The Estonian government has recently streamlined its tax laws in order to increase the number of foreign investors in the "Baltic Tiger". Foreign investors will also find the Estonian banking system to be 100% user friendly. This is good news for our clients, as Estonia is a country the size of Holland, with 1/10th of the population. Doors are open wide to encourage investors, so invest now!

Buying Step By Step

STEP ONE - CHOOSE YOUR PROPERTY OR LAND

Choose one of our investment properties IMOINVEST offers in Estonia. Regarding Land, this maybe purchased without any problems, foreigners are free to purchase up to ten hectares.

STEP TWO - RESERVE YOUR INVESTMENT

Reservation Deposit - When you wish to reserve a particular property in your name, you will need to make a wire transfer of 500 Euros as a reservation cost.

STEP THREE - THE SIGNATURE OF THE PRELIMINARY CONTRACT

Depending on the kind of purchase you may have to sign:

• Preliminary Contract - This contract is used when purchasing a resale property (i.e. a property purchased from a private seller). It is a binding sales contract for both parties.
• Reservation Contract - This contract is used when purchasing a new property (off plan or maximum 5 years old). On the day of reservation, you must sign:

1. The Reservation Contract
2. The Building Specification Sheet
3. The Block and Floor Plans

You will have to pay an amount of money (usually 30%) upon execution of the contract, and the Balance shall remain due and payable by stages with the progress of the building (i.e. 20% at 1st installment, 20% at 2nd installment, 20% at 3rd installment).

STEP FOUR - CHOOSE WHETHER YOU COME TO ESTONIA TO COMPLETE THE TRANSACTION OR NOT

A person buying a property may attend the closing in person before the Notary, but IMOINVEST can arrange for a Power of Attorney to be granted, enabling another person to attend on their behalf.This is an Estonian document signed in the Estonian Embassy of your country.

STEP FIVE - THE SIGNATURE OF THE NOTARY ACT & FORMAL TRANSFER OF DEED

The Notary Act or closing procedure is carried out by an Estonian Notary who represents the Estonian government as an impartial public officer. The Notary is responsible for checking the origin of the property, the parties identities, all legal and financial aspects related to the property, and preparing the title Deed for both seller and buyer. This is the title document transferring ownership of the property. Please keep in mind that from the day you sign, you must provide a basic insurance policy (fire, water damage and third part liability) to protect the property. The Notary Act is not signed until the building is completed. If you have contracted a mortgage, it will secure this. Following this compulsory deed, all transactions are registered in the Cadastral and Property Registers.

Finance Your Property

As a foreigner buying property in Estonia, we recommend obtaining the mortgage through an Estonian bank for two very important reasons :

1. First, because our agency is in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).
2. Second, because in the case of a Buy-to-Let you will receive your rental income in Estonian Kroons (EEK). In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees.

In Estonia, you will have the possibility to choose between a Leasing, or a Loan. Of course, each one has advantages and drawbacks, and your IMOINVEST agent will be happy to discuss these in detail with you.

The real estate purchase is often financed by the loan and then usually mortgage, as security, is established on the real estate by notarised agreement in favour of the bank. Generally, a respective mortgage agreement is concluded at the same time as the purchase agreement. Depending on the particular bank, the loan period may be up to 20 years. In general, a Loan is given at 65% of the real estates value on existing property, and for new buildings up to 70%.

For private taxpayers, housing loan interest is tax deductible at a rate of 24%. An owner can also create several mortgages over the real estate, which will be ranked as agreed between parties and/or the to ranking mortgagee.

The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income.

TAKING A LEASING

With a Leasing, the Bank will own your property until you fully pay it back. Thus, obtaining a Leasing is much easier than obtaining a Loan. Less paperwork is necessary, and the banks generally finance properties at an average of 80%. This is the optimal way to purchase property in Estonia. However, if you are purchasing property with several individuals, some hard-to-maneuver situations may arise, and so in this case we advise our investors to obtain a traditional Loan (see below).

DOCUMENTS NEEDED FOR LEASING

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions :

WHO ARE YOU?

• Two proofs of identification;
• One Resume/CV to allow the Bank to know you better;
• Proof of your home address (electricity bill, phone bill, etc.);
• Completed leasing application (sent by us);
• Completed insurance form (sent by us).

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank.

ARE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate.

** All documents must be sent by both husband and wife if you are purchasing together.

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

TAKING A LOAN

With a Loan, as you directly own the property, the bank needs much more information, and the financing is around 70%. Maximum Period for loan is 20 years. While buying with several persons, we advise you to choose this solution because the ownership of the property can be decided already before buying (with a leasing, it's only at the end).

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

• Two proofs of identification;
• Proof of your home address (electricity bill, phone bill, etc.);
• Completed loan application (sent by us);
• Completed insurance form (sent by us);

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank;
• Income tax papers from last three years;
• Last three months bank statements;
• Proof of actual assets (real estate, stock, etc.);
• Your current loan situation;
• Starting & final dates;
• Initial amount borrowed and outstanding balance;
• Annual repayment.

WHAT IS YOUR EMPLOYMENT SITUATION?

• If You Are Company Employed:
• Employment letter;
• Last three salary slips, bonus statement, etc.;
• If other source of income, proof of it.
• If You Are Self Employed:
• Last three years balance sheet;
• Letter from your accountant, certifying your income;
• Any documents that certify that you own the business;
• If other source of income, proof of it.

ARE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate.

** All documents must be sent by both husband and wife if you are purchasing together.

Tax Issues

As an Estonian property specialist, IMOINVEST will be glad to inform and assist you on all legal aspects in Estonia regarding taxes as well as costs and fees you might acquire throughout the purchase process.

During the purchase process, the following costs may occur (depending which services are used): brokerage fees, evaluation of the real estate, bank fees, legal fees for carrying out a legal due diligence and reviewing the purchase and security agreements, notary fees, and state duty. Naturally, there may be other costs involved, such as cost of environmental and technical specialist, architects etc, which amounts depend on service providers.

NOTARY FEE

The notary charges a fee for the conclusion of the transaction. The notary fee amounts are set in accordance with the Notary Fee Act (Notari tasu seadus, 1996). In the sale transaction, the notary fee generally depends on the value of the transaction. The notary fee for verifying the real right agreement is a fixed sum. In case of establishment of encumbrances (for example mortgage) additional fees are charged, the amount of which depends on the value of the transaction. The notary fee is paid to a public notary for legal and technical services connected to the transaction. The fee is based on the value of the transaction, which is the price of property or rights declared by the transaction party. In case of a bilateral transaction (e.g. purchase-sale) the double full fee is used:

Declared Price EEK*          (EUR) Full Fee EEK*           (EUR)
 50,000      (3,195) 340       (22)
 100,000      (6,390) 390       (25)
 500,000      (31,949) 860      (55)
 1,000,000      (63,897) 1,610       (103)
 5,000,000      (319,489) 7,610      (486)

STATE DUTY

Registration of ownership and encumbrances in the Land Register are subject to state duty, which depends on the value of the transaction. It is a fixed sum.

PROPERTY TAXES

Property taxes are relatively low, and are likely to remain so. In Estonia the land tax is the only real property tax; buildings and forests are not taxed separately. Land tax is based on the market value of land and ranges between 0.1 to 2.5 percent of market value of land annually (0.1 to 2.0 for arable land and natural grassland). Factors that affect the market value are location, land use and environmental characteristics. Landowners or in some cases land users (Local Government or state property) must pay Land tax.

OTHER FEES

Commissions, charged by real estate companies vary in line with different objects (flats and apartements about 6-8%). In case of a transfer the commission is usually between 2 to 4 percent, while leasing commissions amount to between 1 and 2 month's rent.

Source: http://www.investinestonia.com/

• Estonia CIA Factbook
• Estonia World Bank At a Glance
• Estonia World Bank Data Profile

Buying Step by Step

Chances are you have never bought real estate in France before and have many questions regarding the process and legalities. The following text will help to understand the details in practical terms. As in most countries, the purchase usually takes place in two stages:

STEP ONE - THE CONTRACT

• Reservation Deposit:
  When you wish to reserve a particular property in your name, you will need to make a wire transfer deposit in the amount of 5% of the TTC price to the Notaire's escrow bank account. This deposit is fully refundable if we are unable to find sufficient financing for your purchase. At the time of closing, these funds are used towards your closing costs.
• Preliminary Contract (Compromis de Vente):
  This contract is used when purchasing a resale property (i.e. a property purchased from a private seller). It is a binding sales contract for both parties, conditional upon a mortgage approval from the bank.
• Reservation Contract:
  This contract is used when purchasing a new property (off plan or maximum 5 years old). On the day of reservation, you must sign:

1. The Reservation Contract.
2. The Building Specification Sheet.
3. The Block and Floor Plans.
4. And for Leaseback, the Lease Contract (Bail Commercial) and Accountant Documents (VAT pack).

STEP TWO - THE SIGNATURE AND FORMAL TRANSFER OF DEED

• The Act of Sale (Acte de Vente), or closing procedure is carried out by a French Notaire who represents the French government as an impartial public officer. It is therefore common practice to have only one Notaire. The Notaire is responsible for checking the origin of the property, the parties identities, all legal and financial aspects related to the property, and preparing the title deed for both seller and buyer.
• If the property being purchased is a resale, you can choose the Notaire if you wish. If it is a new property, a Notaire is assigned to your closing. As a foreigner you are entitled to a certified translator. Please keep in mind that from the day you sign, you must provide a basic insurance policy (fire, water damage and third part liability) to protect the property (paid by management for leaseback properties).
• Following this compulsory deed, a transaction is registered by the Land Registry and Conservation de Hypothèques (if you contract a mortgage), which is a department of the Inland Revenue Service.

COSTS AND FEES

• In the case of a resale property, the Notairial costs and fees (including transfer and stamp duties) amount to about 10% of the purchase price and must be paid by the buyer directly to the Notaire’s bank account. The buyer receives a detailed statement of this transaction.
• In the case of a new property (up to 5 years old) the Notarial fees amount to about 5% of the purchase price and adhere to the same procedures as above.
• If you elect to complete the closing at your nearest French Consulate rather than in France itself, you will have to sign a proxy, which is also an authentic document.

                              

Finance Your Property

As a foreigner buying property in France, we recommend obtaining the mortgage through a French bank for two very important reasons :

1. First, because our agency is in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).
2. Second, because in the case of a Leaseback program you will receive your rental income in €uros. In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees.

French banks insure the loan by mortgaging the property which is being purchased. French law also allows you to break the purchase contract and recover any deposits you have made should you fail to obtain the mortgage.

The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income. With the help of IMOINVEST, you can look forward to a mortgage amount of up to 80% of the purchase price as stated in the sale deed.

In the case of a Leaseback program, keep in mind that the bank will include your guaranteed net rental income percentage as part of your total income figure. Also with Leaseback, you can usually borrow up to 70% of the TTC price.

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

• Two proofs of identification certified at French Consulate or at a bank agency (passport, driving licence, etc.)
• Two proofs of your home address (electricity bill, phone bill, etc.)
• Completed loan application (sent by us)
• Completed insurance form (sent by us)

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank
• Income tax papers from last three years
• Last three months bank statements
• Proof of actual assets (real estate, stock, etc.)
• Your current loan situation:
• Starting & final dates
• Initial amount borrowed and outstanding balance
• Annual repayment

WHAT IS YOUR EMPLOYMENT SITUATION?

