2nd Hand Housing Delivery: Applicable VAT Rate

One of the issues causing uncertainty in practice is the VAT rate applicable to the delivery of 2nd hand housing.

With the Presidential Decree No. 7346, changes have been made to VAT rates. The general VAT rate has been increased from 18% to 20%, while the rate for deliveries and services listed under (II) has been raised from 8% to 10%. There has been no change in the 1% VAT rate applied to deliveries and services listed under (I). These new rates have been in effect since July 10, 2023, Monday.

With the change in VAT rates, there are doubts about the VAT rate to be applied in invoices for the delivery of 2nd hand housing. We can summarize the issues that will raise doubts regarding this matter as follows:

• What will be the applicable VAT rate for the delivery of 2nd hand housing in projects where the building permit was obtained before April 1, 2022?
• What will be the applicable VAT rate for the delivery of 2nd hand housing in projects where the building permit was obtained after April 1, 2022?

The VAT rate applicable to housing deliveries is determined by the Council of Ministers before the amendment and by the President after the amendment, within the limits specified in Article 28 of the Value Added Tax Law No. 3065. According to the 2007/13033 Council of Ministers Decision (CMD) attachment, a 1% VAT rate is applicable to deliveries and services listed under (I), a 10% VAT rate for deliveries and services listed under (II), and a 20% VAT rate for deliveries and services not listed in these lists [1].

With the Presidential Decree No. 5359, the provisions of the 2007/13033 CMD attachment, 11th row of the “B) OTHER GOODS AND SERVICES” section, which regulates the delivery of housing up to a net area of 150 m², have been abolished as of April 1, 2022. However, according to Article 10 of the Decree No. 5359, the application of these provisions (former provisions) will continue for housing built within the scope of projects for which building permits were obtained or auctions were conducted by public institutions and organizations or their subsidiaries before April 1, 2022.

In summary; for the delivery of housing built within the scope of projects for which building permits were obtained or auctions were conducted by public institutions and organizations or their subsidiaries before April 1, 2022, the VAT rate for housing up to a net area of 150 m² will be determined by taking into account the provisions of the 1st paragraph of the former Article 1 of the 2007/13033 CMD before its removal by the Decree No. 5359 as of July 10, 2023 (%1), (%10), or (%20); for housing over a net area of 150 m², the VAT rate will be (%20).

Furthermore, with the Decree No. 5359, it has been stipulated that as of April 1, 2022, the net area of housing up to 150 m² within the scope of transformation projects in areas designated as reserved building areas and risky areas or in areas with risky structures will be subject to a VAT rate of (%1) according to the additional provision added to the 11th row of “B) OTHER GOODS AND SERVICES” in the 2007/13033 CMD attachment; and the net area of housing up to 150 m² according to the 35th row added to the (II) list will be subject to a VAT rate of (%8) as of July 10, 2023, according to the Decree No. 7346, and a VAT rate of (%10) as of July 10, 2023, according to the Presidential Decree.

Therefore, for housing deliveries made after April 1, 2022, based on building permits obtained after that date, the applicable VAT rate for the net area of the housing will be as follows:

• For housing with a net area of 150 m² or less, the VAT rate will be (%8) as of April 1, 2022, and (%10) as of July 10, 2023, according to the Presidential Decree.
• For housing with a net area of more than 150 m², the VAT rate will be (%8) as of April 1, 2022, and (%10) as of July 10, 2023, for the part of the sales price up to 150 m²; and (%20) as of July 10, 2023, for the part exceeding 150 m².

For the delivery of housing made under the transformation projects within the scope of Law No. 6306, in areas designated as reserved building areas and risky areas, or in areas with risky structures, the applicable VAT rate for the net area of the housing will be as follows:

• For housing with a net area of 150 m² or less, the VAT rate will be (%1).
• For housing with a net area of more than 150 m², the VAT rate will be (%1) for the part up to 150 m² as of April 1, 2022, and (%20) as of July 10, 2023, for the part exceeding 150 m².

In the aforementioned regulations, there is no specific distinction for the applicable VAT rate concerning new or 2nd hand housing deliveries. Therefore, the VAT rate found in the legislation will also be applied to 2nd hand housing deliveries. For example, for housing built based on a building permit obtained before April 1, 2022, the applicable VAT rate for both new (first-time) and 2nd hand deliveries will be determined based on the building permit date, according to the relevant legislation.