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Old 17th October 2005, 14:58   #1 (permalink)
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Turkey A Buyers Guide - Short and sweet

ACKNOWLEDGEMENT - This is directly taken from Turkey - A Buyers Guide (NEWSKYS) all credit passed to them for content


TURKEY, A BUYER’S GUIDE

In the latest of our occasional Buyer’s Guide series, this week international solicitors John Howell & Company outline the legal steps to owning a property in Turkey, while tax specialist Blevin Franks offer a guide to taxes for those buying and/or living in Turkey

Is the process of buying a property in Turkey similar to the process in England?
No. The Turkish legal system is very different from the English. Generally speaking, however, provided that the necessary checks and enquiries take place, there is hardly anymore need to worry about buying a house in Turkey than about buying one in England.

The Role of the Estate Agent

Most estate agents are, of course, honest, but however honest and helpful they may be, you must remember that they are being paid by the person selling the property to sell it and not to protect your interests. They are not able to give you independent legal advice. Be very careful before using the services of the agent’s ‘own’ lawyer. Is he or she looking after your interests or the interests of the agent who is providing all his or her work? Always make sure that you are dealing with a bona fide and reputable agent.

Buying as an Investment

In Turkey, many of our clients are buying for investment. Some clients want a holiday home that will also make a bit of money and cover all or part of its running costs. Others may never visit the property and are buying purely as an investment. Buying as an investment is a business decision. You should only buy AFTER you have investigated the market.

Think about:

• the current opportunities in the market
• historic performance in terms of both capital growth and rental yields
• the best ways of buying your chosen property at rock bottom prices

In most markets you will buy far better if a local person is negotiating on your behalf. There is still, very often, a two tier pricing system, with foreign buyers being charged a substantial supplement. You need independent advice from people experienced in the market. You CANNOT rely on advice from the agent who is selling the property.

What should I bear in mind when looking for a property?

The first point to bear in mind is that Turkey is a ‘new’ country as far as the overseas property market is concerned and will continue to evolve as it emerges as a fully free, western market and potential member of the European Union. Buying a property in an emerging market country such as Turkey is not the same as buying a property in, say, Spain or France, where millions of foreigners have already bought homes. As a result every Notary, land registry, tax office, town hall and lawyer has dealt with hundreds of them. So everybody knows what to do.

This is not so in Turkey. You could be the first foreigner this official has ever dealt with. This can lead to delay, confusion and frustration. In Turkey there are huge numbers of properties that have no title, no planning permission or are illegally constructed. There are various types of ‘title’ in Turkey, some of which give you only the right to occupy land or transitional/provisional rights, rather than full ownership. ’Cooperative developments’ might only give you ownership of the stones and concrete from which the building is constructed, without conferring any right to live in the property or an independent legal title. In many cases, while they look temptingly cheap, they are beset by legal problems and difficult to register in your name with full title. There are many areas – some in the most unlikely places – designated ’military zones’, where foreigners cannot own property as private individuals.

If you buy a plot of land that is designated as an archaeological site (sit alan) the Museum Service can freeze all activity on the land until it has been thoroughly investigated. You cannot even cut the grass let alone build. Similar restrictions apply to historic buildings. It is perfectly possible to buy a property with good title and no legal problems. You just need to be particularly careful and get good legal advice before you commit yourself to a purchase.

The most important thing is that you should NEVER SIGN ANYTHING until you have had it checked by your lawyer. If you do sign you will be committed to a contract that you may not understand, that may be totally unfair or unsafe and that could be structured, financially, in a way that is totally unsuited to you and tax inefficient. Sometimes in today’s ‘boom’ climate you may have no option but to sign some form of document in order to secure the property. This could be:

• An official offer to buy the property. This is a formal letter of offer. If the seller accepts your offer this creates a legally binding obligation to proceed. You will usually, at this point, pay over a small deposit of, say, 5% of the value of the property. This is rare.

