VAT Exemption Guide for Foreign Buyers

Value Added Tax (VAT), known as KDV (Katma Değer Vergisi) in Turkey, is a consumption tax applied to the sale of most goods and services. For foreign individuals, Turkey offers significant opportunities to reduce this tax burden through two distinct mechanisms: exemptions for new real estate purchases and refunds for personal goods (often referred to as tax-free shopping). This guide aims to simplify these processes for individuals currently in Turkey, providing clear insights into eligibility criteria and practical steps to benefit from these financial advantages.

Section 1: VAT Exemption for New Real Estate Purchases

This section details the conditions and process for foreign buyers to be exempt from VAT when purchasing new residential or commercial properties in Turkey.

Who Can Benefit from This Advantage? (Buyer Conditions)

This exemption is primarily available to foreign real persons or legal entities who have not resided in Turkey for more than six months in the year of the property purchase. Importantly, Turkish citizens holding a residence or work permit in another country and who have resided there for more than six months may also qualify for this exemption.

What Properties Are Eligible? (Property Conditions)

This exemption applies exclusively to the first sale of a brand-new residential or commercial property purchased directly from the constructor or developer. The property must be delivered in a completed, ready-to-use state. The property's definition in its building license must match its intended use, such as a residence, workplace, or apartment. If the property is part of a multi-unit building where a condominium easement can be established, this right must be in place.

It is worth noting that second-hand properties are by default VAT-exempt in Turkey, meaning this specific exemption is not required for their purchase.

Key Conditions: Payment and Holding Period

One crucial condition for this exemption is that the purchase amount must be brought into Turkey in foreign currency from abroad. At least 50% of the sale price must be paid to the seller before the title deed issuance date, and the remaining amount must be transferred to Turkey by the buyer within a maximum of one year. Proof of foreign currency entry is essential. This is typically verified through bank transfers. If the amount is physically brought in, a document obtained from the Customs Administration is required. It is vital that the foreign person to whom the sales invoice is issued is the same person who brings the foreign currency into Turkey.

To maintain the VAT exemption, the individual must commit to retaining ownership of the property for a minimum of three years from the date of purchase. Should the property be sold before the expiration of this three-year period, the VAT amount previously exempted becomes immediately payable, along with penalty interest.

How to Secure the Exemption

This is a mandatory step that must be completed before finalizing the property purchase. One must apply for and obtain this certificate from the local tax office. When applying, the following documents are typically required:

• Proof of foreign status, such as a passport.
• Evidence of non-residency in Turkey (e.g., utility bills from abroad, residence permit from another country).
• Detailed information about the specific property intended for purchase and the developer.
• Evidence that the funds for the purchase will originate from abroad.

Once the application is approved, the tax office issues an exemption letter, which the seller (developer) keeps for their records. The sale is then officially recorded as VAT-exempt under Article 13/i on the invoice and title deed. Furthermore, the Land Registry applies a three-year restriction on the resale of the property. Under this arrangement, the buyer does not pay any VAT directly to the developer. Instead, the developer claims a refund from the Tax Authority for the input VAT paid during construction, which is typically done after the full purchase amount has been brought into Turkey and paid.

Significant Savings for Investors

This exemption brings a significant financial advantage, potentially saving foreign buyers 10% to 20% of the property's purchase price, depending on the standard VAT rate applicable to the property type. For instance, on a new property valued at $400,000, this exemption could result in savings of $40,000 (at a 10% VAT rate) to $80,000 (at a 20% VAT rate), making it a powerful incentive for foreign investment.

Section 2: VAT Refund for Personal Goods (Tax-Free Shopping)

This section outlines how to claim a VAT refund for personal items purchased in Turkey by non-resident foreign buyers.

Who Is Eligible for a Refund?

Individuals who are not residents of Turkey are eligible. Additionally, citizens of the Republic of Turkey and the Turkish Republic of Northern Cyprus who do not reside in Turkey and permanently live abroad also have the right to claim a VAT refund for their purchases.