• If You Are Company Employed:
• Employment letter
• Last three salary slips, bonus statement, etc.
• If other source of income, proof of it
• If You Are Self Employed:
• Last three years balance sheet
• Letter from your accountant, certifying your income
• Any documents that certify that you own the business
• If other source of income, proof of it

ARE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate

** All documents must be sent by both husband and wife if you are purchasing together

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

Tax Issues

If you are investing in France, as a non-resident property owner, you could be liable for the following taxes:

Tax On Rental Income:

There are a number of regimes for taxing the income from French rentals. For furnished property there is the MICRO-BIC. This tax offers a deduction of a flat 72% for expenses on incomes up to approximately Euro 76,000 with the remainder taxed at 25%. On REAL all costs are deductable, as well as the amortization of the property . Unfurnished property income up to Euro 15,000 can benefit from MICRO-FONCIERS that allows a 60% flat rate deduction and taxes the remainder at 25%. Above that sum the actual basis is used.

Wealth Tax:

If you have French assets over Euro 720,000 then there is an annual wealth tax at rates of .55% to 1.8%. This applies to all French assets of non-residents, including bank accounts and property. If this is an issue, there are planning measures to reduce this that can be taken especially by the creation of debts which are deductible

Land Tax (Taxe Fonciere):

This tax is paid yearly for each property. In the case of resales, the payments are expected the first year. In the case of new property (up to five years old) the tax is deferred for the first 2 years.

City Tax (Taxe d'Habitation):

This tax is paid by the occupant of the property, regardless of whether he is the owner or not. Therefore, in the case of a rental property, the tenant pays the City Tax. In the case of Leaseback, this is covered by the management company.

Annual Capital Tax

It is not advisable to use an offshore company to purchase a property in France because in most cases they are liable to pay a 3% annual capital tax based on the market value of the property owned (depending on the company's place of incorporation, mind, and management). However, if you choose to purchase the property either in your own name, through a French-resident company, or through a company resident in a treaty country (subject to certain conditions), this 3 % tax will not apply.

Wealth Tax

This tax will be payable if the net value of your French property, or the shares you hold in the company that purchased the property, exceed a certain figure (716543 EUR as of January 1999, net of any mortgage).

Inheritance Tax

French Inheritance Tax is levied in progressive bands. The Spouse exemption is a mere Euro 76,000. The rates then depend on who the property is left with, Spouses and close relatives paying at rates of up to 40%. If the property is left to an unmarried partner or friend, the rates go up to 60% with a tax-free allowance of only Euro 1,500! Subject to small reliefs, French inheritance tax will apply at rates from 5% to 6% (depending on your relationship with the transferee or beneficiary) upon transmission of the French property or shares in the property owning company. Below is an example of calculating inheritance tax.

DIRECT FAMILY MEMBERS SPOUSE (parents and children)

The first 46,000 EUR of inheritance are tax free for each beneficiary. After that the first 76,000 EUR of inheritance are tax free for the spouse. After that:

Up to 7,600 EUR    5%         Up to 7,600 EUR    5%
7,600 to 11,400 EUR    10%          7,600 to 15,000 EUR    10%
11,401 to 15,000 EUR    15%          15,001 to 30,000 EUR    15%
15,001 to 520,000 EUR    20%          30,001 to 520,000 EUR    20%
520,001 to 850,000 EUR    30%          520,001 to 850,000 EUR    30%
850,001 to 1,700,000 EUR    35%          850,001 to 1,700,000 EUR    35%
1,700,001 EUR and above    40%          1,700,001 EUR and above     40%

We will take a classic example:

A married couple with two children owns a property together. The wife dies. The property is evaluated and is stated to have a value of 200,000 EUR free of loan. This means there is a value of 100,000 EUR to be inherited. Property use automatically reverts to the surviving spouse.

The ownership is divided as follows :

The surviving spouse keeps 50% of the total value as a partial owner. The other 50% is divided equally into thirds between the surviving spouse and two children, resulting in the following distribution of inheritance:

• Surviving Spouse: 50% + (33% of 50%) = 66.67% = 133,333 EUR
• First Child: (33% of 50%) = 16.67% = 33,333 EUR
• Second Child: (33% of 50%) = 16.67% = 33,333 EUR

Taxes :

Taxes are now paid on this inheritance, calculated at :

• Surviving Spouse : (100,000 EUR x 33%) 33,333 EUR tax apply only above 76,000 EUR, resulting in zero tax
• First Child : (100,000 EUR x 33%) 33,333 EUR tax apply only above 46,000 EUR, resulting in zero tax
• Second Child : (100,000 EUR x 33%) 33,333 EUR tax apply only above 46,000 EUR, resulting in zero tax

Upon the death of the second spouse : Remember, the percentage of this spouse's ownership was 66.67% of 200,000 EUR = 133,333 EUR. This is now divided equally between the two surviving children. The calculations are as follows:

• Ownership : Each child will receive 50% of 133,333 EUR = 66,670 EUR
• Taxes : Each child will have to pay tax on their inherited share. Since the first 46,000 EUR are not taxable (see table above), this leaves a remainder of 20,670 EUR to be taxed. The tax paid by each child will be :

Up to 7,600 EUR                         380 EUR
7,600 to 11,400 EUR         380 EUR
11,401 to 15,000 EUR         540 EUR
15,001 to 520,000 EUR         1,134 EUR
          
Total inheritance tax:         2,434 EUR

IMPORTANT: This projection is made as default in case no will have been given by any parties.

Capital Gains Tax

For EU Residents capital gains are chargeable at 16% for property held for 2 years or more. For property held for less than 2 years, there is usually income tax chargeable at the normal rates which for 2004 go up to approximately 47%. For property held for 5 years or more, there is a further annual deduction of 10% of the gain until after 15 years or more of ownership. After that, there are no Capital Gains to pay whatsoever. It is also important to note that a Professional Landlord of furnished property taxable under the MICRO-BIC or on an actual basis is not subject to capital gains after 5 years of ownership. It must be emphasized that your initial purchase will be modified to your advantage (that is to say, raised) in order to take into account possible expenses you have had, as well as inflation if you have owned this property for more than 2 years.

• This tax is paid to French Inland Revenue when the bill of sale is registered.
• The "Plus-Value" (Capital Gain Tax) thus calculated, will be reduced by 5% for each year of ownership after the second year.
• There is a tax reduction of 1000 EUR granted to all vendors, plus a reduction of 3500 EUR per spouse, plus 1500 EUR per child, for the sale of a first taxable second home.

Example: A family with 2 children.

PURCHASE PRICE IN 1980                   100,000 EUR
COST OF IMPROVEMENTS IN 1983                    10,000 EUR
INTEREST ON LOAN                   500 EUR
SALE PRICE IN 1989                    300,000 EUR
* 10% maximum increase allowed

• Calculate the Cost Price: Purchase Price (100000 EUR) + Cost of Improvements (10000 EUR) = Cost Price (110000 EUR)
• Calculate Inflation for Year of Purchase: Cost Price (110000 EUR) + Coefficient for 1980 (1.78) = Inflation for Year of Purchase (195800 EUR)
• Calculate Inflation for Improvements: Repairs (if you do the work yourself, multiply material price by three): 10000 EUR x 3 = 30000 EUR
• Repair Price (30000 EUR) + Coefficient for 1983 (1.28) = Inflation on Improvements (38400 EUR)
• Determine Interest on Loans: Interest paid on loan with no coefficient applied (5000 EUR)

Calculate Gross Capital Gains: (Plus Value Brute)

SALE PRICE          300,000 EUR
LESS INFLATION VALUE FOR YEAR OF PURCHASE           - 195,800 EUR
LESS INFLATION VALUE FOR IMPROVEMENTS           - 38,400 EUR
LESS INTEREST PAID ON LOANS           - 5,000 EUR
EQUALS GROSS CAPITAL GAINS           = 60,800 EUR

• Calculate Tax Allowance: Determine 5% for each year of ownership, less the first two years and year of sale
• (7 years x 5% = 35%) >> 60800 EUR - 65% = 39520 EUR
• Calculate Tax Reductions: Vendor (1000 EUR) + Spouse (7000 EUR) + Child (3000 EUR) = Total Tax Reduction (11000 EUR)
• >> 60800 EUR - 11000 EUR = 28520 EUR
• Determine Capital Gains Tax: Capital Gains Tax at a rate of 15% = 28 520 EUR >> TOTAL TAX = 28520 EUR x 15% = 4278 EUR
• Determine Net Capital Gain: >> 30000 EUR - 100000 EUR - 10000 EUR - 5000 EUR - 4 278 EUR = 180722 EUR

* PLEASE NOTE: The above information represents only a simplistic overview of the tax implications involved in acquiring French real estate. We suggest that you seek professional advice through the Notaire or IMOINVEST. In terms of French Inheritance Tax, Notaire advice should be taken in order to optimize your legal status.

FAQ

Q : Is the conveyancing process in France Similar to that in England?
A : Yes and No. For instance, title deeds must be signed in front of a Notary Public ("Notaire"). As in England the purchase of a property in France is divided into two stages. First there is a preliminary contract called the "contrat de vente sous conditions suspensives" or "compromis de vente" or "promesse de vente". This may be prepared either by a Notary Public ("Notaire") or by an estate agent. In France Notaries often themselves act as estate agents. Secondly there is a formal deed of sale called the "Acte de Vente". This is signed in front of a Notary Public or "Notaire". The two documents are normally separated by about 10 to 12 weeks. 

Q : What if I change my mind about the purchase?
A : The French have introduced a 'cooling off period' of 7 days during which you can, without giving any reason, simply cancel the contract you have signed. 

Q : In whose name should I buy the property?
A : There are a number of ways to purchase the property : in your own name, in the joint names of you and your wife or copurchaser(s), in the name of your adult children or in the name of somebody who will eventually inherit the property from you, in the name of a special type of French company called an SCI (these exist mainly to own and manage properties in France), in the name of an ordinary limited company, whether English or French. Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. We shall be pleased to discuss the various ways of buying with you and to advise as to the most advantageous method for you. It is worth paying careful attention to this point because of the potential tax and other savings that can be made at a later stage. These tax savings arise because of the French system of inheritance tax under which gifts on death can still attract very high rates of taxation. It is possible to pay 60% tax on inherited wealth. The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If, therefore, you can prevent the property being inherited and minimise the number of times it changes hands, you can greatly reduce your tax liabilities. As is always the case with tax savings schemes, there is a danger that the Government can come along and close the loopholes that allow the schemes to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you will have to weigh up the advantages and the disadvantages and decide how you wish to deal with the transaction. 

Q : What is the Preliminary Contract?
A : This is a binding written agreement between you and the seller of the property by which you agree to buy it. It is made subject to conditions known as "conditions suspensives" or "clauses suspensives". These state that the contract will only become binding if certain things happen, for example, if the Buyer obtains a mortgage within a stated time. It is very important to be accurate when drafting these conditions and to make sure that they cover all of the points that are important to you. The Buyer will be released from the contract if the conditions are not fulfilled. On the signature of the preliminary contract a deposit, normally of 10%, is paid either to the Notaire or to the estate agent. Not all estate agents are legally entitled to receive a deposit.

