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23 May 2018 Turkey imposes reduced 5% tax on real estate revaluated under certain conditions Turkey's General Assembly of Parliament approved Law No. 7144 Regarding Amendment of Certain Laws (the Law) on 18 May 2018. The Law introduces a provisionary Article to be included in the Tax Procedural Code regarding the revaluation of real estate. When the provisionary Article enters into force, Turkish resident corporate and individual taxpayers1 that keep books on a balance sheet basis may revaluate their real estate (except for real estate subject to a sell and leaseback transaction or sukuk), under certain conditions, as of the date of entry into force of the Law until 30 September 2018. Application of this Article is optional. The revaluation rate for the real estate existing in the last balance sheet will be determined by dividing the Domestic Producer Price Index (DPPI) rate of the month prior to the month in which the Law enters into force, into the DPPI rate of the month following the date of the relevant balance sheet. Capital gains resulting from the revaluation will be kept in a special account. A tax of 5% will be levied on these capital gains and the tax is to be paid by the end of the 25th day of the month following the date of revaluation. If the capital gain amount kept in the special account is transferred to another account or withdrawn from the business, other than contributing into the paid in capital, such amount will be taxed. If the real estate subject to revaluation is disposed of, the capital gains recorded in the special account will not be taken into account when determining taxable income. Once the 5% tax is paid, revaluation of the real estate may grant taxpayers a tax benefit (versus the current rate of 22% corporate tax or 11% corporate tax if a special exemption is allowed) on the future sale of their real estate properties since the new book value of the real estate property will be higher than the previous book value and this will result in a lower tax base at the time of sale of the real estate. Taxpayers need to be aware that if the capital gain amount required to be kept in a special account is withdrawn from the business or transferred to another account, there will be tax consequences of such transaction. 1 Excluding those who operate in the finance and banking industry, insurance and reassurance companies, pension companies and pension investment funds, taxpayers who exclusively and continually carry out processed gold, silver trade and production and those who are allowed in line with the Tax Procedural Law to keep their records in a currency other than Turkish Liras. Document ID: 2018-5680 |
