Rental Income Tax In Turkey

Rental Income Tax in Turkey: Rates, Deductions & Exemptions

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Overview of Rental Income Tax in Turkey

Rental income tax in Turkey is governed by the Income Tax Law and applies to both individuals and corporate entities that earn rental income from properties located in Turkey. It is important to note that the tax applies to all types of properties, including residential, commercial, and industrial real estate.

Key features of Turkey's rental income tax system:

• Applicable to residents and non-residents.
• Calculated on gross rental income minus allowable deductions.
• Progressive tax rates for individual taxpayers.
• Special deductions and exemptions are available.

Tax Residency and Rental Income

Tax liability on rental income in Turkey depends on the taxpayer's residency status.

1. Residents:

• Turkish residents are taxed on their worldwide income, which includes rental income earned from properties both inside and outside Turkey.

2. Non-Residents:

• Non-residents are taxed only on Turkish-sourced income, meaning they are liable for tax on rental income from properties located within Turkey.

Rental Income Tax Rates in Turkey

Rental income in Turkey is taxed at progressive rates for individuals, similar to other forms of personal income. The rates, which are updated annually, are as follows for 2024:

• Up to 110,000 TRY: 15%
• 110,001 – 230,000 TRY: 20%
• 2300,001 – 580,000 TRY: 27%
• 580,001 – 3,000,000 TRY: 35%
• Above 3,000,000 TRY: 40%

How Progressive Tax Rates Work:

• For example, if a taxpayer earns 150,000 TRY in rental income, the first 110,000 TRY is taxed at 15%, and the remaining 40,000 TRY is taxed at 20%.

Exemptions for Rental Income in Turkey

Turkey offers exemptions for rental income earned from residential properties. For 2024, the exemption threshold is 33,000 TRY. This means that if your total rental income from residential properties is less than 33,000 TRY, no tax is payable. However, if your income exceeds this amount, you must pay tax on the amount that exceeds the exemption.

Key Points:

• The exemption applies only to residential property rentals.
• Commercial property rentals are not eligible for the exemption.
• Taxpayers who earn rental income from multiple properties must combine all rental income when calculating tax liability.

Deductions for Rental Income in Turkey

Rental property owners can benefit from various deductions that reduce their taxable income. There are two main methods to calculate deductions:

1. Actual Expense Method:

This method allows landlords to deduct actual expenses incurred in relation to the rental property. These expenses can include:

• Repairs and maintenance costs.
• Property management fees.
• Insurance premiums.
• Interest on mortgage loans related to the property.
• Depreciation of the property.
• Utilities and other operational expenses.

2. Lump-Sum Deduction (Standard Deduction):

Under this method, taxpayers can deduct a flat 15% of their gross rental income without itemizing specific expenses. This option is often simpler for property owners who do not have extensive property-related expenses.

Filing Rental Income Tax in Turkey

1. Annual Tax Return:

Rental income must be declared on the annual income tax return, which is typically filed by March 31st of the year following the tax year in which the rental income was earned.

2. Withholding Tax for Corporate Landlords:

Property owners who rent their properties to businesses are subject to a 20% withholding tax. This withholding must be made by the paying business and paid to the tax office on behalf of the property owner. The withholdings are deducted from the annual tax by the property owner.

3. Documentation:

Property owners are advised to keep records of all income and expenses related to the rental property, including rental agreements, receipts, and invoices, as these may be required during tax filings or audits.

Penalties for Non-Compliance

Failure to declare rental income or under-reporting can result in penalties from the Turkish tax authorities. These penalties include:

• Fines for late filing or incorrect declarations.
• Interest on unpaid taxes.
• In extreme cases, legal action can be taken against non-compliant taxpayers.

Rental Income Tax for Foreigners in Turkey

Foreigners who own property in Turkey are subject to the same rental income tax rules as Turkish residents. However, the taxation of foreigners' rental income is governed by double taxation treaties that Turkey has with other countries. These treaties help to avoid the same income being taxed twice – once in Turkey and once in the individual's home country.

How It Works:

• Foreigners earning rental income in Turkey may claim tax credits in their home country for taxes paid in Turkey, depending on the terms of the tax treaty.
• Non-residents are only taxed on income generated within Turkey, including rental income from Turkish properties.

Capital Gains Tax and Rental Properties

In addition to rental income tax, property owners in Turkey may also be subject to capital gains tax if they sell their rental property. However, there are certain exemptions for properties held for more than five years.

Key Points:

• If a rental property is sold within five years of purchase, the capital gain is taxable.
• If the property is sold after five years, the gain is generally exempt from capital gains tax.

Double Taxation Treaties and Rental Income

As Turkey has signed double taxation agreements with over 80 countries, foreign investors and landlords can benefit from these treaties to prevent double taxation of their rental income.

Benefits of Double Taxation Agreements:

• Reduced tax rates on rental income for non-residents.
• Tax credits for taxes paid in Turkey on rental income earned by foreigners.

Example:

A foreign national from a country with a double taxation treaty with Turkey can offset the taxes paid in Turkey against the taxes due in their home country, ensuring they are not taxed twice on the same rental income.

Click the link for Double Tax Treaty Regulations in Turkey

Tax Planning Strategies for Rental Income

Rental property owners in Turkey can employ several tax planning strategies to optimize their tax liabilities:

1. Maximize Deductions: Use the actual expense method to deduct as many legitimate expenses as possible, such as repairs, interest on loans, and management fees.
2. Choose the Correct Deduction Method: Depending on the rental income and expenses, choosing between the actual expense method and the lump-sum deduction method can save you money.
3. Utilize the Exemption: For residential properties, ensure you take advantage of the 33,000 TRY for 2024 exemption if applicable.
4. Consider Double Taxation Relief: If you are a non-resident, leverage tax credits and exemptions available under double taxation agreements.

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.