• A Reservation Contract. This takes the property off the market for, say, two – four weeks during which time your lawyer can make all the necessary checks on the property. You pay a Reservation Fee of, typically, £2,000 - £3,000. If you do not proceed because of a legal problem you should be contractually entitled to the return of your deposit – though this is not always so and, even if it is, getting the money back can often prove difficult. If you do not go ahead simply because you have changed your mind, you will usually lose this deposit. If you do go ahead the deposit is treated as a part payment of the price of the property.

• A Preliminary Contract. This is a full contract to buy the property. It binds you to the purchase, whatever you might find out later. When you sign this preliminary contract you are likely to be asked to pay a preliminary deposit. This is typically 10% of the price of the property. If this situation arises then we strongly recommend that you have the agent fax or e-mail the proposed contract for our comments. The service is explained in more detail below. We can normally deal with this, Monday to Saturday, ‘while you wait’ in Turkey. This is not a full investigation. We can only check the contract, not the property, but it is better than nothing at all. If the contract is unfair or does not protect you we will say so and try to negotiate improvements. We think that it is best to sign no more than a Reservation Contract at this stage.

What are the main dangers when buying property in Turkey?

There are some dangers applicable in every country. For example

• Does the property have ‘good’ title?
• Is it affected by debts?
• Has the building been constructed legally?
• Does the property suffer from any defects?
• Is what the seller and the agent have told me true?

In addition, there are issues that need special attention in Turkey. In particular:

• Does the property have a full title, rather than a restricted title? Watch out for the kat irtifaki tapu.
• Is the property a cooperative property where the cooperative has not yet been ’signed off’? This stops you getting title to the property.
• Is the property an archaeological site? If so the museum can seal the site until they have investigated it?
• Does the property belong to the government? If so special procedures apply.
• Is there evidence of fraud?
• Is the property built in an area zoned for individually owned homes rather than, for example, hotel style developments?
• Will you be able to get planning consent for any changes that you want to make?
• Is the existing planning status of the property clear?
• Is the seller asking for illegal ‘black money’?

What is the process of buying a property?

Once the reservation contract has been signed there is usually a period of four weeks for the solicitor to carry out checks on the property before you sign the main (‘Preliminary’) contract. After we have carried out all the necessary checks we produce a written report setting out our findings. Provided our checks are satisfactory you then sign the Preliminary Contract and, usually, pay over a deposit of 10% of the price on a resale property or a downpayment of, perhaps, 30% on a new or ’off plan’ property.

If necessary, the seller then applies for permission for you to buy a property in Turkey (see below). In the case of a new property, bought ’off plan’, there then usually follow a series of stage payments as the construction process progresses. Once the property has been finished (or, in the case of a resale property, as soon as everyone is ready to proceed) we arrange for payment of the taxes on your behalf and the Final Contract/Deed of Sale (tapu) is signed. This is the document transferring the right to ownership to you. This is usually signed at the Land Registry. The tapu is then registered at the Land Registry. The process will, in the case of a resale property with no mortgage, typically take about 10-12 weeks, provided official permission to buy has been granted.

Do I need permission to buy?

In general, foreign individuals can purchase and own real estate in Turkey provided that they obtain official permission to do so. This is often referred to as the ‘military permission’ This process can take several months. Only after the government issues its approval can the buyer register the real estate in his name in the Land Registry. This is the ultimate evidence of his title to that specific property and, without it, his property is at risk.

This can all be avoided by the foreign individual registering a company in Turkey and buying the property through that company. A Turkish company owned by a foreign person is considered to be a Turkish legal entity and, as such, may acquire real estate ownership rights without any restriction or the need for permission – whether the real estate is acquired for business or for some other purpose. This applies even if the company is 100% foreign owned. All the necessary procedures for establishing the company can be completed within approximately one month. Both ways of buying property in Turkey have advantages and disadvantages. The trouble is, it is not obvious which is the right choice! You need, in every case, to take advice. You need to understand, in detail, what you are letting yourself in for when you buy in Turkey. In particular, you need to understand the tax implications or the choice you are making. There are potentially serious UK tax consequences of buying a holiday home in the name of a company.

What happens if either I or my co-owner dies?

