Small apartments also to see value added tax

ISTANBUL- Hürriyet Daily News

A draft tax law envisages collecting 18 percent VAT from smaller luxury homes.

Turkey’s Ministry of Finance is currently putting the finishing touches on a draft tax law for Turkish real estate, which would also apply the value added tax (VAT) to apartments less than 150 square meters.

Under the new draft law luxury residence apartments could be taxed the 18 percent VAT even if they are only 40 or 50 square meters in size, which has those in working in the real estate sector feeling apprehensive.

According to daily Vatan, a 100 square meter apartment in a luxury complex like the Zorlu Center in Istanbul would sell for roughly $1.5 million, but would previously not have been levied the 18 percent VAT since in the past “luxury” was defined by size. Until the new draft tax law takes affect only apartments which exceed 150 square meters are subjected to the VAT.

A representative of one of the major high-end real estate brands said the new tax increase could force some luxury construction labels to have to close up shop. The unregistered economy may see a boom as a result of the new tax law, according to another representative who said many construction firms might fudge the cost of their real estate with the finance ministry as being lower than it actually is in order to help consumers avoid being strapped with a high tax burden.

The draft law is supposed to address discrepancies in the current regulations. For example, under the current system, a 100 square meter apartment at the Zorlu Center that sells for $18,000 per square meter would only be charged a one percent VAT, while a 160 square meter apartment in the less well-to-do Bağcılar neighborhood in Istanbul would be privy to the 18 percent VAT.

Sector representatives argue that the new law could stifle the construction sector and therefore slow growth in the Turkish economy as the construction sector is one of the pivotal drivers of the Turkish economy.