Rental income declaration in Turkey

Rental income declaration for non-resident taxpayers in Turkey


Below you will find information about taxation on rental income in Turkey. We clarify questions such as:

Which properties are subject to rental income in Turkey?
How should you collect/obtain rental income?
Exceptions and discounts on rental income in Turkey?
What expenses can you deduct when calculating your rental income?
Declaration of rental income in Turkey. When do you need to declare?
Deduction of expenses
Tax payment, when do you pay taxes in Turkey?

Do you need help declaring your rental income in Turkey? 
Don’t hesitate to contact us for assistance.
The Rental Income Declaration of Nonresident Taxable Person in Turkey
(Foreigners who do not have a place of residence in Turkey and Turkish citizens who live abroad)

The Legal Basis of the Taxation of Rental Income Obtained by the Non-resident Taxable People in Turkey
The non-resident individuals are subject to limited liability only from their income obtained in Turkey. In this context, a foreigner who spends less than a continuous period of six months in Turkey during a calendar year and whose customary home is not in Turkey is regarded as a non-resident taxable person with limited liability.
Income obtained in Turkey means that related immovable property is in Turkey, and these property and rights are in use and evaluated in Turkey.


Tax Liability of Non-resident Taxable People in Turkey Obtaining Rental Income

Rental income obtained from the lease of property and rights mentioned above as commercial property and house by owner, possessor, owner of the usufruct and easement, and leaseholders in Turkey are subject to real property tax.
The rental income obtained from these properties and rights is subject to tax and called “Real Property Tax.”
What is the Rental Income?

The income obtained from a lease of the properties and rights ( land, building, rights, etc.), which are stated in Article 70 of the Income Tax Law, is subject to income tax as “Real Property Tax.” On the other hand, properties and rights which are in use of business or agricultural establishment, income obtained from them is calculated according to provisions of determination business or agricultural income.

On the other hand, for a non-resident taxpayer income obtained from operating his/her house as a pension or aparthotel is subject to business income. In this case, the taxpayer needs to give an income declaration to the tax offices according to the provisions of business income.

What is the Acquisition Time of Rental Income?

The rental income of the current year or the previous years obtained by taxpayers either in cash or in-kind is regarded as the income gained in the current year.
For example, if the rental income of 2004, 2005, and 2006 are collected in 2007, the income will be regarded as the income of 2007.
The rental income of the forthcoming years received in advance will be regarded as the rental income of each related year and will be declared in the associated year.
For example, if the rental income of 2007, 2008, and 2009 are collected in 2007, the rental income of each year will be declared in the related year.
In terms of foreign currency rental payments, gross income is calculated according to the exchange rate announced by The Central Bank of the Republic of Turkey on the collection date. If there is no current price at the market, it is converted into the New Turkish Liras (YTL) according to the rate determined by the Ministry of Finance.
In the case of rental payment collected in-kind, amounts are converted according to the equivalent value in the Tax Procedure Law.

The Conditions for Rental Income Declaration of Nonresident Taxable People in Turkey

The non-resident individuals are subject to limited liability only from their income obtained in Turkey.
In this context, taxpayers who have only rental income from immovable properties in Turkey submit immovable property tax declaration only if that obtained income in a calendar year is above the exception amount.


Time and Place of Rental Income Declaration in Turkey

The declaration related to the rental income obtained in a calendar year is submitted to the authorized Tax Office of immovable property location until the 25th March of the following year.

Rental Income Exceptions and Conditions

The amount stated in law for rental income obtained from the lease as a house in a calendar year is exempted from tax.
The exception amount for 2007 is 2.300 YTL.
This exception is not valid for non-resident people in Turkey in the following conditions:
In the case of non-filing or understated filing by the taxpayer despite his rental income over the exceptional amount
In the case of annual declaration obligation for earnings from commercial, agricultural, and professional activities in Turkey

Equivalent Rental Value Principle
The amount of rental income from property and rights can not be under the equivalent rental value. In the event of beneficial occupation of property and rights, the equivalent rental value is accepted as rental income value.
Equivalent rental value for lands and buildings is determined by authorities or courts. Otherwise, the cost is 5% of the tax value determined according to the Tax Procedure Law.
Equivalent rental value for other property and rights is 10 % of the cost value of them. If it is unknown, 10 % of the amount determined according to provisions applicable to the evaluation of wealth in the Tax Procedure Law.

