Ruling Number: 62030549-120[MÜK.80-2014/627]-92697 Introduction In a private ruling dated November 9, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of capital gains derived from the sale of real estate in Ukraine owned by a Ukrainian national spouse. The taxpayer requested clarification on whether any tax liability arises for themselves or their spouse (a Ukrainian national) in connection with a bank transfer (wire) received from the sale of real estate located in Ukraine, which is registered in the spouse’s name. Legal Framework – Domestic Law Income Tax Law (Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye are taxed on their worldwide income (both within and outside Türkiye). Article 4 – Residence in Türkiye: The following persons are considered resident in Türkiye: Those whose domicile is in Türkiye; Those who stay continuously in Türkiye for more than six months in a calendar year (temporary absences do not interrupt the period). Article 5 – Cases Not Considered as Residence: (Exceptions for certain foreigners) Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 70 – Immovable Property and Rights: Lists the types of property and rights that generate real estate capital income. Article Mükerrer 80(1)(6) – Capital Gains (Incremental Value Gains): Gains derived from the disposal of property and rights specified in Article 70(1)(1), (2), (4), and (7) (including real estate used by farmers in agricultural production who are subject to taxation on a actual basis) within five years from the date of acquisition shall be subject to tax as capital gains (incremental value gains), regardless of the method of acquisition (except for those acquired without consideration). Exception: For the 2014 calendar year, capital gains derived from the disposal of real estate (excluding securities and other capital market instruments) are exempt from income tax up to TL 9,700. Article Geçici 71 – Transitional Provision (Four-Year Holding Period): For the application of Article Mükerrer 80(1)(6), with respect to property and rights specified in Article 70(1)(1), (2), (4), and (7) that were acquired before January 1, 2007, a four-year holding period shall apply instead of the five-year period. Turkish Civil Code (Law No. 4721) – Article 19 – Domicile: A person’s place of residence (domicile) is the place where they reside with the intention of continuous stay. A person cannot have more than one domicile at the same time. Double Taxation Treaty Provisions Türkiye-Ukraine Double Taxation Treaty (Effective January 1, 1999) Article 13 – Capital Gains (Paragraph 1): Gains derived by a resident of one Contracting State from the alienation of immovable property (as defined in Article 6) situated in the other Contracting State may be taxed in that other State. Article 23 – Elimination of Double Taxation: Provides for a foreign tax credit mechanism. Ruling Conclusion Step 1 – Residency Status of the Spouse The taxpayer stated that their spouse (the Ukrainian national) has been residing in Türkiye for nearly three years. Under Article 4 of the Income Tax Law, since the spouse has a domicile in Türkiye (or has stayed continuously for more than six months in a calendar year), the spouse is deemed a resident of Türkiye (full liability taxpayer). Step 2 – Domestic Law Holding Period Analysis Factor Determination Date of acquisition of the Ukrainian real estate 2003 Applicable holding period under Article Geçici 71 4 years (since acquired before January 1, 2007) Date of sale 2014 (or 2015 – not specified, but after 2007) Holding period (2003 to 2014/2015) More than 11 years Does the holding period exceed 4 years? Yes Conclusion under Domestic Law: Since the real estate was held for more than 4 years (indeed more than 11 years), the capital gains derived from its sale are not subject to tax in Türkiye. No annual income tax return is required for this gain. Step 3 – Treaty Analysis Under Article 13(1) of the Türkiye-Ukraine DTT, Ukraine has the right to tax the capital gains derived from the alienation of immovable property situated in Ukraine. However, since the gain is not taxable in Türkiye under domestic law (due to the holding period exceeding 4 years), there is no double taxation to relieve. Therefore, the foreign tax credit mechanism under Article 23 is not applicable. Note on the Taxpayer (Husband): The ruling implies that funds transferred to the taxpayer’s account may be treated as a gift or transfer between spouses, but the ruling does not address this separately. The primary analysis focuses on the spouse who owns the property. Summary Table Question Answer Is the spouse (Ukrainian national) a resident of Türkiye? Yes (residing in Türkiye for nearly 3 years) Date of acquisition of real estate 2003 Applicable holding period under Turkish domestic law 4 years (acquired before January 1, 2007) Is the gain subject to tax in Türkiye? No (holding period exceeded 4 years) Annual income tax return required in Türkiye? No Does Ukraine have the right to tax the gain? Yes (Article 13(1) of DTT – property situated in Ukraine) Does double taxation arise? No (Türkiye does not tax the gain) Is a foreign tax credit applicable? No (no double taxation) Important Notes The ruling is based on the fact that the real estate was acquired in 2003. The transitional provision (4-year holding period under Article Geçici 71) applies because the property was acquired before January 1, 2007. If the property had been acquired after January 1, 2007, the standard 5-year holding period would apply, and the result might differ. The ruling does not address potential gift tax or other transfer implications between spouses. This private ruling is based on Article 413 of the Tax Procedure Law No. 213. The ruling becomes invalid if incorrect information is provided, or if there is ongoing tax audit, litigation, or reconciliation related to this matter. Acting in accordance with this ruling protects the taxpayer from tax penalties and default interest for the related transactions. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. 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