The Turkish government has embarked on yet another landmark tax reform by completely lifting the value-added tax on the sales of real estate to foreign real persons and legal entities in a spate of ambitious reform initiatives aimed at attracting more foreign direct investment to the country.

This very amendment introduced into the Turkish tax regime regarding the sales of real estate was the latest in a series of government moves designed to attract investors to boost the real estate market. The moves include the abolition of the reciprocity criterion in the purchase of property by foreigners in Turkey – something that hindered a genuine level playing field in the market for decades – and granting the right to citizenship to foreigners who buy a certain amount of property.

The most recent benefit cited above will function in the form of a value-added tax exemption granted to foreign nationals and foreign legal entities on their purchases of real estate solely for housing and business purposes, provided that they execute the transaction with the foreign exchange they bring from abroad and retain ownership of the properties for at least a year.

This generous benefit will approximately correspond to a price discount as large as 18 percent on the base value of purchased real estate exceeding a certain size, thus providing foreign real persons and legal entities with a substantial advantage over their Turkish counterparts in their investment undertakings in Turkey.

The reform was initiated and ultimately executed in an era in which barely a day goes by without news in the Turkish media regarding the urgent need to further incentivize real estate purchases by foreigners to strengthen the construction sector which constitutes the bulk of the Turkish economy and labor demand.

Deeming the real estate market and, directly related to it, the construction sector as the backbone of the larger economy, the Turkish government has previously enacted some radical amendments to the country’s citizenship approval scheme by granting the right to full citizenship to foreign nationals who purchase real estate worth at least 1 million U.S. dollars to further stimulate the capital flow, mainly from countries in the Middle East and elsewhere.

Having long lobbied for meaningful incentives, representatives of the real estate and construction sector have expressed their firm belief that the latest move will provide a perfect legal framework for the recent designation of Istanbul as an international financial center by the Turkish government to turn the colossal city into a regional financial hub, while the declaration of grandiose construction projects within the context of wider urban transformation master plans such as the Eurasian and Marmaray tunnels passing under the Bosphorus, a third bridge connecting Asia with Europe and Canal Istanbul are also expected to attracting more and more investors willing to put their money into the Turkish real estate market.

Furthermore, the downward pressure on overall prices due to the ample amount of unsold real estate accumulated over the course of several quarters resulting from the imbalance between the ever-accelerating supply and diminishing demand, coupled with the measures taken by the Turkish government mentioned above, gives us a glimpse of the scope and scale of the increased foreign demand expected to occur and overall acceleration of the pace of anticipated seasonal expansion in the real estate market.

Although the ultimate impact of the reform is yet to become evident and the prospects of delivering on its precise targets will remain largely uncertain for some time to come, the sheer monetary magnitude of the now-abrogated VAT levied on real estate, multiplied by the recent abolition of the draconian and to some extent prohibitive condition of “reciprocity” in the sales of property to foreigners, the outright granting of citizenship to foreigners purchasing a property worth at least 1 million U.S. dollars and a whole host of other economic, legal and administrative incentives, benefits and simplifications are most likely to make Turkey emerge as a unique and attractive destination among its peers in its immediate neighborhood and beyond for foreign investors seeking profitable investments.


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