Why to avoid tax evasion?
According to the current tax regulations, the owner of a property has to declare
- The actual value of the property to the TAPU office (at the time of transfer of the ownership of the property into his/her name) and
- The actual price which has been paid to the seller to the municipality (by end-December in the year of acquisition)
With regards to purchase, if the amounts you declared to the tax authorities are less than the amount you actually paid for the property, you are highly likely to encounter the following problems.
For simplification purposes, assume that the actual purchase price you have paid is € 100,000 and the amount you declared to both the TAPU office and the Municipality is just € 30,000 (Although personal income tax in Turkey is calculated in YTL-terms and some inflation-based multipliers are used for present value assessments, so as to simplify the explanations, the following explanations are made in Sterling terms and we do not show the breakdown of all calculations):
7.1. Are you a tax evader?
According to the example described above, since you have not paid
- A “Real Estate Sale-and-Acquisition Levy“ (Tapu Harci) of 1,050 [=1.5%*(€ 100,000 - € 30,000)] at the time of purchase,
- A Real-estate tax of 70 [=0.1%*(€ 100,000 - € 30,000)] for each year during which you owned the property you are considered as a 'tax evader' and you are subject to severe financial penalties when the evasion is detected.
7.2. Can the financial penalties charged on a tax evader be amnestied? How?
The amount of financial penalty depend on whether
- You have recognised that you had evaded tax due to someone else's mistake or misleading recommendations (In that case you are to inform the tax&Tapu authorities about the situation through a petition stating you regret the situation)
- The evasion is detected by the tax inspectors
- Someone else informs the tax authorities about the evasion
- The other (sellling) party informs the tax authorities about the evasion.
If you fall in Category (a) mentioned above, tax penalties to be charged on you is amnestied partially.
7.3. The principal term of the financial penalty and interests charged on a tax evader
The principal term of the penalty accrues when the ownership (title deeds) is transferred into your name even if the evasion is detected later. The principal is the amount of tax evaded plus administrative penalties envisaged by the tax laws.
Moreover, a late payment penalty at an interest rate of 2.5% per month is also charged on the principal.
In other words, evading a real estate acquisition and sale levy of € 1,050 at the time of purchase plus a real estate tax of € 70 for each following year will cause you to face financial penalties worth thousands of Sterling Pounds within only few years.
7.4. Risk of paying much more personal income tax in case of a sale
Please note that if an owner sells out his property within the 4 year period following the purchase of the property, he is subject to personal income tax based on the capital
gain. Sale after the fourth year is not subject to any personal income tax. The current Personal income tax rates change between 15% and 35%, depending on the capital gain levels (please see section 6.3.10)
Suppose that, you sell out the property at € 200,000 next year and the new owner refuses to evade tax.
If you have the actual purchase price declared to the municipality corrected, you will pay a personal income tax of approximately € 66,000. (i.e. Effective Tax rate 1 *Ј170,000 170,000= 200,000-30,000).
If not, the tax will be approximately € 38,000 (i.e. Effective Tax rate 2 * Ј100,000 100,000=200,000-100,000)
In other words, with regard to personal income tax, if you have your tax/TAPU records corrected so as to make them show the actual payment made to the previous owner, you will save approximately € 28,000.
7.5. Risk of being paid very low compensation in case of nationalisation
Sometimes municipalities may rarely introduce slight changes in the city-development-plans. For example, they may enlarge the width of streets and this may cause municipalities to seize some parts of private properties. In that case, pursuant to the relevant laws, municipalities are to pay a compensation fee to the property owners in question. The compensation is somehow linked to the value shown on the TAPU.
7.6. Risk of re-mortgaging your property at a lower value
By the end of this year, the mortgage system will be launched. When you like to re-mortgage your property, the amount shown on the TAPU may be of high importance for the financial institutions.
7.7. Risk of being involved in an anti-money laundering activity
Money-launderers heavily make use of property sale/purchase transactions everywhere in the world. The Turkish Government is aware of this and very keen to take necessary measures to prevent money-laundering. Money-launderers, fraudsters and those involved in such cases are heavily punished in Turkey when they are detected.
Within this context, the property market is expected to be very closely watched by the State. Inconsistencies among the figures of TAPU, banking transfers, taxes etc. are very likely to draw anti-money laundering inspectors’ attention.
7.8. Risk of being included in the black lists of financial organisations
You, as a tax evader, may be included in the black lists of the financial services companies and as a result, you may be refused when you ask for loans or a credit card in the future.
7.9. Other important points
In this regard, make sure that the prices shown in the purchase & sales contract, the TAPU (title-deeds), and the documents declared to tax authorities are all the same and equal to the actual purchase price.
Make sure that you keep all relevant invoices and receipts which justify you have made the payments. If you are using an agent, solicitor, translator, or other professionals, please ask for an invoice.
If you are forced by a seller or agent to under-declare the price, you can be sure that he/she is very likely to be a fraudster.
Moreover, you may be instructed by a seller or real estate agent to pay the agreed price into two or more accounts. In that case, you can think that the seller is highly likely to evade tax.