recent years, the exceptional acquisition of Turkish citizenship through real estate investment has become one of the significant and popular topics for both investors and the public. In this context, we hereby present for your information our information note prepared by considering the applicable legislation and current practice.

Legal Base

Pursuant to Article 20/2(b) of the Regulation on the Implementation of the Turkish Citizenship Law ("Regulation"), it is stated that foreign persons, as determined by the Ministry of Environment, Urbanisation and Climate Change, who either purchase real estate property in the nature of a condominium ownership or construction servitude, or a land plot with a building constructed thereon, with a value of at least USD 400,000 or its equivalent in foreign currency, provided that an annotation is entered in the land registry records indicating that the property shall not be sold for a period of three years, or who are promised the sale of real estate property through a notarised agreement, provided that a condominium ownership or construction servitude has been established, at least USD 400,000 or its equivalent in foreign currency has been paid in cash, and an annotation undertaking that the transfer and cancellation of title shall not be effected for a period of three years is recorded in the land registry, may acquire Turkish citizenship by a decision of the President.

Pursuant to the current guidelines and practice of the General Directorate of Land Registry and Cadastre,

• The minimum amount is USD 400,000, which may be met by a property or by the total value of more than one property; however, in applications based on a promise of sale agreement, the required amount must be met under a single agreement.
• The value of the real estate is verified through a valuation report issued by a valuation

company licensed by the Capital Markets Board ("CMB"), which is within its validity period for the purposes of the application, together with the Foreign Exchange Purchase Certificate. Payments are required to be made through bank transfers and substantiated by documentary evidence.

Real Estate Acquisition by Foreigners in Türkiye and Residence Permits

Subject to the statutory restrictions applicable to the acquisition of real estate by foreign nationals in Türkiye (including country-based restrictions, military prohibited and security zones, and the 10% provincial cap, among others), the acquisition of real estate is not subject to a residence permit. On the other hand, pursuant to Law No. 6458 on Foreigners and International Protection, foreign nationals who own residential real estate in Türkiye may apply for a short-term residence permit, provided that such real estate is actually used as a residence.

Real Estate Valuation Process

Pursuant to the Regulation and the guidelines of the General Directorate of Land Registry and Cadastre, a "Real Estate Valuation Report" indicating the market value must be issued for the real estate(s) subject to citizenship acquisition, and, basedonthisreport, an Amount Determination Certificate must be generated via WebTapu. The process is carried out through the Real Estate Valuation Information System ("TADEBİS"), and the reports are prepared electronically and recorded directly in the land registry system.

The Real Estate Valuation Report may be issued solely by real estate valuation companies that are authorized within the framework of the regulations of the CMB and integrated into the General Directorate of Land Registry and Cadastre / TADEBİS system, and it remains valid for a period of three months as of its issuance date.

The valuation report is an official report prepared by taking into account the location of the real estate, its physical characteristics, comparable sales, and current market conditions, when calculating the equivalent of the Turkish Lira amount stated in the report in USD, the effective selling exchange rate of the TCMB applicable on the last business day preceding the report date is taken as the basis.

Restrictions Regarding the Transaction History of Real Estate

The transaction history recorded in the land registry of the real estate to be used for the acquisition of Turkish citizenship is subject to a number of restrictions, and not only the sufficiency of the value but also from whom the real estate was acquired and through what type of transaction chain are taken into consideration within the scope of the eligibility assessment.

• A real estate property may be used only once for the acquisition of citizenship.
• In the case of second hand real estate, a three-year prohibition applies to the transfer chain of "foreign national - Turkish citizen - foreign national."
• The real estate to be subject to a citizenship application must not be registered in the land registry, either prior to or after the application, in the name of persons who have acquired Turkish citizenship through the exceptional procedure.

Overview of Sale Promise Transactions and Matters to Be Considered

With respect to independent units for which a title deed transfer cannot be effected due to the construction not yet being completed, it is possible to acquire Turkish citizenship through a sale promise agreement for real estate, provided that condominium ownership or construction servitude has been established. In this case, the foreign investor may proceed with the process on the basis of a real estate sale promise agreement executed in the form of a notarised deed and an undertaking to be recorded in the land registry stating that no transfer or cancellation shall be effected for a period of three years.