Inapplicable Circumstances for Equivalent Rental Value

Equivalent Rental Value is not applicable in the following conditions:
Beneficial occupation for safekeeping purposes of void property.
Assignment of building to lineal ancestors, descendants, or brothers/sisters ( if there is more than one house assigned to them, equivalent rental value for only one of them is not calculated. For married brother/sister, equal rental value for only one of the partners is not calculated.)
Residence of the property owner with his/her relatives in the same house or flat.
Lease of property to general and annexed budget administrations, special provincial administrations, municipalities, and other public bodies and organizations.

Applicable Circumstances for Equivalent Rental Value

Equivalent rental value is applied in the case of low or no value for rental income. According to this principle, the rental income under the equal rental value or obtained from beneficial occupation is subject to equivalent rental value.

Calculation of Equivalent Rental Value

Equivalent rental value for lands and buildings is determined by authorities or courts.
If this is not the case, and no estimation or determination for building or land is stated, the equivalent rental value is 5 % of real estate tax value.
For instance, a non-resident person leases his property with 100.000 YTL real estate tax value to his friend without charge; although there is no rental income, at least (100.000 * 5 %)= 5.000 YTL rental income is to be declared as equivalent rental value.

Payment Time and Place

The income tax is paid in two installments. The first installment will be paid in March and the second one in July.
The calculated tax can be paid to tax offices or authorized banks’ branches.

Results of Non-filing or Understated Filing

In the case of non-filing or understated filing by the taxpayer, the exception stated in law is not valid.
If the rental income is not declared, the taxpayer is subject to penalty twice as much first-degree irregularity, and the income is appraised by an assessment committee.
The income tax and the penalty is calculated on the appraised value. Also, it is required overdue interest for each delayed month.
The accrued tax, penalty, and overdue interest is to be paid in a month after the due date of assessment.
Otherwise, a late payment charge is calculated for each month and collected by enforcement.
In the case of non-filing or understated filing by the taxpayer, it is possible to declare the rental income according to the “penitence and rectification” clauses of the Tax Procedure Law. Rental income exception is valid for taxpayers who report rental income through penance, and the tax penalty, according to Tax Procedure Law, is not applied. Penitence interest is applied to these taxpayers.

The Deductible Expenses from Rental Income


There are two different methods about the expenses that can be deducted from rental income to determine the net income of real property income:
- Lump-sum expenditure basis
- Actual expenditure basis

The choice made between lump-sum and actual expenditure basis is applied to all immovable properties.
Only one of the expenditure basis can be applied for all immovable properties.

The Deductible Expenses in the Actual Expenditure Basis

In the case of selecting actual expenditure basis following expenses are deductible from gross rental income;
• Lighting, heating, water and elevator expenses for rented property paid by lessor,
• Management charges related to administration of rented property and measured according to the importance of ownership,
• Insurance expenses of rented property and rights,
• The interest of debts related to rented property and rights and 5% of the acquisition value of a rented house for five years beginning from the date of acquisition. ( This deduction is applied only for rental income of rented house, a non-deductible part is not evaluated as expenditure surplus. This deduction is not valid for homes acquired before 2001.)
• The real estate tax, fees, special assessments paid for rented property and right, participation rate paid to municipalities by the lessor,
• Amortization for rented property and rights,
• Repair expenses of the leased property made by the lessor,
• Maintenance expenses of rented property and rights,
• Rents and other actual costs paid by subletter,
• Rent of the house accommodated by a lessor who leases their properties ( except for rents paid by a non-resident taxable person in other countries)
• Cost of damages and compensations paid for rented property and rights based on contract, act, or judgment.

However, the amount of the expenses which correspond to an exception is not deductible. The deductible cost that compares to taxable revenue is calculated by using the following formula:
Taxable Income x Total Cost
Total Income
Also, taxpayers who prefer the actual cost basis are supposed to keep all the documents about expenses for five years and submit them in case of tax office demand.
Allowance for Expenses in Lump-sum Expenditure Basis
% 25 of rental income after deducting the exceptional amount from total rental income is deductible as an allowance for expenses by taxpayers who preferred the lump-sum expenditure basis (except for the ones rented their rights).
However, after the preference for a lump-sum expenditure basis, actual expenditure basis can not be chosen for two years.