Jointly owned property does not automatically pass to the survivor. It will (subject to the limitation imposed by Turkish law) be dealt with according to any instructions which you leave in your Will (either English or Turkish) or, if you do not leave a Will, under the rules relating to intestacy. Turkish law imposes restrictions on the freedom of a Turkish person to leave their assets as they please on their death and also insists that foreigners abide by those restrictions. This is a complex area about which we are happy to give advice. It is important to bear in mind the inheritance consequences of your choice of form of ownership – particularly as the right choice will not only ensure that the right people will inherit the property but can save you thousands of pounds in taxes as well. It is, generally, much cheaper and simpler to deal with your affairs in Turkey if you have made a Turkish Will. We will be pleased to help you do this.

Special points for new properties

In many countries, by law, where you pay all or part of the price before the property has been fully built, the property must have the benefit of a bank guarantee to ensure that, if the developer goes bust before he or she completed the building work, you do not lose your money. This is not the case in Turkey and such guarantees are seldom provided. This is, in part, because the banking system is still immature and, for most companies, getting these guarantees is either impossible or very expensive.

In the absence of a bank guarantee there are other steps that can be taken to protect your position – wholly or in part – if the developer cannot finish the project. You must make sure that the property specification is agreed in detail with the builder and that the property will be delivered to you complete with the necessary license to occupy it as a home. Finally, you must make sure that you are clear about what ’common parts’ – general facilities to be shared by all the owners in your complex – are included in the price and what the arrangements will be for the management and control of those facilities.

The Role of the Notary

In most countries, except the UK and other ’common law’ jurisdictions, the Notary plays a major part in the process of buying and selling real estate. In Turkey, the document transferring ownership of the property is (usually) signed in front of an officer from the land registry rather than a Notary. This does not mean that the Notary has no role to play. Depending on the circumstances of the case the preliminary contract may well be signed by the seller in front of a Notary.

What about a survey?

As is the case with the purchase of a property anywhere, it is often prudent to have the property you intend to buy surveyed. We strongly recommend a survey, particularly in the case of older or unusual properties. We can, if you wish, make arrangements for such a survey and will be pleased to advise about the merits, timing and cost of doing so.

Where should the money be paid?

When the Full Contract/Deed of Sale is signed either the purchase price is handed over to the person selling the house or the seller confirms that the money has already been handed over. Usually the price may be paid wherever in the world the parties agree. We will advise you as to the implications of this choice.

Do I have to be in Turkey to complete the transaction?

The seller and the people buying the house are usually required to attend in person to sign the documentation. However, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. This must be in Turkish form and signed in front of a Notary. We can prepare this and it can almost always be signed in the UK. Our clients usually appoint our associate in the area to act for them and sign on their behalf. We will discuss the best course of action in your case.

What about paying the taxes due?

The solicitor, on your behalf, is able to pay any taxes due in relation to the transaction.

Is there a Land Registry system in Turkey?

Yes. After the Full Contract/Deed of Sale has been signed we arrange for it to be registered at the appropriate Land Registry and for the payment of any Land Registry fees.

In whose name should I purchase the property?

There are many ways of purchasing the property. Even if you need to buy the property in the name of a limited company you will still need to think about who should be the owner of the shares in the company. The options available to you include:

• in your own name;
• in the joint names of you and your husband/wife or co-purchaser(s);
• in your children’s names or in the name of somebody who will eventually inherit the property from you;
• in the name of a limited company, whether English, Turkish or ‘off-shore’. The decision as to who should be the legal owner of the property is, probably, the most important decision you have to make. Getting it wrong can cost you tens of thousands of pounds of unnecessary fees and taxes, during your lifetime and on your death. Getting the form of ownership right is also important from the point of view of who inherits the property. In Turkey you do not enjoy the freedom to leave the property to whomsoever you wish – which we, in England, take for granted. Certain classes of heirs have certain fixed rights to inherit your estate. If you put the property in the wrong names then the wrong people will have the right to inherit. This is a particular problem for people in a second marriage, for people who have children by a previous relationship or for people who are living with someone to whom they are not married. Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. We shall be pleased to discuss the various ways of buying and to advise as to the most advantageous method for you.

