Attention landlords and tenants: Penalties coming for both those who pay and receive rent in cash

The Ministry of Treasury and Finance will impose penalties on those who pay rent in cash. According to the draft communiqué prepared by the Revenue Administration, a penalty will be applied for each month paid in cash. If the amount calculated as 10 percent of the rent for that month falls below the special irregularity penalty of 5 thousand liras, the 5 thousand lira penalty will be applied.

According to a report by Hürriyet, for example, starting from October 1, 2024, a landlord, Ms. Ayşe, rented her house to Mr. Ahmet for 25 thousand liras. 10 thousand liras of the rent was paid via bank transfer, while the remaining 15 thousand liras were paid in cash. Since 10 percent of the 15 thousand liras paid in cash remains below 5 thousand liras, both Ms. Ayşe and Mr. Ahmet will be fined 15 thousand liras each for the months of October, November, and December.

The Revenue Administration has prepared a draft communiqué to clarify the implementation of the mandatory payment via bank requirement introduced by Law No. 7524, which was published in the Official Gazette on August 2, 2024. According to the 'Draft Income Tax Communiqué Regarding the Obligation to Document Rental Payments,' landlords and tenants of residential and commercial properties will be required to 'document' (verify) their rental collections and payments through documents issued by banks or the PTT (Turkish Post).

Collections and payments related to short-term residential rentals, such as weekly, daily, or similar arrangements, have also been included within the scope of documentation requirements. In the leasing of real estate with multiple owners, if the entire rental amount is paid to one of the lessors via banks or the PTT, the documentation obligation will be considered fulfilled.

According to the draft communiqué, those who do not comply with the obligation will be subject to a special irregularity penalty. The penalty will be applied to each individual who fails to comply and for each transaction. A special irregularity penalty of 10 percent of the transaction amount, but not less than 20,000 Turkish Liras for first-class merchants and self-employed professionals; 10,000 Turkish Liras for second-class merchants, farmers keeping books, and those whose earnings are determined by the simple method; and 5,000 Turkish Liras for others, will be imposed.

These penalties will be increased each year by the revaluation rate. The total penalty to be imposed within a calendar year cannot exceed 20 million Turkish Liras. If those who make payments in cash report the situation to the administration voluntarily within 5 business days following the transaction, no special irregularity penalty will be imposed.

-The Revenue Administration provided various examples in its draft regarding cash rental payments. Landlord Mr. Ali rented his property to Mr. Hakan for 20 thousand liras. It was determined that the rent for November was paid in cash.

-Since the documentation requirement was not complied with, a special irregularity penalty will be imposed on both the landlord, Mr. Ali, and the tenant, Mr. Hakan. The cash payment made is 20 thousand liras. 10 percent of this amount corresponds to 2 thousand liras. Since this is below the minimum penalty amount of 5 thousand liras determined for 2024, a separate irregularity penalty of 5 thousand liras will be imposed on both landlord Mr. Ali and tenant Mr. Hakan.

-If the tenant, Mr. Hakan, voluntarily notifies the administration within five business days following the payment that the payment was made without complying with the documentation requirement, no special irregularity penalty will be imposed.

-Landlord Emine rented her property to tenant Fatma in 2024 for 25 thousand liras. It was determined that tenant Fatma paid the rent for September and October 2024 in cash. In this case, a special irregularity penalty will be imposed on both the landlord and the tenant.

Accordingly, for each transaction separately, since the 2,500 lira penalty amount calculated as 10 percent of the 25 thousand lira rent amount collected and paid in cash remains below the 5 thousand lira minimum penalty amount determined for 2024, a special irregularity penalty of (2x5,000=) 10 thousand liras will be imposed.

Another draft prepared by the Revenue Administration introduces a regulation requiring all collections and payments exceeding 7 thousand liras to be made through intermediary financial institutions. The draft states: "Civil Servant Mr. (A) has purchased a refrigerator from (B) Ltd. Sti. for 20 thousand liras.

Since the amount of the refrigerator exceeds the 7 thousand lira threshold, the payment for this transaction must be made through intermediary financial institutions. If the documentation requirement is not complied with during payment, separate penalties will be imposed on Mr. (A) and (B) Ltd. Sti."