Q : What do I need to know about loans and mortgages?
A : If the buyer intends to obtain a loan to buy the property he needs to say so in the preliminary contract. The contract will be cancelled if he is unable to obtain a loan specified in the conditions. While the Notaire is dealing with the drafting of the title deeds etc., the buyer will be busy arranging the finance for the purchase. Financing the purchase of the property may take several forms depending on the circumstances : a first (or second) mortgage on your existing property, a mortgage in Euros on the French property from a French lender, or a mortgage from one of the main French banks made in Sterling and secured by a charge over the French property. French mortgages or British mortgages organised by French banks operating in the UK do not follow the same pattern as UK mortgages secured on UK properties. The loan is usually limited to 80% of the assessed value of the property: our experience is that it is usually nearer 60% and by the capacity of the borrower to repay the loan. No survey of the property is usually required to obtain a mortgage. Be careful. The rule "caveat emptor" or "buyer beware" applies in France. 

Q : What is the Acte de Vente?
A : This is the title deed proving who is the owner of the property and containing a detailed description of the property itself. Whereas the preliminary contract can be prepared by us or by an estate agent, the Deed of Sale has, by French law, to be prepared by and signed in front of a Notaire.

Q : Who is the Notaire
A : The Notaire is a public official who is there to prepare title deeds relating to the sale and purchase of land and to put on the public record the fact that the deed has been signed in his presence and understood by the parties concerned. They enjoy a very privileged and highly respected position in French society. The Notaire does not represent or look after the interests of any one party. You should also note that, in the countryside, very often there is only one Notaire available and he works on a monopoly basis in respect of the district covered. Often one Notaire deals with both parties to the transaction. The Notaire will also make various title checks about the property and make sure that the property to be sold matches the title deeds and registry documents, establish the identity of both parties (with the help of birth and marriage/divorce certificates), make sure that the seller is indeed the owner of the property to be sold, make sure that there are no covenants other than those already mentioned in the preliminary contract which might adversely affect the property, search the Land Registry with a view to establishing whether or not there exist any restrictions to the right of disposal of the property, such as easements or mortgages over the property, if the property is mortgaged he will ensure that the purchase price will be sufficient to redeem the mortgage completely, and obtain from the local Town Hall a planning certificate showing the planning rules relevant to the property. Finally, he will inform any people entitled to preemption rights of the impending sale, giving them two months within which to decide whether or not to take advantage of their rights.

Q : Do I have to be in France to complete the transaction?
A : The person buying the house may attend in person before the Notaire, but, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. Prior to completion at the Notaire's office, he will have sent the Buyer a completion statement showing the balance of the purchase price of the land and all other registration fees for the purchase which are the responsibility of the Buyer. Once the deed of sale has been signed by both parties, the Notaire will register the transfer (as well as the mortgage if applicable) at the Land Registry (Conservation des Hypotheques). This procedure is similar to that in the UK but the original deed will remain with the Notaire who will give a certified copy to the buyer. 

Q : Can I take money into and out of France freely?
A : Yes.

Q : How do I pay the money?
A : When the Acte de Vente has been signed the purchase price is handed over by the Notaire to the Seller. The purchase price must be in the hands of the Notaire by the day of completion, unless other specific arrangements have been signed with the Notaire. The Notaire then pays the money to the seller. The important things to remember are that transferring money to France does take time and that is not as reliable as transfers in the UK.

Q : After I have settled in, what are my continuing obligations?
A : If you spend less than 184 days a year in France then you are generally speaking classed as a "non-resident" and you must name a fiscal representative, pay your local rates, make a declaration of all your capital assets in France and, where appropriate, pay tax on them, pay income tax on any income deriving from your activities in France, if you have a car, you must pay car tax and arrange suitable insurance cover, you must pay your electricity, water and other bills. 

Q : What happens if either I or my Co-owner dies?
A : Jointly owned property does not automatically pass to the survivor. It will (subject to certain limitation imposed by French law) be dealt with according to any instructions which you leave in your Will (either English or French) or, if you do not leave a Will, under the rules relating to intestacy.

• France CIA Factbook
• France World Bank At a Glance
• France World Bank Data Profile

Buying Step by Step

Chances are you have never bought real estate in Germany before and have many questions regarding the process and legalities. The following text will help to understand the details in practical terms.

FINANCE THE PROPERTY

In Germany the buyer needs to present a so-called "irrevocable acceptance" of loan financing before signing the Notary contract, or if the buyer has the cash deposit, he/she must offer proof of the existing funds.

REVIEW THE PAPERWORK

Next, the Deed of Purchase and any accompanying papers (such as the official declaration of partition) should be reviewed. If the contracts are not in English and you are not German-speaking, it is better to have a professional translation completed. Your local Embassy can provide these services.

SET THE DATE

After the buyer has reviewed the documentation, it is time to set the date for signature of the Deed. At the Notary meeting, all buyers must be present, and show their legal papers (valid passports). If the buyer is a company, the person(s) signing the contract need to bring their legal papers from the company (authorization and an excerpt from the Chamber of Commerce entries showing the authorization status) plus passport.

SIGN THE PAPERS

At this meeting the Notary Public will read the Deed aloud for both parties, and if a translator is needed, one will be provided. After making any changes or additions the Deed is signed by both parties and the Notary Public. This contract is irrevocable. It includes information such as the agreed-upon purchase and all conditions thereof, the day of payment, the day of handover to the new owner, any needed repairs or other actions to be completed by the seller, and any other specifications as needed. After signature, the Notary Public will perform application in the so-called "Grundbuch" (the land title register), without which no sale of property can be completed.

PAY THE FEES AND THE PROPERTY IS YOURS!

Also at the Notary meeting, the real estate commission must be paid. This ranges between 3,5% and 6% of the buying price (including VAT) depending on where one is buying in Germany. Between two to four weeks after the buying contract is signed, the purchase tax must be paid. This is exactly 3,5% of the buying price stated in the contract. This tax must be paid on time, otherwise the tax office will not issue the clearance certificate - an important paper for transferring the possession from the seller to the buyer. Within the same period of time the fee for the notary and registration must be paid (about 2 to 2.3 % of the buying price). The terms of the contract can be very variable, which is why the contract needs to be reviewed carefully.

Please Note: Clients have 3 options for the closing of German properties:

1. Signature of the sales contract directly in of the Notary in Germany
2. Signature of Power of Attorney with a Public notary with an Apostil
   • The Apostil is compulsory and is available in UK and Ireland only
3. Signature of Power of Attorney with a German consulate or honorary consul
   • This is available in all countries including UK and Ireland.
   • 
     

For German clients who live a long distance from German Embassy in London,when they sign their Power of Attorney, they are allowed to sign the Power of Attorney with an 'Honorary Consul' in other cities in the UK. Honorary Consul represents the Embassy, and located in cities like Edinburgh (Scotland), Liverpool, Leeds, Birmingham, Bristol, Newcastle and other places.

The link to German Honorary Consul names and contact details is here:

http://www.auswaertiges-amt.de/diplo/de/Laender/DeutscheAVen/Gro_C3_9FbritannienVereinigtesKoenigreich/DeutscheVertretungen.html

This should help for clients in the Middle and North of England when they close and save them time.

Finance Your Property

German Real Estate financing can be done either with mortgage banks or with any usual bank or financing institute. Financing of up to 70% can be granted on selected properties. Financing for the purchase of groups of properties under 80,000 euros (for example, two flats for 35,000 each) can be extremely difficult to find. With that in mind, the more expensive the property, the easier it is to finance.

Financing foreigners not resident in Germany and not earning their money in Germany is possible under certain circumstances but cannot be expected to exceed 60% of the buying price.

Financing should be secured before any contract of purchase is signed. Sometimes one can sign a reservation which holds good for an agreed-upon period of time, enough time to get the financing secured. However, the only binding document is the purchase deed.

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

• Two proofs of identification certified at German Consulate or at a bank agency (passport, driving licence, etc.)
• Two proofs of your home address (electricity bill, phone bill, etc.)
• Completed loan application (sent by us)
• Completed insurance form (sent by us)

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank
• Income tax papers from last three years
• Last three months bank statements
• Proof of actual assets (real estate, stock, etc.)
• Your current loan situation:
• Starting & final dates
• Initial amount borrowed and outstanding balance
• Annual repayment

WHAT IS YOUR EMPLOYMENT SITUATION?

• If You Are Company Employed:
• Employment letter
• Last three salary slips, bonus statement, etc.
• If other source of income, proof of it
• If You Are Self Employed:
• Last three years balance sheet
• Letter from your accountant, certifying your income
• Any documents that certify that you own the business
• If other source of income, proof of it

ARE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate

** All documents must be sent by both husband and wife if you are purchasing together

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

Tax Issues

Know about the local taxes you're responsible for.

Germany is now undergoing an extensive tax reform, one that should wind up putting more money in the pockets of individual taxpayers and having a positive effect on investment. Some claim that the extensive changes give the taxpayer in Germany one of the best "bottom lines" in the European Union. (Federal tax rates may be higher, but Germans have no provincial income tax requirements.)

The maximum rate for individuals has been decreased. It was 53% in 1998 and is 42% in 2005, while the minimum rate has been reduced from 25.9% to 15%. The "solidarity surcharge" of 5.5% of the tax, to cover the costs of integrating the states of the former East Germany, is still in effect. The corporate tax rate, which was thought to discourage investment in Germany, will decrease from 30%-40% to only 25%.

The most stimulating news for corporations though is the exemption from capital gains taxes when selling holdings in industrial companies. Large banks and insurance companies have been holding vast quantities of such shares for decades, but have been reluctant to sell them due to the significant capital gain liabilities that would have been assessed. The reform, which applies to shares held longer than a year, is expected to free up considerable amounts of capital for young, promising enterprises and business start-ups.

Individual Income Taxes

In Germany you can be subject to tax if you either have German source income or if you are a German resident. However, there are various exemption rules that must be considered in every single case. The German tax system is similar to the structures in other western countries. You pay income taxes throughout the year, usually with an employer deducting tax from each paycheck. Adjustments would then be made at the end of the year for possible under or overpayment.

Deductions from compensation are also made for three social programs; retirement, unemployment and health insurance. Payments for these programs are borne equally by the employer and the employee. The employer's share of contributions is not considered as taxable income to the employee and the employee's portion is tax deductible up to a certain limit.

If an individual is subject to German tax, generally most sources of income are then taxable. The Lohnsteuer (wage tax), which alone accounts for a third of the German government's revenue, is withheld at source from compensation. Income from other sources (e. g. self-employment, fees for services, rent collections, investments and the like) are covered by the Einkommensteuer (income tax).

The Lohnsteuer differs from the Einkommensteuer only by the method of collection. The Lohnsteuer is collected at source and paid directly to the Finanzamt (tax office) by the employer while the individual must pay the Einkommensteuer himself. Therefore the Lohnsteuer is comparable to the income tax withholding shown on the U.S. Form W-2 (Lohnsteuerkarte).