What extras are there to pay on top of legal fees?

Any property transfer taxes.

In many cases you may not wish to be in Turkey at the time when the Full Contract needs to be signed. In these circumstances the solicitor can prepare a Power of Attorney authorising either someone nominated by you or our overseas associate to sign on your behalf. You will also then have to pay the charges of the person who attends to sign and pay the taxes on your behalf. The cost of any search fees, surveyor’s fees, bank charges and the like levied in respect of your particular transaction, including the charges of the associates in Turkey. Estate agents’ charges are usually paid by the seller, but sometimes by the buyer or split between them. Your estate agents’ charges can, therefore, vary from NIL to 10% or more of the price of the property. Finally, all or part of these charges may attract Turkish or English VAT at the current rate. These ‘extras’ will be the same whichever firm of lawyers you use, whether they are based in England or overseas. If someone gives you a different estimate of these fees it is simply because they have based their estimate on different assumptions.

How do I get the money to Turkey?

You will normally simply pay the money into our bank account in England in £ Sterling and we will arrange for the conversion into whatever currency may be required and then transfer it to wherever it may be required. This is the method we recommend as our bank is dealing with such transfers daily and so we have fewer problems. Just as importantly, because of the volume of transfers we make, we will normally get a better exchange rate than our client would obtain. This can save you many hundreds of pounds.

What else should I do at the same time as I buy a property?

We believe that it saves a great deal of time, effort and money later on if you now review your English Will and make a separate Turkish Will. For most people the cost of this is fairly small. It is highly advisable for any person who has a property in Turkey but does not live there all the time to nominate a ‘fiscal representative’. This is a person to whom the tax authorities can send all correspondence relating to your affairs in Turkey, secure in the knowledge that it will arrive. The fiscal representative must be resident in Turkey, but it is for you to choose whom to appoint. It can either be a friend, a neighbour, a lawyer, or your tax adviser. Many of our associate lawyers offer this service. If you wish to know more about this, please ask.

You will wish to insure your property and its contents. Once again we can assist you in doing this. You will wish to have the electricity, water and rubbish collection charges transferred to your name. You will need to notify the Town Hall that you own the property and register for local rates, open bank accounts and register with the Turkish authorities for tax and other purposes. If you do not speak Turkish we would recommend that you use the services of a local person to do these things for you. If you prefer we can arrange this for you. You should register as the owner with the Community of Owners if you live in an apartment block or an estate with shared facilities.

For more information, visit www.europelaw.com

TAX

Residence Rules

You will be treated as resident in Turkey if you have your permanent domicile in Turkey, or if you spend more than six months in Turkey in a calendar year. Businessmen, scientists, journalists, scholars, officials and other such persons who come to Turkey for a specific and temporary job are not considered to have settled in Turkey even if they spend longer than six months there. Residence permits are usually valid for two years but are renewable for an unspecified number of times.

Income Tax

Residents of Turkey are liable to income tax on their worldwide income. Non-residents of Turkey are subject to income tax in Turkey on income deriving from Turkish sources alone.
Tax Rates for 2004 Taxable Income (TRL Millions) Tax Rate (Employment Income) Tax Rate (Investment Income) 0 – 6,000 15% 20% 6,000 – 14,000 20% 25% 14,000 – 28,000 25% 30% 28,000 – 70,000 30% 35% 70,000 – 140,000 35% 40% Over 140,000 40% 45%
Deductions

Employed individuals are entitled to deduct their rental, health, clothing, food and education expenses, up to certain limits.

Tax Filing and Compliance Obligations

Tax Returns are generally only required where income has not been taxed at source. Even where a tax return is filed, there is no need to report the income that has suffered withholding tax. Self-employed individuals must make four advance payments of tax, one every quarter, of 20% of the net profit. Their tax returns are due by 15 March following the tax year in question.