Eligible Purchases and Minimum Purchase Amount

VAT refunds apply to a wide range of personal goods purchased from stores participating in the tax-free shopping scheme. Crucially, purchased products must remain unused and in their original condition until they are formally inspected by customs authorities upon exiting Turkey. To qualify for a refund, purchases must be made from stores displaying "Tax Free" logos (such as Türkrefund or Tax Free Point) or by inquiring with store staff about tax-free shopping availability.

To qualify for a VAT refund, a minimum purchase amount from a single store is required. This exact threshold varies slightly depending on the product category and its applicable VAT rate.

VAT Rates and Minimum Purchase Amounts for Tax-Free Shopping

• For products with an 8% VAT rate:
  • Product Category (Example): Textiles, clothing, carpets, shoes, bags, optics, books, and food 
  • Minimum Purchase Amount (Turkish Lira + VAT, from a single store): More than 108 TL 
• For products with an 18% VAT rate:
  • Product Category (Example): Accessories, jewelry, watches, electronics, sunglasses, cosmetics, porcelain/ceramics, and household goods 
  • Minimum Purchase Amount (Turkish Lira + VAT, from a single store): More than 118 TL 
  • Approximate Refund Percentage (after deducting fees): 10.5% to 12.5% of the purchase amount 

Simple Steps to Claim a Refund

Step 1: Shop Smart and Get Your Form

When making an eligible purchase, always remember to ask store staff for a "tax refund check" or a specific "Tax Free form" (e.g., Türkrefund invoice/check). You will need to provide your preferred refund method (cash or credit card) and passport information on the form. It is important to ensure the store employee correctly fills out and signs the form.

Step 2: Customs Approval Upon Departure

When exiting Turkey, typically within three months of the invoice date, you must present your purchased items (which must remain unused), the completed tax refund form, original invoices, boarding pass, and passport to customs authorities at the airport or seaport. Crucially, the tax declaration form must be formally endorsed or stamped by Customs authorities for the refund claim to be valid.

The exact location for customs approval depends on whether the purchased items are in checked or hand luggage:

• For items in checked luggage: Complete the process before passport control. At Istanbul Airport, this can be done at specific check-in counters (e.g., G3-4-5 for Turkish Airlines passengers, K25-26-27 for other airlines).
• For items in hand luggage: Complete the process at the Customs point located in the right-hand corner after passport control (e.g., at Istanbul Airport).

Step 3: Get Your Refund

Once the tax-free form has been stamped and approved by Customs, several convenient options are available for receiving the refund:

• Cash Refund: You can collect the refund immediately in cash from designated Cash Refund Offices or partner refund points (such as Global Blue, Global Exchange, Tax Free Point, or Türkrefund) located in the departure gate area of airports or seaports. Note that a small fee for cash handling may apply.
• Credit Card Refund: Alternatively, you can mail the approved tax-free invoice/check to the refund company (e.g., Türkrefund) within 90 days of customs approval. The refund amount will then be transferred to your credit card account or sent as a bank check to your home address.
• InStore Tax Refund System: If the store where the purchase was made utilized the InStore Tax Refund system, the VAT refund can be paid to your credit card immediately after customs approval, making the entire process a single, streamlined step without needing to visit a separate refund office at the exit gate.

Helpful Tips for a Smooth Process

• Allow Ample Time: It is highly recommended to arrive at the airport well in advance (at least one hour earlier than usual) to comfortably complete the customs approval process, as it can be time-consuming.
• Keep Products Accessible and Unused: Ensure purchased items are easily accessible for customs inspection and remain in their original, unused condition and packaging until after inspection.
• Have All Documents Ready: Always keep your purchased products, tax refund forms, original invoices, boarding pass, and passport ready for presentation to customs authorities.
• Understand Validity Periods: The tax-free form is valid for three months from the invoice date. After being stamped by Customs, you typically have another three months to claim the refund.

FAQ

Conclusion

Foreign buyers in Turkey have valuable opportunities to benefit from VAT facilities. This includes a full VAT exemption on the first purchase of new real estate (provided specific foreign currency payment and a three-year holding period conditions are met) and VAT refunds for personal goods (with customs approval at the point of exit).

Both the real estate exemption and personal goods refund mechanisms offer significant financial savings. However, tax regulations can be complex. For specific or unique situations, it is always advisable to consult with a qualified legal or tax professional in Turkey to ensure full compliance and maximize benefits.