Based primarily on your final payment for the previous year, the Finanzamt will estimate your tax for the current year and require you to make prepayments (Vorauszahlungen) of a quarter of the tax on March 10, June 10, September 10 and December 10. The total tax liability is determined by filing an income tax return, which includes all types of income from all sources. Wage tax withholding as well as provisional payments are deducted from this total tax liability so that a refund or final tax payment is assessed. The tax assessment is usually issued by the Finanzamt between two and six months from the date the return is filed. No payment will be due before receipts of the tax assessment notice.

Every tax return is under audit, therefore, if the tax assessment is issued and is not preliminary, the assessment can only be changed in the future by the occurrence of extraordinary circumstances (e. g. tax evasion).

As a rule, the income tax return (Einkommensteuererklärung) should be filed by May 31 of the year following the one in which the income was received. If you use the assistance of a tax consultant, you have an automatic extension to file until September 30. There may be penalties and interest assessed if the return is filed late.

Single persons who earned €7,664 or less in 2004, and married persons who earned €15,328 or less, usually have no tax liability. There are a few situations where the taxpayer is required to pay taxes even though the income is less than the personal allowance, especially when tax-exempt income (such as foreign-sourced income) must be considered for the determination of the applicable income tax rate (progression clause). Taxes are then assessed based on a sliding scale.

Deductions are granted for circumstances such as children under 18 (or under 27 if still attending school and without earnings), specified insurance premiums, charitable and political contributions to German entities up to certain limits and unavoidable extraordinary expenses above a certain limit (such as illness).

Other Taxes

In addition to the various forms of income tax there is also a series of sales taxes that significantly impact both individuals and businesses. The major tax is the Mehrwertsteuer (value added tax), which accounts for a quarter of the government's revenue and is second only to the Lohnsteuer in this regard. The Mehrwertsteuer assesses a levy on each step in the production and delivery of most items available for purchase. It applies to services as well as goods and the standard rate is 16%. A reduced rate of 7% applies to certain products, including food and printed material. Medical and insurance services are generally exempt, as are exports of goods abroad and services rendered abroad.

Numerous other items, including gasoline, alcoholic beverages, tobacco products, tea and coffee, carry sales taxes in addition to the Mehrwertsteuer. There is also a church tax (Kirchensteuer), of 8% to 9% of the Einkommensteuer/Lohnsteuer. But you are not required to pay the tax unless you wish to be officially affiliated with one of Germany's established churches; usually Catholic or Protestant (Evangelisch).

All in all there are approximately 30 different types of taxes, including taxes on inheritances, real estate and motor vehicles. There is even a tax on the gross amounts received by the state-run lotteries, though the distributions to the lucky lottery winners are tax-free.

Due to the complexity of the German tax system, it is always recommended that you hire a tax consultant (Steuerberater/CPA) to guide you through the intricacies involved in filing returns as well as provide some ease of mind during your stay abroad. In addition, the German Finanzamt will give you tax advice at no charge. If you are interested in further information about the German tax system, refer to www.bundesfinanzministerium.de

FAQ

Q : Do I have to be German resident in order to buy in Germany?
A : No. Anybody can buy in Germany who has a valid passport and the purchase funds that will be needed. Owning a property in Germany does not give one a right to immigrate to the country. This point is vital to know. We had the case of a person who already owned an apartment in Berlin and had a deposit of about half a million US at a German bank in Germany, and wanted to buy from that money another apartment in Frankfurt. She asked for a visitors visa for that reason – and got her application declined. The German embassy in her country (somewhere in Asia) said: "The risk is you buy an apartment and then stay in Germany and we do not want that." All her assertions that she wanted to buy this apartment for investment only – and the apartment was already rented out which we told the embassy – were fruitless. So if you intend to buy property in Germany in order to live here, make sure first to get a Visa for being a permanent resident in the country.

Q : What are the costs accompanying buying property in Germany?
A : In Germany, the buyer has to carry the following costs and fees: 1. Purchase Tax ("Grunderwerbsteuer"): 3.5% of the buying price. Due about four weeks after the notary deed has been signed by buyer and seller. 2. Notary fees. These are about 1.2 – 1.5% of the buying price, plus any fees for a needed translation of the deed. As they can vary strongly we recommend to check especially the translation fees in advance. We have seen differences from 300 EUR to 3000 EUR for the same type of work. 3. Agent fee. The buying fee for agents in Germany varies from Federal country to Federal country slightly. In most federal countries it is 5% plus the VAT. 4. Registration fees, these add up to about 0.8-1.2%. 5. If financing is needed, there might also be fees from the bank side for the mortgage, plus any additional notary and registration fees for that mortgage. Any mortgage needs to be secured in the land registry (Grundbuch) and that can only be done by a notary public. So the total fees on top of the purchase price are about 10-12%. 

Q : How long will it take until I own the house?
A : From the moment of signing the notary deed until receiving the land title register confirmation several weeks can pass. This however has no bearing on when you can take over the house as your own: this is usually the moment when the buying price is paid in full to the seller. That date is agreed upon in the purchase deed.

Q : What are the costs accompanying owning property in Germany?
A : The costs that are to be paid are property tax - this is different from town to town but very small (between 150 Euro and 300 Euro usually for an apartment per year, a bit more for a single-house; it depends on the size of the property ground). Then the building reserve fund which is mandatory when owning an apartments as part of a community; it is usually about 0.75 to 1.5 Euro per sqm living area per month; Garbage disposal, water, common house electricity, housekeeping, maintenance of the heating system etc. are additional costs which sum up to about 0.5-2 Euro per sqm and month. All of these have to be paid by the tenant if apartment or house is rented out. Even the property owning tax normally needs to be refunded by the tenant to the owner or should be made part of the normal utilities prepayments. 

Q : Who takes care of the property when I am not in Germany?
A : Any house can be given into the care of a property management. On apartments this is mandatory as of today when these belong to a partitioned apartment house. Cost for property management is about 25,- to 35,- Euro per month for an apartment. Rental management is separate from general house management and can be transferred to an agency for a fee that is agreed upon by both parties.

Q : Who would assist in selling the property once I want to do this?
A : At any given point, when you decide to sell the house or apartment again, you can give it to a Real Estate broker or also offer it freely on the market. There are no rules or laws saying that you must go via a broker. There are no shared listings in Germany where all brokers would offer their houses, this is a pretty individual market! It has the advantage that anyone has the chance to get his house on the market. Usually you put the house into local newspapers on the weekends and also would offer it on related websites.

Q : Is there a double tax treaty in place between Germany and USA?
A : Yes, there is a DTA in place. 

Q : As the income tax will be paid in Germany for my German income, do I also have to pay tax in the USA for this same income?
A : Income from foreign countries will likely be taxed in the USA if you are a taxpayer there. If you pay income taxes both in Germany and USA the German tax can be credited against the US taxes named by the DTA. (Art. 2, Art. 6, Art. 23 Nr. 1 DTA USA – Germany).

Q :In the event that one of the owners dies, is there any tax to be paid for inheriting the property? How much would that be? In the worst case scenario that both owners die, what will be the inheritance tax for their kids? Is there any tax at all?
A : Yes this is taxable in Germany, because the property is in Germany. The tax for both spouse and children will be between 7% and 30% depending on the assessment base for the tax, e.g. for 100.000 € the tax is 7%. The assessment base is calculated in a very complex way based on many different figures and can not be predicted. Usually it’s lower than the time value. If there is a tax in the home country, the German tax could possibly be credited against the foreign tax.

• Germany CIA Factbook
• Germany World Bank Data Profile

Buying Step by Step

Italy offers a diverse range of properties with prices for 28000 GBP to 2 million GBP plus. At the lower end of the scale, renovation is often needed, but many stone-built homes occupy amazing plots with tremendous views. For investors, it has been reported tha prices have tripled in the last two years, and as many properties are still reasonably priced, there is great potential for capital growth and strong rental return. Chances are you have never bought real estate in Italy before and have many questions regarding the process and legalities. The following text will help to understand the details in practical terms.

THE BUYING PROCESS

1. The first step is for the buyer to make a verbal offer to the vendor, usually through the estate agent as an intermediary. The offer is then placed in writing and becomes legally binding on the buyer's part - not the seller's.
2. Once the seller accepts the offer, the parties have a binding contract, which is the formalized with the execution of a contratto preliminare, a formal agreement according to which the parties undertake to buy and sell the property and agree on the terms and conditions of the sale.
3. On signing the contratto preliminare, the buyer pays a 5 to 10% deposit on the purchase price. Unless otherwise indicated, in the even either party withdraws from the sale the other party has the right to force the sale, and/or collect damages and/or retain the deposit (if the seller is the breaching party it can be twice the deposit amount).
4. The transfer of the property takes place with the execution of a deed of sale rogito in front of a notary public. The transfer is effective between the parties immediately upon execution of the agreement when the balancing payment also falls due. The contract is subsequently recorded in a public registry.

Financing Your Property

As a foreigner buying property in Italy, we recommend obtaining the mortgage through a European bank for two very important reasons :

 

1. First, because our agency is in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).
2. Second, because in the case of a Leaseback program you will receive your rental income in €uros. In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees.

The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income. With the help of IMOINVEST, you can look forward to a mortgage amount of up to 80% of the purchase price as stated in the sale deed.

In the case of a Leaseback program, keep in mind that the bank will include your guaranteed net rental income percentage as part of your total income figure. Also with Leaseback, you can usually borrow up to 70% of the TTC price.

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

• Two proofs of identification certified at French Consulate or at a bank agency (passport, driving licence, etc.)
• Two proofs of your home address (electricity bill, phone bill, etc.)
• Completed loan application (sent by us)
• Completed insurance form (sent by us)

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank
• Income tax papers from last three years
• Last three months bank statements
• Proof of actual assets (real estate, stock, etc.)
• Your current loan situation:
• Starting & final dates
• Initial amount borrowed and outstanding balance
• Annual repayment

WHAT IS YOUR EMPLOYMENT SITUATION?

• If You Are Company Employed:
• Employment letter
• Last three salary slips, bonus statement, etc.
• If other source of income, proof of it
• If You Are Self Employed:
• Last three years balance sheet
• Letter from your accountant, certifying your income
• Any documents that certify that you own the business
• If other source of income, proof of it

RE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate

** All documents must be sent by both husband and wife if you are purchasing together

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

Tax Issues

As owner of your new property, you should be aware of the various taxes and tax implications of Italy. The information contained in this document relates only to people not resident for tax purposes in Italy. A person is resident for tax purposes if he is physically present in Italy for more than 182 days in any calendar year, his main home is in Italy, and/or he is in business or employed in Italy.

The Italian Authority responsible for the collection of taxes is the "intendenza di finanza" (intendenza). This is organised on a local basis. In each comune there is an office of intendenza. In Italy it is your responsibility to obtain a tax form (usually, but not always, from the local tobacconist or newspaper shop!). It is your responsibility to complete the form and to calculate the amount of taxes that you owe to the State. It is then your responsibility to submit the form to the tax office together with the appropriate amount of tax payable.

