REPUBLIC OF TÜRKİYE
REVENUE ADMINISTRATION
Ankara Tax Office Directorate
Income Laws VAT and SCT Group Directorate
Number: E-84974990-130[KDV.1/I-1-2023/42]-…
Date: 30.05.2024
Subject: Sale of real estate owned by a public benefit association
In your private ruling request form, it is stated that your Association holds the status of a public benefit association and operates an economic enterprise within its structure. The association has requested our opinion on the VAT obligation regarding the sale of the real estate registered in the name of the association.
IN TERMS OF CORPORATE TAX
According to subparagraph (ç) of the first paragraph of Article 1 of the Corporate Tax Law No. 5520, the profits of economic enterprises owned by associations or foundations are subject to corporate tax. The fifth paragraph of Article 2 of the same Law defines economic enterprises as commercial, industrial, and agricultural businesses belonging to associations or foundations that are not covered by the first and second paragraphs, whose activities are continuous. The sixth paragraph of the article further states that the obligation of economic public institutions or economic enterprises of associations or foundations to pay taxes is not affected by the fact that they do not aim for profit, their activities fall within the duties assigned by law, they do not have legal personalities, or they do not have independent accounting and allocated capital or workplaces. It is also stated that having the price of goods or services only cover costs, not making a profit, or allocating the profit to the foundation’s purpose does not change their economic nature.
Section (2.3.1) of Corporate Tax General Communiqué No. 1, which includes explanations regarding the implementation of the said Law, specifies that whether an economic public institution constitutes a commercial, industrial, or agricultural enterprise should be evaluated considering the explanations in section (2.4) of the Communiqué.
In section (2.4) of the Communiqué, it is explained that in determining an economic enterprise, the distinctive features of the enterprise, such as dependency, continuity, and the commercial, industrial, or agricultural nature of the activity, are essential. In other words, the elements of an economic enterprise involve activities that form the fundamental characteristics of commercial activities, such as the purchase and sale of goods, manufacturing, or the provision of services in a market economy within an organization. The Law covers all economic activities conducted by associations or foundations in the market economy instead of enumerating these activities individually. It is further explained that the fact that the price of goods or services sold only covers costs, that no profit is made, or that the profit is allocated to the foundation’s objectives does not change the status of being an economic enterprise.
Moreover, upon examining our Intranet records of the Revenue Administration, it is understood that the economic enterprise of your Association’s activity is “… Sales” and does not include activities related to real estate purchase, sale, or rental.
Within the framework of the aforementioned provisions and explanations, while your Association, by its legal entity, is not subject to corporate tax, if the real estate owned by your Association is sold within the market economy and within an organization, with the intention of pursuing a commercial purpose on a continuous basis, a second economic enterprise affiliated with your Association will arise. The income obtained from the sale of the mentioned property will be subject to corporate tax within this economic enterprise.
However, if the sale of the said property is solely aimed at removing the property from the ownership of the association without any commercial purpose and does not constitute a continuous real estate buying and selling activity within an organization, then an economic enterprise related to this matter will not arise within your Association due to this sale.
IN TERMS OF VALUE-ADDED TAX (VAT)
According to the Value-Added Tax (VAT) Law No. 3065;
- Article 1/1 states that the delivery of goods and services carried out within the scope of commercial, industrial, agricultural, and professional activities in Turkey are subject to VAT.
- Article 1/3-d states that sales made in auction venues are subject to VAT.
- Article 1/3-g states that commercial, industrial, agricultural, and professional deliveries and services of institutions or establishments belonging to or affiliated with general and special budgeted administrations, provincial special administrations, municipalities, and villages, as well as the unions they form, universities, associations, and foundations, professional organizations of all kinds, revolving fund organizations, or other establishments affiliated with or dependent on them are subject to VAT.
In section (I/B-2) of the VAT General Implementation Communiqué titled “Taxation of Public Institutions and Organizations, Associations and Foundations, and Professional Organizations,” it is explained that;
2.1. In General
Deliveries and services of institutions, which do not fall within the scope of commercial, industrial, agricultural, and professional activities and which are in line with their founding purposes, are not subject to VAT according to Article 1/3-g of the Law No. 3065.
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On the other hand, the institutions listed above or established and operated by them are considered economic enterprises. Their commercial, industrial, agricultural, and professional activities are subject to taxation. Within this framework, businesses such as buses, gas, water, electricity, slaughterhouses, cold storage facilities, etc., affiliated with municipalities, as well as revolving fund organizations, are subject to tax for activities that do not fall under the scope of the exemption.
Accordingly, if the real estate owned by your Association is sold within the market economy, within an organization, and in a manner that continues with a commercial purpose, there will be an economic enterprise affiliated with your Association, and the sale of the real estate by this economic enterprise will be subject to VAT according to Article 1/3-g of the Law No. 3065.
However, if the sale of the real estate does not lead to the formation of an economic enterprise within your Association, the real estate sale made (except for sales made by auction) will not be subject to VAT.
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Source: Revenue Administration
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. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