Social Security Payments

Turkish employees will pay around 16% of their salary in social security contributions, subject to a maximum limit. Overseas citizens working in Turkey are liable to pay contributions of 5%, up to a maximum limit.

Capital Gains Tax

From 1st January 2003 to 31 December 2008, gains made by individuals on the sale of residential property are exempt provided the property has been held for at least four years. This four-year requirement does not apply if the property was inherited. Otherwise, gains are taxed as ordinary income according to the scale rates shown above. Individuals (residents and non-residents) are not required to file a tax return to report their capital gains, regardless of the amount of gains, if they arise from the disposal of the following assets: Shares acquired for no consideration (by inheritance or gift). Shares listed on a Turkish stock exchange that have been held for at least three months. Shares issued by a Turkish AS company that have been held for at least one year. There is an annual capital gains tax exemption of TRL 10,000 million.

Wealth Taxes

There are no wealth taxes in Turkey.

Inheritance and Gifts Taxes

Turkish citizens are subject to inheritance and gift tax on worldwide assets received. Foreigners resident in Turkey are liable to inheritance tax and gift tax on worldwide assets received from Turkish citizens and on assets located in Turkey. Non-resident foreigners are subject to inheritance and gift tax only on assets located in Turkey. The tax rates usually vary between 1% and 30% depending on the residence status of the recipient and the location of the property. The tax is payable over three years, in May and November.

Inheritance and Gift Law

Children are reserved heirs in Turkey and have automatic inheritance rights. If you have no children, your parents become your reserved heirs. If your parents are no longer alive, your sisters or brothers are next in line to inherit. A spouse has limited entitlements and the amount to which they are entitled depends on whether there are children or not. The reserved portion for children is 75%, for parents 50%, for each brother and sister 25%. The spouse is entitled to the remainder. If there are no reserved heirs, the spouse is entitled to the entire estate. Turkish gifts laws provide that non-Turkish residents can only gift Turkish real estate to relatives resident in Turkey.

For more information, visit www.blevinsfranks.com
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Old 18th October 2005, 10:41   #2 (permalink)
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Re: Turkey A Buyers Guide - Short and sweet

I have read lots of this text in the book John Howell wrote called Buying a property in turkey.
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Old 11th October 2010, 16:31   #3 (permalink)
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Re: Turkey A Buyers Guide - Short and sweet

Good advice thanks for that.

I would just like to say that some of the research you can do yourself, ask for a copy of the TAPU take it to the TAPU office where they can check its validity, is there a tick showing there is an Iskan? Obtain a copy of the Iskan without either of these documents don't buy! It will cost you.

In Turkey many people don't use a solicitor, but if you don't have experience it is probably better to use one.

We only sought the advice of a solicitor regarding the agreement between us and the dreaded agent. Agents in Turkey can be a nightmare the same as they can be in the UK. Sadly the company we used Romance of Turkey were a nightmare. Romance of Turkey are a registered UK company, registered office Gatwick airport, they usually sell using Euro's, the MD has a residents permit from Turkish Cyprus and a company account in Turkish Cyprus and other accounts in the UK. The company used to use another company to do the transfer for the TAPU but with our property they decided to do it themselves and they did not have a clue. If we had not had Turkish friends it would have cost us a lot of money. When we viewed the property I asked if they could turn the water on so I could check the plumbing, they said they did not know where to turn the water on, when we moved in there was a water leak a not needed expense. The agent told us there was a residents committee already in place this was not true. The agent said he would change the locks when the sale was finalised then made up a story about not being able to do so because the maintenance and security agents needed a key to check the property another lie. Not such a big deal we changed the locks ourselves, good idea to do this in any country.

Romance of Turkey, the estate agent states they are not an estate agent as they don't sell properties they merely introduce buyers to sellers, this is to avoid paying tax. The agent uses an apartment as his office as he is not allowed to have a high street office unless he is registered and pays tax. The agent told us to be careful of Mafia working in Alanya as it is a cartel, I think he was the nearest thing to mafia we encountered.

if you are clever avoid this company.

Love to hear some of your good experiences.
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