The taxes and implications you need to be aware of are as follows:

TAXES PAYABLE ON THE TRANSFER OF PROPERTY

• Imposto de Registro (Registration Tax)
  This is a tax payable when you purchase either agricultural land or a house, apartment or building plot. It varies from 3 - 10% of the declared value of the property as expressed in the Rogito (Deed of Conveyance. For non residents buying a holiday home it is usually 7%. This has led people to be tempted to under-declare the value of the property. Though this practice was and is widespread, IT IS A SERIOUS MISTAKE . Severe penalties are payable in respect of under declarations which, in addition, can lead to monumental Capital Gains Tax headaches at a later date, as the declared value on your purchase is the base line used by Authorities when assessing the Capital Gain you make on the disposal of the property.
• Imposta sul Valore Aggiunto (VAT)
  This is charged at 10% on all new property except luxury homes, which bear 20%. It is usually included in the advertised price of the property.
• Notary's Fees
  These vary according to the value of the property, the number of pages in the documents prepared and various other factors. They would normally be about £1,500 for a £70,000 house.

PROPERTY TAXES

• Imposto municipale (Local Taxes)
  This is the main local property tax affecting owners of properties in Italy . The amount of the tax is calculated by reference to the "rendita catastrale" (official value of the property) registered in respect of all properties in Italy . The official values were, until recently, very very low. They are now rapidly rising, pursuant to a policy of the Italian Government that will result in the official values approaching the real value of the property. In general terms, local taxes will cost less than taxes on a similar property in the UK .
• Tassas Comunales
  Some Municipalities raise additional taxation in relation to the services that they supply to people in the area. These may include rubbish collection, cleaning of the streets and beaches etc. Municipalities also have the right to raise a charge for the use of a vehicle in their area. Not all do so. The amounts of these charges are not generally high.

PERSONAL TAXES

• Wealth Tax
  There is no wealth tax in Italy .
• Imposto sul Reddito delle Persone Fisiche (IRPF) (Income Tax )
  A person not resident in Italy for tax purposes must still make an annual declaration for income tax. The Italian Authorities are only concerned with the income you derive from activities in Italy , not your world-wide income. Typical examples of this will be interest on any money you have on deposit with a Italian bank or income you derive from letting your apartment or house. If you let your house you will have to declare the income received. You will be able to set off certain expenses against that income - repairs, management expenses, local taxes etc. The residue is taxed at between 19% and 46%, depending on the amount. For most people it will be about 30%. As this income is part of your world wide income it will have to be declared to the British Tax Authorities but double taxation relief does exist as a result of a Treaty between the two countries. You do not need to file a tax declaration if you have no income in Italy .
• Notional Income Tax
  There is also a tax to pay upon the notional rental value of your house, even if you do not actually rent it out. This is based on the official rendita catastrale (rateable value). It is normally small.
• Capital Gain Taxes
  In most cases there is no longer any capital gains tax on the sale of land and buildings in Italy .
• Taxes Payable on Death
  In most countries the State likes to take a chunk of your assets when you die. How much they will receive depends largely on how well you plan your affairs. In Italy they have recently abolished Inheritance Tax for most people. Many think this is a political gimmick and that the policy will be reversed after the next change of government. As a result we are also explaining the system that existed before the abolition - on the basis that if tax is reintroduced it is likely to be something similar. In Italy there is no automatic inheritance by a wife or other joint owner of the deceased joint owner's share in any property. If it is left by will or on intestacy to the other joint owner, the gift will be taxable. The amount of tax paid is determined partly by the size of the whole estate - as in this country - but also partly by the size of each individual inheritance. The tax is progressive - the more you inherit, the higher the rate of tax you will have to pay. Near relatives pay tax at a lower rate than more distant relatives who in turn pay less tax than total strangers. Rates vary from 0 - 60%. Near relatives are also entitled to receive a sum tax-free. Spouses and children about £80,000 each, brothers and sisters about £33,000. More distant relatives and strangers are not. An estate of, say, £200,000 can therefore produce a large tax bill if it is all left to one person - especially a non relative - and little or no tax bill if it is divided amongst a number of beneficiaries who are close relatives. Putting all of these things together, there is great scope for minimising tax payable on death. In general terms, dividing your assets between your husband/wife and children tends to produce the lowest tax bills. Penalties are imposed if the tax due is not paid within 6 months of the date of death. In many cases where sizeable tax payments are going to be a problem it is possible to dispose of the assets during the owners lifetime much more cheaply than in his death.
• VAT
  Most transactions in Italy involve the payment of VAT. The normal rates are 4% and 10%. Transactions involving luxury items can carry a rate of 20%.
• Codice Fiscale (Tax Code)
  This is an identification number for use in Italy . If you have dealings within Italy - even if you are not full time or tax resident - you are required to have a number. This is obtained from your local tax office. However tempting it may be not to bother obtaining this number you will find that it will cause you great inconvenience in the future if you do not have one.

Please Note : It is impossible to give tax advice without detailed knowledge of your personal circumstances. You should, therefore, treat this document as no more than background reading designed to give you some idea of the structure of the tax system in Italy. The Italian tax system in more complex than most and taxes in Italy seem to change more than in any other country we deal with - and to be subject to a wide range of interpretation! You will need to seek up to date advice.

FAQ

Q : What is the Rogito?
A : This is the title document transferring ownership of the property. Under Italian law it is necessary for the rogito to be signed before a Italian Notary Public. 

Q : AWho is the Notary?
A : The Notary is a public official who is there simply to put on the public record the fact that the title deed recording the sale/purchase has been signed in his presence and understood by the parties concerned. 

Q : Where should the money be paid?
A : When the rogito is signed in front of the Notary either the purchase price is, in his presence, handed over to the person selling the house or the Seller confirms that the money has already been handed over. Proof of such payment is then incorporated into the title deeds of the property. Usually the price may be paid wherever in the world the parties agree.

Q : Do I have to be in Italy to complete the transaction?
A : The person buying the house may attend in person before the Notary, but, if this is inconvenient, arrangements can be made for a Power of Attorney (" procura ") to be granted enabling another person to attend on their behalf. This must be in the Italian form and signed in front of a Notary. 

Q : What about paying the taxes due?
A : Once the purchase formalities with the Notary have been completed, any taxes due in relation to the transaction can be paid. 

Q : Is there a Land Registry system in Italy?
A : Yes. After the Rogito has been signed in front of the Notary it will be presented to the appropriate Land Registry for the payment of the Land Registry fees (" imposta di registro "). Please keep in mind that several months can elapse before the process of registration is concluded. 

Q : Are there any special points for new properties?
A : Yes. By law, where you pay all or part of the price before the property has been fully built, the property must have the benefit of a bank guarantee to ensure that, if the developer goes bust before he completed the building work, you do not lose your money. You must also make sure that the property specification is agreed in detail with the builder. Ideally you should not pay the final instalment of the price until this is produced but, because of bureaucratic delay it is common for the deeds transferring ownership to you to be signed - and the price paid - several months before this paperwork is issued by the Town Hall.

Q : In whose name should I purchase the property?
A : There are a number of ways to purchase the property : in your own name, in the joint names of you and your wife or co-purchaser(s), in your children's names or in the name of somebody who will eventually inherit the property from you, or in the name of a limited company, whether English, Italian or "off-shore". Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. It is worth paying careful attention to this point because of the potential tax and other savings that can be made at a later stage. These tax savings arise because of the Italian system of inheritance tax under which - although they are presently often tax free - gifts on death could until recently still attract very high rates of taxation. There is a real risk that Inheritance Tax could be reintroduced. Careful planning of your inheritance can dramatically reduce the tax payable. The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If you can minimise the number of times it changes hands, you can greatly reduce your tax liabilities. As always with tax savings schemes there is a danger that the Government can close the loopholes that allow the schemes to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you will have to weigh up the advantages and the disadvantages and decide how you wish to deal with the transaction. 

Q :What about raising the money?
A : Usually the down-payment is 10% of the sales price or different if agreed so between the contractual parties. 

Q :What types of fees must I plan for?
A : A fee is paid to the Notary for the preparation of the Rogito. This fee varies but is typically 2% - 4% of the price of the property. Land Registration tax is the main tax on real property and is levied at 4 to 19% of the declared value. The amount payable depends on many factors including whether the property is your first and only home or a second home, whether it's a new home and whether you are a resident. For New Property, the Value Added Tax ( IVA ) is levied at 10% on new (for non-luxury properties) and at 20% (on luxury homes with a rating of A1 in the property register), and is included in the price charged by the builder or developer. In order to buy property in Italy, you need to be registered with the Italian tax authorities and to have a tax identification number.Finally, all or part of these charges may attract Italian or English VAT at the current rate. 

Q :After I have settled in, what are my continuing obligations?
A : If you spend less than 184 days a year in Italy then you are, generally speaking, classed as a "non-resident" and you must:

• Pay your local rates.
• Make a Italian income tax declaration and pay income tax on any income deriving from your activities in Italy.
• If you have a car, pay car tax and arrange suitable insurance cover.
• Pay your electricity, water and other bills. It is usual to do this by arranging for your bank to pay the accounts directly to the suppliers.

• Italy CIA Factbook
• Italy World Book At a Glance
• Italy World Bank Data Profile

Buying Step by Step

Odds are you have never bought real estate in Florida before, so the information below is an attempt to educate you on the purchase process in Florida. Closings tend to be very thorough, very fast, and quite easy - consisting of five steps:

1. An offer to buy is usually made through the seller's property broker. There is no "subject to contract" period clause in Florida - you either sign a contract at the beginning or you do not, so beware of signing any forms without your lawyer being present, as any you do sign will form a binding agreement.
2. Once agreement is reached, a purchase and sale contract is prepared for signature. An "earnest money deposit" (approximately 10%) is normally required at the time of execution and paid into an escrow account. If the buyer withdraws, the vendor will retain the deposit.
3. Next the documents necessary to convey the property are drafted, a review is made by the insurers, along with a "title commitment", and a closing statment is prepared listing all financial obligations.
4. After the buyer transmits the funds to the title closing agency's escrow account, the documents are signed at closing (completion), and financial obligations are settled.
5. The documents are recorded and the title policies are issued following the closing. The original deeds are returned to you after being recorded at the local county court.

Finance Your Property

As a foreigner buying property in Florida, we recommend obtaining the mortgage through an American bank for two very important reasons :

1. First, because our agency is in daily communication with several of the largest financial institutions in the USA and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).
2. Second, because in the case of a Leaseback program you will receive your rental income in USD. In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees.

The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income. With the help of IMOINVEST, you can look forward to a mortgage amount of up to 80% of the purchase price as stated in the sale deed.

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

• Two proofs of identification certified at American Consulate or at a bank agency (passport, driving licence, etc.)
• Two proofs of your home address (electricity bill, phone bill, etc.)
• Completed loan application (sent by us)
• Completed insurance form (sent by us)

WHAT IS YOUR FINANCIAL SITUATION?

• Original Recommendation letter from your bank
• Income tax papers from last three years
• Last three months bank statements
• Proof of actual assets (real estate, stock, etc.)
• Your current loan situation:
• Starting & final dates
• Initial amount borrowed and outstanding balance
• Annual repayment

WHAT IS YOUR EMPLOYMENT SITUATION?