Exception Applied to Rental Income


If there is more than one owner of a house, the exception fort the taxation of rental income is applied individually for each owner as 2.300 YTL.
If the heirs do not share the inheritance, each heir can benefit individually from this exception.
In the case of rental income from more than one house, the exception is applied only once to the total rental income.

THE TAX SCHEDULE FOR THE YEAR 2007
Up to the amount of 7.500 YTL
%15
1.125 YTL for 7.500 YTL of 19.000 YTL, over
%20
3.425 YTL. for 19.000 YTL. of 43.000 YTL, over
%27
9.905 YTL. for 43.000 YTL of over amount exceeding 43.000 YTL, over
%35

From the point of view in terms of double taxation treaties

Real property rental income is handled in the sixth article, entitled “Obtained Income from Immovable Property,” of double taxation treaties executed by Turkey and right of taxation is left to the country in which immovable property located.
In this case, taxation right of rental income obtained from immovable property in Turkey by individuals domiciled in contracting nation is left within the framework of procedures and principles stated in Turkish internal legislation, and there is no definitive clause for Turkish civil law.
Examples for rental income tax calculation in Turkey

EXAMPLE 1: A German citizen gained 10.000 Euro as rental income from his villa in Fethiye in 2007.
He preferred the lump-sum expenditure basis, and he has no other income to declare in Turkey. On the date of collection, the buying rate for Euro announced by The Central Bank of the Republic of Turkey is accepted as 1.81 YTL.
Income tax for rental income of the taxpayer is calculated as :
The Total Gross Revenue (10.000 x 1,81)…………….. 18.100-YTL.
The Tax-exempt Amount……….…………………………… 2.300- YTL.
The Balance (18.100-2.300 )…………………………………15.800- YTL.
25% Lump-sum Expenditure (15.800 x %25)………. 3.950- YTL.
Taxable Income (15.800 – 3.950)…… ………………… 11.850- YTL.
The Calculated Income Tax*….. …………………………. 1.995- YTL.
The Income-tax payable ……………………………..…… 1.995-YTL.
(* ) The Calculated Income Tax will be found out according to the rates of the tax schedule for the year 2007.

EXAMPLE 2: Oliver Kahn has gained 15.000 Euro as rental income from his house in Alanya in 2007. On the date of collection, the buying rate for Euro announced by The Central Bank of the Republic of Turkey is accepted as 1.80 YTL.
He preferred the lump-sum expenditure basis, and he has no other income to declare in Turkey. His total actual expenses for this house is 3.000 Euro. On the date of costs, the buying rate for Euro announced by The Central Bank of the Republic of Turkey is accepted as 1.80 YTL.
(In the actual expenditure basis, expenses correspond to tax-exempt amount is not deductible from total income, only costs correspond to taxable income is deductible. Therefore it is essential to calculate the number of expenses that correspond to taxable income. The payment that compares to taxable income is calculated according to the following formula.)

Total Income : 15.000 EUR x 1,80 YTL = 27.000 YTL
Taxable Income : 27.000 YTL - 2.300 YTL = 24.700 YTL.
Total Expense : 3.000 EUR X 1,80 YTL = 5.400 YTL
Taxable Income x Total Cost
= Total Income
24.700 YTL x 5.400 YTL
= 4.940 YTL
27.000 YTL

Income tax for rental income of the taxpayer is calculated as :
The Total Gross Revenue (15.000x 1,80)……………… 27.000- YTL.
The Tax-exempt Amount……………………………… 2.300- YTL.
The Balance (27.000-2.300)……………………… 24.700- YTL.
The Deductible Actual Expense ……………………… 4.940- YTL.
Taxable Income (24.700-4.940)……………………… 19.760- YTL.
The Calculated Income Tax* ..……………………. 3.630,20-YTL.
The Income-tax payable……………………………… 3.630,20- YTL.
(* ) The Calculated Income Tax will be found out according to the rates of the tax schedule for the year 2007.