Main Aspects and Nuances of Paying Rental Income Tax in Turkey

Rental income and the amount of rental income tax are cornerstones to think over for those about to invest in Turkish real estate. It is only after you calculate all profits and expenses that you can estimate potential investment income. Therein, tax payments on rental income are of major importance.

What rental income does Turkish real estate generate?

An owner of Turkish real estate who manages to successfully rent it out will enjoy significant income the investment generates. It is common knowledge that prices for Turkish residential properties are record-high and real estate in Turkey is highly profitable. In 2022, Turkish real estate grew in price by over 100%. Some cities boasted a price jump of over 150%. With rental income from real estate, the investment gets even more profitable as it comes with higher investment returns and shorter payback. As of November, average rents in Izmir went up by 154% compared to the beginning of 2022, and by 269% in the last 2 years.

To estimate how profitable the real estate investment is and what rental income it can generate, make the corresponding calculations after the rental income tax paid on real estate in Turkey.

How does tax residency influence rental income tax paid on real estate in Turkey?

Tax residency denotes a special tax status that determines the tax relationship between an individual and the state. This way, the tax load on the individual’s income is calculated and tax benefits, social security payments, and medical insurance premiums are defined. 

You have to meet certain requirements to become a tax resident in a certain jurisdiction. In particular, to become a tax resident of Turkey, you shall continuously stay in Turkey for at least 6 months within a calendar year. Individuals who reside in Turkey longer are treated as full-fledged taxpayers by Turkish tax authorities. 

If an individual stays in Turkey for less than 6 months, they are treated as limited taxpayers for tax purposes. Those who reside in Turkey for less than 6 months to perform certain or temporary tasks, like experts, scientists, etc., are also considered limited taxpayers.

Foreign nationals staying in Turkey for over 6 months due to any force majeure like illness or arrest are not deemed tax residents in Turkey.

For more information as to how you can obtain residence by real estate investment in Turkey please refer to the article above.

Rental income tax and its rates in Turkey

Rental income is treated as the personal income of an individual and is taxed at income tax rates. Income tax is directly related to one’s income amount and is based on a progressive tax scale:

TRY	USD	Tax rate
up to 32,000	up to 1,690	15%
32,000 – 70,000	1690 – 3700	20%
70,000 – 170,000	3700 – 8970	27%
170,000 – 880,000	8970 – 46,430	35%
>880,000	>46,430	40%

As provided for under Article 21 of the Income Tax Law, the minimum tax-exempt rental income is determined in Turkey on an annual basis:

• in 2022, tax-exempt rental income made up TRY 9500 (~$500)
• in 2023,  tax-exempt rental income amounted to TRY 21,000 (~$1100).

The tax exemption above does not apply if the total income of an individual from various sources exceeds TRY 250,000 per year. Laws of Turkey stipulate that one’s taxable income may only be reduced by TRY 9500 only if corresponding residential real estate is rented out. Besides, the above tax exemption does not apply in the case of commercial properties or any other real estate.

Reporting rental income tax on Turkish real estate

In Turkey, tax laws refer to rental income as income from real estate capital or Gayrimenkul Sermaye İradı, GMSI. Individuals shall report their rental income till March 31, 2023, if such rental income is above TRY 9500 per year. Here’s how you shall submit the corresponding tax return (choose 1 option):

• via a special-purpose online system
• in hard copy to your local tax inspection
• companies eligible to provide corresponding tax services may submit your tax return for you.

Rental income tax shall be paid in 2 equal parts till March 31 and July 31. 

Here are 2 more things to remember about tax reporting:

• if a taxpayer leaves the country within the corresponding tax year, they shall submit their tax return within 15 days before the exit date
• if a taxpayer passes away, their heirs or successors shall submit the tax return within 4 months after the day of the taxpayer’s death.

Go ahead and learn how to set up a company with a Turkish bank account to purchase real estate in Turkey.

How can you reduce rental income tax on Turkish real estate?

Turkish laws provide for 2 ways to decrease your taxable amount. Please, remember, that a taxpayer is free to use only one of them at a time for all property units they pay tax on. This means you can’t choose a depreciation basis (a.k.a. actual cost method) for some property units and a lump sum method for others.

Actual cost method

The above method provides for the reduction of rental income tax based on documented expenditure. Here’s what such expenses include:

• utility payments
• administrative property management expenses
• property insurance payments
• 5% of the property purchase cost, where the said property is rented out as residential premises for up to 5 years since the year of purchase
• other mandatory real estate charges paid to municipalities or the local government
• depreciation (2%);
• repair and maintenance of residential properties.