• If You Are Company Employed:
• Employment letter
• Last three salary slips, bonus statement, etc.
• If other source of income, proof of it
• If You Are Self Employed:
• Last three years balance sheet
• Letter from your accountant, certifying your income
• Any documents that certify that you own the business
• If other source of income, proof of it

ARE YOU PURCHASING WITH YOUR SPOUSE?**

• Marriage Certificate

** All documents must be sent by both husband and wife if you are purchasing together

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

Tax Issues

If you are investing in the USA, as a non-resident property owner, you could be liable for the following taxes:

Tax On Rental Income:The standard withholding tax rate of 30% is applicable to rental income. If a US return is filed claiming property expenses and mortgage interest and a depreciation allowance (this will be clawed back on sale and not allowed for UK tax purposes); then the income will be taxed at progressive US rates from 15% -35%. In some states there will be "State Income Tax", as well.

Capital Gains Tax (CGT):If the property is owned for more than one year, then the US Capital Gains rates will be either 8% up to 15% for larger gains. The shocker here is that under a US law called FIRPTA, the purchaser or his agent must withhold 10% of the purchase price and pay it over to the US IRS on account of your Capital Gains tax liability. There is a little known exemption to this, if the property is sold for less than $300,000 and the purchaser or a member of his family will occupy it as their residence and they certify to that effect. Obviously, if the withholding is made you can make a repayment claim if it exceeds the Capital gains and it usually does!

Inheritance Tax (IHT):This is a real shocker! Although US Estate tax rates offer a generous exemption, Non-Citizens cannot benefit and only have a $60,000 exempt amount. After that they are subject to progressive rates rising to 48% in 2004 and 47% next year 2005. Don't forget, there is State Inheritance tax that is levied either on top of, or as a deduction from Federal Estate Tax. If you give away your property during your life, there is a wholly separate Gift tax, with its own rules to consider.

Comments: US Income and Capital Gains rates are fairly low. Inheritance Tax is the real problem and needs to be planned for. Holding the property through a special type of Offshore Company may help, as may planning to leave the property in a "Special US Qualifying Domestic Trust" to your Spouse as this will produce a Spouse exemption up to the US exempt amount currently $1.5 million. It all needs specialist advice, taking into account the UK aspects as well.

* PLEASE NOTE: The above information represents only a simplistic overview of the tax implications involved in acquiring American real estate. We suggest that you seek professional advice through your laywer or IMOINVEST. In terms of American Inheritance Regulations, your lawyer's advice should be taken in order to optimize your legal status.

FAQ

Q : What about a survey?
A : As is the case with the purchase of a property anywhere, it is often prudent to have the property you intend to buy surveyed. 

Q : Is there anything special to look out for when buying a new property?
A : Most new developments and pre-construction sales, require Buyers to leave a deposit with the developer. When you sign the contract you are likely to be asked to pay a preliminary deposit. This is typically from $1,000 - $10,000, depending on the value of the transaction. On the purchase of a new property it will normally be 20% of the price. Generally, these deposits are required to be paid into the developer's trust/escrow account. You must be careful with developers whose contracts specify that they can use your deposit for construction. If these developers go bust before completing the building work, you lose your deposit. For many reasons it is much better, where possible, to leave the deposit in your lawyers escrow account. This means that the lawyer will not hand the money over to the developer until the property is finished. He will then be obliged to hand the money over. You must also make sure that the property specification is agreed in detail with the builder and that the property will be delivered to you complete with the necessary licence to occupy it as a home. 

Q : In whose name should you purchase the property?
A : There many ways to purchase the property. The decision is vitally important. If you make the wrong choice it can cost you many thousands of dollars of totally unnecessary taxes, both at home and in the USA. These choices include: in your own name, in the joint names of you and your wife or co-purchaser(s), in your children's names or in the name of somebody who will eventually inherit the property from you, in the name of a US limited company, via a trust which owns through a limited company, or via a US company, in turn owned by an offshore company. Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. We shall be pleased to discuss the various ways of buying and to advise as to the most advantageous method for you. It is worth paying careful attention to this point because of the huge potential tax and other savings that can be made at a later stage. These tax savings arise because of the US system of inheritance tax under which gifts on death can still attract very high rates of taxation. Depending upon the state in which your property is located this could be up to 60%. Careful planning of your inheritance can dramatically reduce the tax payable. The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If you can minimise the number of times it changes hands, you can greatly reduce your tax liabilities. As always with tax savings schemes there is a danger that the Government can close the loopholes that allow the schemes to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you will have to weigh up the advantages and the disadvantages and decide how you wish to deal with the transaction. 

Q : What about raising the money?
A : It is possible to raise finance to assist with the purchase of a property in the U.S. either by mortgaging the property itself or by mortgaging or adding to the mortgage on any property which you may have in your home country.

Q : Can I take money into and out of the U.S. freely?
A : Yes. But not in cash, when a raft of restrictions apply. 

Q : Where should the money be paid?
A : The payments are made by your closing agent. This is usually your own attorney, or if you don't have an attorney, then the bank's attorney and/or designated Title Company. The Closing Agent receives all deposits ‘in escrow’. The bank will also send your mortgage money to the Closing Agent. He produces a closing statement which apportions and pro-rates any taxes and other charges accruing to the property. Then, after making the previously mentioned adjustments, he pays the Seller the sum due at Closing. Usually the price may be paid wherever in the world the parties agree. For example, if you are buying from another English person you could pay the price in £s Sterling in England rather than in $US in the US. We will advise you as to the implications of this choice. 

Q : What extras are there on top of our legal fees?
A : Any transfer tax or Stamp Duty have also to be paid. This depends on the value of the property, the type of property in question and where it is located. It is typically less than 1% of the price of the property. How much depends on the location and type of the property. In many cases you may not wish to be in the US at the time when the public title deed needs to be signed. In these circumstances you will need a Power of Attorney by either someone nominated by you or our overseas associate to sign on your behalf. The cost of doing this is typically £150. Finally, all or part of these charges may attract English VAT or the relevant US Sales Tax at the current rate. 

Q : How do we complete the transaction?
A : AA deed of sale is signed to transfer ownership of the property into your name. 

Q : Do I have to be in the US to complete the transaction?
A : GThe person buying the house may attend in person, but, if this is inconvenient, arrangements can be made for a Power of Attorney, drafted pursuant to the applicable state law (e.g. Florida), to be granted enabling another person to attend on their behalf. However, if you are financing the property by way of a US mortgage, the loan documents must be signed by you in person. In such cases, you can have the loan documents mailed to you for your signature in your home country. You must have your signature notarised at the U.S. Consulate or Apostilled. 

Q : What about the Sellers' taxes?
A : If the Seller is a non-resident of the U.S., the Buyer is usually obliged by U.S. law to pay 10% of the purchase price to the tax office on account of the Seller's potential tax liabilities in the U.S. There are certain exceptions to this rule. This does not increase the amount the buyer has to pay - he simply pays 10% of the agreed price to the tax office and 90% to the seller. If you do not make this payment you can become responsible for paying all the Seller's taxes! Having done this the Buyer has no further exposure to liability in respect of the Seller's taxes. This responsibility is the same wherever the money is paid and whichever currency it is paid in. 

Q : What happens if I want to live and/or work in the US?
A : If you spend less than 183 days a year in the United States then you are, generally speaking, classed as a "non-resident" and you must pay your local property taxes, make a Federal US income tax declaration and pay income tax on any income deriving from your activities in the U.S., make a state tax return and pay any state income tax due on any income deriving from your activities in the U.S. (Florida does not impose personal income taxes, but most other states do) over and above the federal income tax, if you have a car arrange suitable insurance cover, pay your electricity, water and other bills. It is usual to do this by arranging for your bank to pay the accounts directly to the suppliers. If you spend more than 183 days in any one year in the United States (or more than 121 days on average over the last three years and you do not have a main home in some other country), then you are, generally speaking, classed as a "tax-resident" and you must (in addition to the above): make a US income tax declaration and pay income tax on any income deriving from your activities worldwide - including in the U.K. Tax on your foreign income is, however, subject to a tax credit, which allows a dollar for dollar deduction on your US income tax liability on such income. Generally, if your tax rate in the U.K. on such income is higher then that of the U.S., you will not owe the U.S. any tax on such income. Nonetheless, if you have a significant passive investment portfolio in the name of a non-U.S. company, the income received by such company may be subject to tax in the U.S. - even if the company does not distribute such income to you. This unfortunate result can be avoided with proper planning. Anyone taking up residency in the U.S. should consult a U.S. tax advisor prior to obtaining such resident status. 

Q : What happens when either I or my co-owner dies?
A : Jointly owned property passes automatically to the survivor. One of the options as far as ownership is concerned is to set up a revocable trust. This means that no action is needed on your death and so avoids the cost and problems associated with dealing with an inheritance. If you have not set up a trust, property that is not jointly owned will be dealt with according to any instructions which you leave in your Will (either English or US) or, if you do not leave a Will, under the rules relating to intestacy. It is generally much cheaper and simpler to deal with your affairs if you have made a US revocable trust or a US Will. Additionally, you should note that non-resident foreign nationals who die leaving U.S. property are subject to U.S. Estate Tax on such portion of the net value of the property as exceeds $65,000. Thus, for example, if you should die leaving a $300,000 property, which is subject to a $100,000 mortgage, your heirs would be subject to tax on $135,000 [($300,000 - $100,000) - $65,000 = $135,000]. The US federal estate tax rate is currently capped at 49%. There may be additional State taxes. If you are considered a resident at the time of your death, the exemption amount increases from $65,000 to $1,000,000. Both of these sums are scheduled to be increased each year, at least up to the year 2009. Careful planning can reduce your tax bill dramatically.

• USA CIA Factbook
• USA World Bank At a Glance
• USA World Bank Data Profile

The Buying Process

Buying in Turkey is a simple process, but may take a little time due to the Military checks

Main steps of the buying process:

A. Property search
B. Deposit/Reservation
C. Sales Contract
D. Power of Attorney
E. Military Approval
F. Title Deed Transfer ( Tapu )
A. Property Search

Viewing various properties of your choosing and deciding on the right one for you

B. Deposit/Reservation
Once you have found the best property, you will need to put down a deposit/reservation to secure the property, the amount which will be agreed by all interested parties at this point. On payment of the monies a receipt will be given and the amount written into the sales agreement

C. Sales Contract
An independent lawyer will draw up the sales contract between you and the seller, which will include all information pertaining to the property along with agreed sale price, deposit paid further stage payments & dates and final payment and transfer details. The lawyer will ensure that the title of the property is checked, that the person who is selling the property actually owns it, whether there are any charges on the property, where applicable that building licences and permissions are in order and that the terms and conditions stipulated by the seller are checked for fairness. The sales contract will be translated from Turkish into English by the legal translator. The lawyer, legal translator, buyer and seller will sign the sales contract; each party will receive a copy of the sales contract in both Turkish & English.
At this time you are also required to give two passport photos of each person to be named on the title deeds (tapu) along with full photocopy of their passports which need to be notarised

D. Power of Attorney
Should you be unable to be present in Turkey at the actual time of close of purchase, i.e. release of title deeds from the title deeds office, you will need to appoint a power of attorney to attend and sign for the release of your title deeds on your behalf. This can be your lawyer if you so wish. The power of attorney must be done at the Notary Office.