However, pursuant to the Regulation and the guidelines of the General Directorate of Land Registry and Cadastre, a sale promise transaction is possible only in respect of real estate for which condominium ownership or construction servitude has been established, accordingly, a valid real estate sale promise agreement for citizenship purposes cannot be executed for land plots or projects that do not possess these characteristics.

Accordingly, agreements such as "pre-sale", "reservation" or "letter of intent", among others, cannot be used as the underlying transaction for a citizenship application.

An undertaking may be given for only a single sale promise agreement in respect of an independent unit, it is prohibited to establish a citizenship undertaking based on more than one sale promise agreement relating to the same independent unit.

Mortgage and Attachment

For the purposes of acquiring Turkish citizenship through real estate acquisition, it is possible to acquire the real estate by using credit (mortgaged sale) or while an existing mortgage or attachment is registered on the property, however, in such cases, the method for calculating the minimum investment amount becomes critical.

Real estate subject to a mortgage or attachment may be used for a citizenship investment, however, the equivalent of the minimum amount of USD 400,000 must be actually paid by the foreign investor, the portion financed by credit or merely the mortgage amount must not be included in the calculation of the investment amount, and the foreign investor must have been expressly informed of the encumbrances registered on the real estate.

Transactions Conducted by Power of Attorney

In real estate acquisitions carried out for citizenship purposes, transactions may be conducted through a power of attorney. However, in such cases, the content of the power of attorney is of critical importance both for the land registry directorates and the authorities competent for the citizenship application. In this context, the following matters should be taken into consideration with respect to the power of attorney to be issued:

• The authority to purchase must be expressly granted,
• The attorney must be expressly authorised to have a commitment clause added stating that the property cannot be transferred or relinquished for a period of three years for the purpose of obtaining Turkish citizenship, or to make a commitment not to sell the property for three years.
• The representative must be granted the authority to sign all necessary documents, make declarations and submit applications relating to citizenship applications and citizenship procedures within the framework of the Turkish Citizenship Law and related legislation.

Obtanining and Cancellation of the Undertaking Annotation

If the values declared in the official deed during the sale transaction meet the minimum amount required by the Regulation, a commitment clause shall be added to the official deed for the purpose of acquiring Turkish citizenship under Article 20 of the Regulation, and this shall be reflected in the land registry:

"I hereby declare that I have acquired this property for the purpose of obtaining Turkish citizenship under Article 20 of the Regulation on the Implementation of the Turkish Citizenship Law, and I undertake not to sell, transfer or relinquish this property for a period of three years."

Transactions Involving Real Estate Subject to an Undertaking

In respect of real estate subject to an undertaking, it is possible to establish any type of annotation and limited real right, except for a sale promise annotation. Accordingly, limited real rights such as a mortgage, usufruct right, easement right, or lease annotation may be established while the undertaking remains in force. However, in practice, the establishment of an additional sale promise annotation on real estate already subject to an undertaking is not accepted.

If, during the undertaking period, transactions that change the ownership of the real estate occur without the request of the owner (such as transfer by inheritance, expropriation, etc.), the consequences of such transactions are notified to the General Directorate of Land Registry and Cadastre, and the relevant transaction and the status of the citizenship investment are subject to re-assessment by the competent authorities.

Value Added Tax (VAT)

Exemption

n the first delivery of buildings constructed as residential units or workplaces, a Value Added Tax (VAT) exemption may be applied pursuant to Article 13 of Law No. 3065 on Value Added Tax. In order to benefit from this exemption, the following conditions must, in summary, be fulfilled:

• The real estate must be designated as a residential unit or workplace in its building permit.
• The purchaser must not be resident in Türkiye (i.e., institutions whose legal and business centres are not located in Türkiye and which do not generate income in Türkiye through a workplace or a permanent representative, as well as foreign natural persons who are not resident in Türkiye).
• At least 50% of the sale price must be paid prior to the invoice date, and the remaining amount must be paid within no later than one year.
• The sale price must be brought into Türkiye in foreign currency and paid to the seller.

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.