You can’t account for 100% of all expenses though. It is possible to reduce taxable income by the amount that shall be calculated as follows:

(total expenses х taxable income)/total income

Example: an individual receives rental income to the tune of TRY 70,000 and the owner manages to prove actual expenses to the tune of TRY 20,000. 

Costs that you may deduct from taxable income are as follows:

1. 70,000 – 9500 = 60,500
2. (20,000 X 60,500)/70,000 =17,285.

It is only TRY 17,285 that you are allowed to deduct from your taxable income.

Lump sum method

Owners of Turkish real estate who choose this method have the right to deduct one-time costs that make 15% of the received income reduced by the tax-exempt amount, i.e., TRY 9,500. However, within 2 years you are not allowed to change the method to decrease your taxable amount. 

Extra instruments to reduce the tax burden

Turkish laws provide for an opportunity to deduct various expenses from rental income and thus reduce the tax burden. The right is granted to persons using any of the above methods. Below, you can find the list of the said instruments.

Insurance payments

The above expenses may make up to 15% of the annual rental income. Below, you can find payments that are taken into account:

• payments under life insurance contracts (the taxpayer, their spouse, and minor children) – up to 50% of the insurance premium  
• payments under death, disability, and casualty insurance policies – 100% of the payment amount.

Education and healthcare

Education and healthcare expenses for the taxpayer, their spouse, and minor children may be deducted from the taxable income, however, their amount may not be over 10% of the taxable income.

Charity

Donations that can be deducted are limited to 5% of the income subject to declaration. Here’s what charity implies:

• donations and financial assistance for the construction of schools, dormitories, as well as medical centers, and religious institutions
• donations to public charities, associations, and foundations
• donations to cultural institutions
• donations to the Red Crescent Society.

Sponsorship expenses

You are allowed to deduct all amateur sports expenses and 50% of expenses for professional sports. 

Investments

Till 31.12.2027, eligible investors are allowed to deduct up to 75% of the share amount from taxable rental income.

Calculating rental income tax on Turkish real estate – two examples

In 2022, an individual who decided in favor of the actual cost method received rental income to the tune of TRY 102,000 and their actual cost amounted to TRY 30,000.

1. Taxable income: 102,000 – 9500 = 92,500.
2. Actual expenses: (30,000 х 92,500) / 102,000 = 27,205.
3. Taxable income less expenses: 92,500 – 27,205 = 65,295.
4. Rental income tax: (65,295 – 32,000) х 20% + 4800 = 11,459.

Let’s look at a similar example, but choose a different cost deduction method, namely, the lump sum method:

1. Lump sum: 92,500*15% = 13,875.
2. Taxable income less expenses: 92,500 – 13,875 = 78,625.
3. Rental income tax: (78,625 – 32,000) х 20% + 4800 =14,125.

Several vital aspects as to how you shall pay rental income tax in Turkey

At first glance, taxation of rental income and the corresponding calculations are easy-to-understand and unlikely to cause difficulties. Yet, some things deserve your attention.

What reporting period is rental income recorded in?

The rent taxpayers receive in cash or in kind for previous years or the current calendar year shall be recorded as income generated in the current year. Say, if rental income for 2021 and 2022 is received in 2023, it shall be recorded as rental income for 2023.

Yet, if the rent is paid for several years in advance, it shall be declared in the corresponding year. If the rent for 2022, 2023, and 2024 is received in 2022, income for each year shall be recorded in the corresponding year.

How do you calculate rental income tax in case of rents in foreign currency?

Foreign currency income and the corresponding tax shall be calculated based on the buying exchange rate set by the Central Bank of Turkey as of the payment date.

Can rent be paid in cash?

Commercial property rents may only be paid via bank. Rents for residential properties may be paid in cash if the rent does not exceed TRY 500. If the rent is above TRY 500, the excess amount shall be transferred to the corresponding bank account.

If you violate the above regulation, you’ll be subject to a penalty that makes up at least 5% of the payment amount. The penalty however may not be less than TRY 800.Would you like to learn more about how you can purchase residential properties in Turkey or structure a property purchase deal? Interested in benefits for real estate buyers in Turkey? For any comments or questions you may have, please message the International Wealth pros at: info@offshore-pro.info. A speedy reply is guaranteed.