E. Military Approval
Details of the property and the purchasers are forwarded to the land registry office. An official transfer application is made and all documentation are sent to the military for approval. Checks are made to ensure that the property is not located in a restricted zone for foreign purchase etc.

F. Title Deed Transfer (Tapu)
Once the military approval has been granted Title deeds (Tapu) are issued in the new owners name and forwarded back to the local land registry office. They will let your agent know that the Title Deeds (Tapu) are ready for signing. It is at this point that the final payment as agreed on the sales contract is made, whereby you or your appointed power of attorney is able to collect your Title Deeds (Tapu)


Buying Costs

Purchase Tax
3% of the declared value of the property to be paid to the government, this is a one off payment and is due when receiving the Title Deeds (Tapu).

Lawyers Fees
Prices vary depending on lawyer and amount of work involved, but as a general rule of thumb around £200– £500

Agency Commission
All estate agencies in Turkey charge 3% commission based on purchase price.

Other Charges
This varies from region to region and will be advised at time, these charges include such as notary fees, translation fees. Map searches and Title Deed (Tapu) registration. Also habitation certificate, water & electricity transfer into your name.

Property Tax
Annual payment (much like council tax in the UK) approximately 0.1% of property value (determined by local government)

Earthquake Insurance (required by law)
Price is dependant on property size and location.

                       

Financing your property

You may wish to finance your property from monies that you have already for this purpose, however.

As a foreigner investing in property in Turkey, you now have the option of obtaining a mortgage in Turkey. This long awaited gateway has only opened in the recent past and paves the way for many more buyers in the Turkish property market, now and in the future, which will in turn enhance the return on your investment in the years to come.

As in other countries of the world, each of the financial institutions offering mortgages have their own lending criteria, but in general mortgages offered to foreigners is around 65% LTV ( loan to Value ) and may in some cases be as much as 75% LTV ( Loan to value) depending on each individual circumstances.

Buying a house in Turkey as a foreigner
Turkey has a reciprocal agreement for the purchase of land and property with many countries. This means that the people of these nations that allow Turks to buy land in their countries, can in return, buy land in Turkey. Foreigners may purchase in their own name if the property is outside military zones. Based on these agreements foreigners of the following countries are eligible. UK, Germany, Australia, Austria, Belgium, France, Holland, Ireland, Spain, Italy, Canada, Luxemburg, Norway, Greece as well as some African and South American states. (full listing of countries available)

No matter where the land or the house may be situated if the buyer is a foreign person, the deed office has to officially ask the prior approval or permission of the highest military command of the area before transferring the title (Approval of the ministry of Defence: Savunma Bakanligi). The duration of the request for permission is estimated on 30-60 days. The reasons for this are to ensure that foreign buyers will not acquire a property within military zones. No land or property within forbidden regions and safety regions can be sold, transferred or rented (Forbidden regions-Military zones)

More and more foreigners are interested in buying property in Turkey. In 2006 around 50,000 purchases from foreigners have been taking place. More and more foreigners are looking for financing their new property at a local bank. Foreigners, with different behaviour/features, require a different application approach.
 
Guideline below, (this may differ from other individual financial institutions offering mortgages.)
• Origination available in TL, EUR, USD, GBP.
• Terms of up to 240 months (20 years).
• Maximum loan-to-value (LTV) ratio of 65% for EU countries, Switzerland, Norway.
• Maximum loan-to-value (LTV) ratio of 50% for all other nationals.
• Maximum loan amount of TL 500.000 or the same amount of loan currency calculated by the up-to-date conversion rates

Tax Issues

Income Taxes

Income taxes in Turkey are levied upon the income, both domestic and foreign, of individuals and corporations resident in Turkey.

Non-residents earning income in Turkey through employment, ownership of property, carrying on a business or other activities providing an income are also subject to taxation, but only on their income derived in Turkey.

Individual Income Tax
The limited tax liability covers trade or business income from a permanent establishment, salaries for work done in Turkey (regardless of where paid or whether or not remitted to Turkey), rental income from real property in Turkey, Turkish derived interest, and income from the sale of patents, copyrights and similar intangible assets. The personal income tax rate varies from 15% to 40%.

Corporate Income Tax
For tax purposes, companies are grouped as limited liability companies (corporations and limited companies) and personal companies (limited and ordinary partnerships). Corporate tax applies to limited liability companies. State economic enterprises and business entities owned by societies, foundations and local authorities are also subject to corporation tax.
Whether a company is subject to full or limited tax liability depends on its status of residence. A company, whose statutory domicile or place of management are established in Turkey (resident company), will have full tax liability; in this case, worldwide income is taxable. If a non-resident company conducts business through a branch or a joint venture, it will have limited tax liability; i.e. fully subject to corporate tax on profits earned in Turkey on an annual basis. If there is no presence in Turkey, withholding tax will generally be charged on income earned; for example, for services provided in Turkey. However, if there is an avoidance of double taxation treaty, reduced rates of withholding tax may apply.
The basic corporate income tax rate levied on business profits is 30% in Turkey, but for 2006 it's planned to take it down to 20%. Dividend withholding tax is also applied in the event of profit being distributed to share holders. For resident corporations, tax is levied on worldwide income, but credit is given for foreign tax payable in respect of income from foreign sources (up to the amount of Turkish corporate income tax, i.e. 30%).
Corporations are required to pay Advance Corporate Income Tax based on their quarterly profits at the rate of 30%. Advance Corporate Income Taxes paid during the tax year are offset against the ultimate Corporate Income Tax liability of the company, which is determined in the related year's Corporate Income Tax return.
Corporate entities having their statutory domicile and place of management outside Turkey, but established in Turkey in the form of a branch are subject to tax on an annual return based on income received from the permanent establishment in Turkey.
From the non-resident's point of view, many payments abroad including those for professional services and technical assistance, royalties and rentals are subject to withholding tax at rates varying between 10% to 25%. In this regard, countries having avoidance of double taxation treaties with Turkey have considerable advantages. Turkey has signed such treaties with 60 countries and the investors of these countries can benefit from a reduction in withholding taxes. Countries with which Turkey has bilateral tax treaty agreements came into force as of April 2005 are as follows: Albania, Algeria, Austria, Azerbaijan, Belarus, Bangladesh, Belgium, Bulgaria, Czech Republic, Croatia, China, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kyrgyzstan, Kuwait, Latvia, Lithuania, Luxemburg, Macedonia, Malaysia, Moldova, Mongolia, Netherlands, Norway, Pakistan, Poland, Romania, Russia, Saudi Arabia (but only air transportation activities), Singapore, Slovakia, Slovenia, South Korea, Spain, Sudan, Sweden, Syria, Turkish Republic of Northern Cyprus, Tajikistan, Thailand, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, UK, USA, Uzbekistan.

Taxes on Expenditure

Value Added Tax (VAT)
The VAT (KDV in Turkish) rates vary between 1% - 18% but it's generally applied as 18%. VAT payable on local purchases and on imports is regarded as "input VAT" and VAT calculated and collected on sales is considered as "output VAT". Input VAT is offset against output VAT in the VAT return filed at the related tax office by the 20th of the following month. If output VAT is in excess of input VAT, the excess amount is paid to the related tax office. On the contrary, if input VAT exceeds the output VAT, the balance is carried forward to the following months to be offset against future output VAT. There is no cash refund to recover excess input VAT, except for exportation. There is also a so-called reverse charge VAT mechanism, which requires the calculation of VAT by resident companies on payments sent abroad. Under this mechanism, VAT is calculated and paid to the related tax office by the Turkish company on behalf of the foreign company. The local company treats this VAT as input VAT and offsets it in the same month. This VAT does not create a tax burden for the Turkish and the non-resident company, except for its cash flow effect.

Special Consumption Tax
Special Consumption Tax (ÖTV in Turkish) was implemented in August 2002 by abolishing 16 different indirect taxes and funds in order to make the direct taxation system becoming in line with the European Union directives. Unlike VAT, which is applied on each delivery, ÖTV is charged only once. There are mainly 4 different product groups that are subject to ÖTV at different tax rates:
• Petroleum products, natural gas, lubricating oil, solvents and derivatives of solvents
• Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
• Tobacco and tobacco products, alcoholic beverages
• Luxury products

Banking and Insurance Transaction Tax
Banking and Insurance company transactions remain exempt from VAT, but are subject to a Banking and Insurance Transaction Tax of 5%, due on the gains by the banks for their loan interest or transactions for example. The purchase of goods and services by banks and insurance companies are subject to VAT but is considered as an expense or cost for recovery purposes.

Stamp Tax
Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable, capital contributions, letters of credit, letters of guarantee, financial statements and payrolls. Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.15% to 0.75%. In the event of absence of a monetary value on the agreement, Stamp Tax would be calculated on a lump sum basis and paid in New Liras. Stamp Tax is payable by the parties who sign a document. Each and every signed copy of the agreement is separately subject to Stamp Tax.

Taxes on Wealth

Property Tax
Property taxes are paid each year on the tax values of land and buildings at rates varying from 0.1% to 0.6%. In the case of the sale of property, a 1.5% levy is paid on the sales value by both the buyer and the seller. The rate is also applied as 1.5% if the property is contributed as capital-in-kind. The rates are applied twice for property located in the Metropolitan Municipality areas. Buildings and lands owned in Turkey are subject to real estate tax at the following rates:
• Residences 0.1%
• Other buildings 0.2%
• Land 0.1%
• Vacant land (but allocated for construction purposes) 0.3%
• Farming lands 0%

Inheritance and Gift Tax
Items acquired as gifts or through inheritance are subject to taxes between 1% and 30% of the item's appraised value. Tax paid in a foreign country on inherited property is deducted from the taxable value of the asset. Inheritance tax is payable over the period of three years and in two installments per year.

Withholding Tax
Under the Turkish tax system, certain taxes are collected through withholding by the payers in order to secure the collection of taxes. These include income tax on salaries of employees, lease payments to individual landlords, independent professional service fee payments to resident individuals, and royalty, license and service fee payments to non residents. Companies in Turkey are responsible to withhold such taxes on their payments and declare them through their withholding tax returns.

Environmental Tax
Municipalities are authorized to collect an Environmental Tax as a contribution towards the financing of certain services such as garbage collection. This tax is levied at scheduled fixed amounts that vary according to the location of the house or office. This tax is paid thru water bill of the property by the person who lives or occupies that house or office.


THE RENTAL INCOME DECLARATION OF NONRESIDENT TAXABLE PERSON IN TURKEY

(Foreigners who does not have a place of residence in Turkey and Turkish citizens who Iive abroad)
The Legal Basis of the Taxation of Rental Income Obtained by the Nonresident Taxable People in Turkey
The nonresident individuals are subject to limited liability only from their income obtained in Turkey. In this context, a foreigner who spends less than a continuous period of six months in Turkey during a calendar year and whose customary home is not in Turkey is regarded as nonresident taxable person with limited liability. Income obtained in Turkey means that related immovable property is in Turkeyand these property and rights are in use and evaluated in Turkey.

