Congratulations, if you have purchased a property in Turkey and rented it out to a tenant who regularly pays the rent! But do you know that now you are a taxpayer in Turkey? In this article, we briefly explained some details about the income tax in Turkey.
Income Tax Law No.193 in Turkey applies to real individuals who earn rental income in Turkey. If you are not living in Turkey for more than six months within a year, you are a non-resident taxpayer. In other words, you are only taxed on your income and gains sourced from Turkey. You don’t need to file a tax return in Turkey for income and gains earned in other countries.
Likewise, Turkish nationals residing abroad with a residence or work permit also fall under the non-resident taxpayer category. In other words, they are also subject to income tax on a limited basis according to the Income Tax Law. This limited liability applies to their income and gains earned in Turkey. However, Turkish nationals residing in foreign countries due to employment with private enterprises who have headquarters in Turkey or public institutions, are not non-resident taxpayers.
Types of Rental Income-Generating Property and Rights
Article 70 of the Income Tax Law defines the types of property and rights eligible for rental income. These include:
- Land, buildings (including furnished rentals), mineral water and underground water sources, mines, stone pits, sand and gravel production sites, brick and tile fields, saltworks, and their integral components.
- Large fishing net fields and fishponds.
- Ships, shares of ships, motorized shipment and unloading vehicles.
- Motorized transfer and draw-frame vehicles, various motorized vehicles, machines, installations, and their associated equipment.
Rental Income Collection
In order to tax the rental income, it should be collected in cash or in kind. To clarify, cash collection means, rent payments in Turkish Liras or foreign currency, including checks.
Rental income from the current or previous years is considered income for the year in which it is collected. For example, if you collect rental incomes from 2020, 2021, and 2022 all in 2022, they are your income for 2022.
However, if you collect rent in advance for future years, it is not your income for the year of collection. For instance, if rental incomes for 2022, 2023, and 2024 are collected in 2022, each year’s rental income is calculated according to its related year. In other words, you don’t have to declare it all in 2022 as your income.
If you collect rent in foreign currency, you have to calculate your gross revenue according to the exchange rate of the Central Bank of Turkey, on the collection date. Certainly, this ensures accurate assessment of rental incomes in foreign currency.
Mandatory Payment of Rent via Financial Institutions
For residential properties where the monthly rent is at least 500 TL, and for workplace leases, rent must be paid through banks or similar financial institutions. To clarify, this rule is regardless of the lease duration (daily, weekly, or short-term). Both parties are responsible for providing documentation from banks, financial institutions, or postal administrations. Otherwise, you might receive a fine of 5% of the transaction amount, whether you are the landlord or tenant. Moreover, there is a minimum penalty limit according to Article 355 of the Tax Procedure Law.
Minimum Tax Base and Income Declaration
There is a minimum tax base limit for rental income. That is to say, for 2023, the minimum tax base for rental income is 21,000 TL. In other words, if you rent your property for less than 1,750 TL per month, there will not be a rental income tax. Above all, for 2022, this number was 9,500 TL annually.
Nonresident taxpayers must submit their rental income tax returns between March 1st and March 31st, 2023. To clarify, this declaration is for rental income collected in 2022.
The following tax schedule applies for the calculation of the tax:
- Up to 32,000 TL: 15% of the annual rental income.
- Up to 70,000 TL: 4,800 TL for the first 32,000 TL, and 20% for the remaining amount.
- Up to 170,000 TL: 12,400 TL for the first 70,000 TL, and 27% for the rest.
- Up to 880,000 TL: 39,400 TL for the first 170,000 TL, and 35% for the remaining amount.
- Above 880,000 TL: 287,900 TL for the first 880,000 TL, and 40% for the rest.
In addition, you can pay your rental income tax in two equal installments, at the end of March and July 2023.
Deductions from Annual Income Tax
Certain items are eligible for deduction from income tax, with deduction rates ranging from 5% to 100%. For instance, these are some of the deductable items:
- Life/Individual Insurance Premiums: Deductible at a rate of 15%, not exceeding 15% of total revenue and the annual minimum wage.
- Education and Health Care Expenses: Deductible if incurred in Turkey, not exceeding 10% of the total revenue. Moreover, these must be for you (the taxpayer), your spouse or your children. To clarify, it means children under 18, or under 25 if pursuing education, residing with you, or financially supported by you. Certainly this includes children receiving alimony, those who have been adopted, and grandchildren who have lost their parents.
- Donations and Aids: Deduction amount depends on the type of donation. For instance, donations and aids to aid campaigns of President of the Republic have no specific limit for deduction. On the other hand, other donations are sometimes limited to 5% of total revenue.
- Sponsorship Expenses: Taxpayers can deduct 100% of the expenses incurred for amateur sports activities. On the other hand, for professional sports taxpayers can only partially deduct their expenses, with 50%. By taking advantage of these deductions, individuals can support their passion for sports while enjoying tax benefits.
In conclusion, it’s essential to note that specific rules and conditions apply to each taxpayer and deduction category. Taxpayers should refer to relevant tax regulations and guidelines for detailed information on eligibility and documentation requirements. Turk Fortune’s team of skilled professionals can provide comprehensive solutions tailored to individual needs, ensuring compliance with all relevant tax requirements. Feel free to reach out to us for assistance with optimizing deductions, resolving tax disputes, or strategizing for tax planning.
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