Capital gains tax on property sale
When buying or selling property in Turkey, parties were able to declare a price to the land registry regardless of the actual real sales price.
Most people would declare a lower price in order to pay less in transfer tax. This practice is now a thing of the past because a new regulation has been introduced to stop tax losses from low purchase price declarations. According to the new regulation, the price to be declared cannot be less than the value of the property as assessed by the local municipality.
What is the impact of the regulation?
The impact of this regulation will really hit those who declared lower prices when buying their properties.
If I may give an example with figures it will provide a clearer picture: Mr. Investor purchased a property for TL 200,000 but declared the value as TL 25,000 at the time of purchase in order to pay less in transfer tax. Three years later Mr. Investor wants to sell his property, and it is now worth TL 450,000. Both the buyer and the seller agree on the sales price and also agree on to declare the sales price as TL 30,000. The seller and buyer meet at the land registry office, submit the sales agreement to the officer and the officer says, “Oops! The sales price appears incorrect to me.”
The assessed price for this property is TL 160,000. It is still much lower than the real price so the parties agree on declaring this value. Six months later the seller receives a payment order from the tax office asking for capital gains tax on the profit made on the property; the difference between TL 160,000 and TL 25,000 is the profit
I do have a real-life case from a reader which is slightly more complicated: “We purchased a property approximately three years ago, and had to set up a company to buy it. We sold the property last year and closed the company down. Our money was transferred to the UK. [I’m] not sure if I was supposed to pay capital gains tax on this as it was showing a profit on the sale. We didn’t really because [the] price on [the] tapu was a lot less than we paid. What is worrying to us [is that] we’re going back to Turkey in a few weeks and don’t want to be arrested for nonpayment of tax. The question is, [about] any tax due from the sale; would it be pursued through the accountant for the profit from the sale, or would they come after me.”
There will certainly be a tax imposed to the company for the profit made. This will be calculated at the corporate tax rate of 20 percent of the profit.
Your company is probably a limited company and the director is either one of the partners or someone you know. The tax authorities first chase the director as s/he is directly and personally liable for unpaid taxes. The director may come back to the shareholders after paying the tax and any fines imposed for not declaring the income.
I should also remind you that closing down a company is not an easy process and takes around one year, if not more. Be careful about this because this may be a big headache.
You will not be arrested for this unless there has been a violation of any special tax legislation that may carry criminal sanctions such as imprisonment. I don’t have the details of your case, but I would strongly recommend that you immediately apply to the authorities and try to benefit from a tax amnesty if you can.
NOTE: Ahmet Gündüz is a licensed attorney ataccountant and available to answer questions on the legal aspects of living in Turkey. Please kindly send inquiries to firstname.lastname@example.org. If a sender’s letter is published, names may be disclosed unless otherwise expressly stated by the sender.
DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not just rely on the information in this column
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