Tax Liability of Nonresident Taxable People in Turkey Obtaining Rental Income
Rental income obtained from the lease of property and rights mentioned above as commercial property and house by owner, possessor, owner of the usufruct and easement and leaseholders in Turkeyare subject to real property tax. The rental income obtained from these property and rights is subject to tax and called "Real Property Tax". What is the Rental Income? The income obtained from lease of the properties and rights (Iand, building, rights, ete.) which are stated in the Article 70 of the Income Tax Laware subject to income tax as "Real Property Tax". On the other hand, properties and rights. which are in use of business or agricultural establishment, income obtained from them is calculated according to provisions of determination business or agricultural income. On the other hand, for a nonresident taxpayer income obtained from operating his/her house as a pension or apart hotel is subject to business income and it is required to be a taxpayer and to give income declaration to tax offices according to the provisions of business income. The taxation conditions of rental income obtained from the lease of these property and rights is explained in following articles from 70th Article of Law.

What is the Acquisition Time of Rental Income ?
The rental income of the current year or the previous years obtained by taxpayers either in cash or in-kind is regarded as the income gained in current year. For example; if the rental income of the 2004, 2005 and 2006 is collected in 2007, the income will be regarded as the income of 2007. The rental income of the forthcoming years received in advance will be regarded as the rental income of each related year and will be declared in related year. For example; if the rental income of the 2007, 2008 and 2009 is collected in 2007, the rental income of each year will be declared in related year. In terms of foreign currency rental payments, gross income is calculated according to the exchange rate announced by The Central Bank of Republic of Turkey on collection date. If there is no current price at the market, it is converted in to the New Turkish Uras (YTL) according to the rate determined by Ministry of Finance. In the case of rental payment collected in-kind, payments are converted according to the equivalent value in the Tax Procedure Law.

The Conditions for Rental Income Oeclaration of Nonresident Taxable People in Turkey
The nonresident individuals are subject to limited liability only from their income obtained in Turkey. In this context, ta~payers who have only rental income from immovable properties in Turkey submit immovable property tax declaration only ifthat obtained income in a calendar year is above the exception amount.

Time and Place of Rental income Declaration
The declaration related to the rental income obtained in a cal en dar year is submitted to the authorized Tax Office of immovable property location until the 25th March of following year.

Rental Income Exceptions and Conditions
The amount stated in Law for rental income obtained from lease as a house in a cal en dar year is exempted from tax. The exception amount for 2007 is 2.300 YTL. This exception is 'not valid for nonresident people in Turkey in the following conditions: I-In the cas e of non-filing or understated filing by taxpayer despite his rental income over the exceptional amount. 2-ln the cas e of annual declaration obligation for earnings from commercial, agricultural and professional activities in Turkey.

Equivalent Rental Value Principle
The amount of rental income from property and rights can not be under the equivalent rental value. In the event of beneficial occupation of property and rights, equivalent rental value is accepted as rental income value. Equivalent rental value for lands and buildings is determined by authorities or courts, if not the value is 5% of the tax value determined according to the Tax Procedure Law. Equivalent renta! value for other property and rights is i 0% of cost value of them, if it is unknown i 0% of value determined according to provisions applicable to evaluation of wealth in the Tax Procedure Law. Inapplicable Circumstances for Equivalent Rental Value Equivalent Rental Value is not applicable in the following conditions: I-Beneficial occupation for safe keeping purpose of void property. 2-Assignment of building to lineal ancestors, descendants or brother/sisters (if there is more than one house assigned to them, equivalent rental value for onlyone of them is not calculated. For married brother/sister equivalent rental value for onlyone of partners is not calculated.) 3-Residence of property owner with his/her relatives in the same house or fiat. 4-Lease of property to general and annexed budget administrations, special provincial administrations, municipalities and other public body and organizations.

Applicable Circumstances for Equivalent Rental Value
Equivalent rental value is applied in the case of low or no value for rental income. According to this principle; the rental income under the equivalent rental value or obtained from beneficial occupation is subject to equivalent rental value.


Calculation of Equivalent Rental Value

Equivalent rental value for lands and buildings is determined by authorities or courts. If this is not the case and no estimation or determination for building or land is stated; equivalent rental value is 5% of real estate tax value.
For instance, a nonresident person lease his property with 100.000 YTL real estate tax value to his friend without charge; although there is no rental income, at least (I 00.000 * 5%)= 5.000 YTL rental income is to be declared as equivalent rental value.

Payment Time and Place
The income tax is paid in two installments. The first installment in the month of March, and the second one in July will be paid. The calculated tax can be paid to tax offices or authorized banks' branches . Results of Non-fiIing or Understated Filing In the case of non-filing or un~erstated filing by taxpayer, the exception stated in Law is not valid. If the rental income is not declared, the taxpayer is subject to penalty twice as much first degree irregularity and the income is appraised by assessment committee. The income tax and penalty is calculated on the appraised value. AIso it is required overdue interest for each delayed month. The accrued tax, penalty and overdue interest is to be paid in a month af ter the due date of assessment. Otherwise, Iate payment charge is calculated for each month (Iate payment of charge for fraction of months is calculated for each day of month) and collected by enforcement.

                          

FAQ

Is purchasing property in Turkey a good investment?
Purchasing now is a good idea as the property prices offer excellent value for money. Turkey is en-route for entry into the EU, once this happens prices of property will increase significantly.

Is anyone allowed to purchase property in Turkey?
Most foreign nationals can purchase property in Turkey provided that there is a reciprocal agreement existing between their country and Turkey. The property being purchased should lie within a municipal area. You cannot however buy property within the confines of a military zone.

Can I purchase more than one property?
Yes.

Are properties freehold or leasehold?
Properties are freehold.

Do I have to use a solicitor to purchase property?
Officially you do not need to use a solicitor but it is advisable to do so as they will do all legal work and checks required and ensure the contract agreement is fair to both parties.

What’s a Tapu?
A Tapu is an official document which shows the ownership rights over real estate. The owner’s full name and photograph, and detailed information on the asset appear on this document.

When will I need to make payment for the property I wish to purchase?
Payments will be detailed in your sales contract and will be discussed with you before signing. Generally the payments are staged with the final payment due when the Tapu arrives at the land registry office.

Can the Title Deeds (Tapu) have more than one name on it?
Yes it can. For each person named passport copies are required along with full names and addresses and two passport photographs.

How long does it take until I own the property in my name?
In general this takes around two to three months for the Title Deeds to come through. This is due to the military search that needs to be done on all foreign nationals It is at this point that the property is in your name.

What if I cannot be in Turkey when the Title Deeds come through?
You can give power of attorney to your solicitor or someone else whom you trust, to sign for the release of your Title Deeds on your behalf, please note that should their be more than one named person on the deeds then a power of attorney is required for each. All named persons or their poa need to be present at time of signing for the release of the Title Deeds.

Can I open a bank account in Turkey?
Yes you are able to have a bank account in Turkey, all you need to open the account is a Turkish tax number from the local tax office, which takes only a few minutes, then submit this tax number along with a copy of your passport to the bank you wish to use.

Can I apply for a mortgage at a Turkish Bank?
Yes this is now possible. Once you have decided on the property you wish to buy. Fill out a mortgage application form at the bank branch, preferably, a branch within the region of your property. Customer Relationship Mgrs at the branch will provide you with payment options, current interest rates and best payment plans that suit your needs. The bank will notify you with your application result after pre- evaluation.

How is the property determined for a mortgage application?
After your application is received by the bank, the appraisal of the property will be arranged by the bank. Once the value of the property is set, the final loan evaluation and the loan amount will be decided accordingly. At the same time of the mortgage application you must either have monies or deposit the monies into your account for the appraisal report and loan evaluation fees.

What are the transactions to be completed for a mortgage application?
After pre-qualifying for a mortgage, the customer relationship Mgr will request the signing of the English version of the home financing pre-arrangement information form, as well as the home financing (Mortgage) agreement and the payment plan printed in Turkish. As a beneficiary to the loan, consumers must set up a life insurance policy on their name as well as a house insurance and DASK (National Disaster Insurance Authority) insurance for the property to be purchased.

In which currencies do you provide mortgages?
It is possible to have the mortgage in Turkish Lira, Euro, British Sterling, US Dollar and Swiss Francs.

Do you provide adjustable rate mortgages in different currencies?
Adjustable rate mortgages are available in Turkish Lira denominated mortgages only, as a result of the mortgage legislation in Turkey.

Do you provide fixed rate mortgages in different currencies?
Yes fixed rate mortgages are available in Turkish Lira, Euro, British Sterling, US Dollar and Swiss Francs.

What is the maximum Loan to value (LTV) ratio at the bank?
Maximum loan to value ratio for EU member countries, Norway and Switzerland citizens is 65% of the appraised value of the property. For other countries the maximum loan to value provided by the bank is 50%.

What is the minimum loan amount for a mortgage?
There is no minimum requirement.

What is the maximum loan amount limit for a mortgage?
The maximum loan amount is YTL 500,000 or its equivalent in other available currencies.

What are the minimum and maximum loan terms for mortgages?
There is a 3 month minimum term and a 240 month (20yrs) maximum for a mortgage loan.

Are there a minimum and maximum age allowed to apply for a mortgage?
Consumers between the ages of 18yrs and 65yrs can apply for a mortgage.

Which nationalities may apply to have a mortgage?
All countries’ citizens may apply for a mortgage loan in Turkey via banks.

Is there a maximum debt to income ratio to apply?
Yes, there is a maximum debt to income ratio of 40%.

Is there an early repayment fee for full or partial repayments?
Yes, an early repayment fee will be applied to all early repayments/terminations for fixed rate mortgages. However for adjustable rate products there is no early redemption or partial repayment fees.

Can such properties be rented to third parties?
Yes, but rent income cannot be taken into account for the credit evaluation process.

How is the mortgage repaid? Do customers need a bank account with the lender?
For repayments, customers are required to have a bank account at the lender bank.

Am I able to stay in Turkey long term?
Yes, but you will need to apply for a residence visa. This is a fairly easy process with applications made through police headquarters.

What medical services are available in Turkey?
There are no NHS hospitals in Turkey. There are government and private hospitals. Private hospitals are much cheaper than most European hospitals and at times treatment prices can be negotiated. The quality of care is first class. It is important if you are considering coming to Turkey to live, to obtain private health insurance, which you can obtain in Turkey or elsewhere.

NB. The above is not a comprehensive list and you may have other questions that are not noted above. Please feel free to ask your questions to ourselves and we will be happy to answer them for you. Documents Required For Mortgage Application (Guideline) • Tax ID Number provided by Turkey (aka TCKN) • Appraisal report of the property • Non- Resident application form (provided by the branch) • Sample copy of the passport or the original copy of official residence letter • Credit Bureau record from applicant's home country • Utility, cable or telecommunication bill noting the address of the customer • Security check obtained from military authorities in Turkey • Previous three month's bank account / credit card / overdraft statements Mortgages for foreigners are obtainable from various banks in Turkey, some of whom have branches in other countries of the world. Banks such as Garanti Bank, Deniz Bank, Akbank, Isbank and many more are all offering their mortgage services along with European banks and other financial instititutions to enable you to invest in your future with properties in Turkey. Mortgages are also available on off plan developments. We will be happy to help you with the best possible options that are right for you.

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