Turkey reveals domestic tax support and overseas incentives

• Tax relief in Istanbul Financial Center
• Zero tax on foreign income for returning citizens
• Export manufacturers’ tax cut to 9%

Turkey, badly affected by war in Iran and closure of the Strait of Hormuz, has unveiled a raft of incentives to attract overseas investors to its financial sector and lure domestic capital from abroad.

The measures are also aimed at easing pressure on industrialists and exporters weighed down by high taxes and a strong lira.

Incentives include a mix of tax cuts and exemptions, treasury and finance minister Mehmet Şimşek said, adding detail to an earlier announcement from President Recep Tayyip Erdoğan. 

The package offers the elimination of corporate tax on profits from transit and intermediary activities in overseas goods trading – commodities and products which pass through Turkey without being consumed in-country – for companies operating out of the Istanbul Financial Center (IFC), a step up from a 50 percent exemption rate introduced in 2009. 

It also sets out a 20-year corporate tax exemption for overseas companies that move their regional headquarters to the IFC, while eligible employees will be exempt from income tax on earnings of up to $3,000 a month, more than four times the minimum wage. 

Turkish investors based overseas have been targeted in the latest package. It offers zero tax on foreign-sourced income over a 20-year period for Turkish citizens who have not been resident in the country for more than six months over the past three years, a move aimed at encouraging the return of capital and assets.

“The new investment framework aims to boost exports of goods and services, encourage asset repatriation, and incentivise investors to base their activities in Turkey,” Şimşek said.

The Iran war has put additional strain on Turkey’s economy, driving up costs, weakening export demand and putting renewed pressure on the lira and foreign-currency reserves.

İstanbul Chamber of Commerce president Şekib Avdagiç welcomed the package, telling AGBI the support that had been unveiled was timely.

“The announced incentives, in this period when global supply chains are being reshaped by developments in the Middle East, will reinforce our country’s position as a financial, logistics, and trade centre, as well as strengthen its mission as an island of regional stability,” he said in a written statement. 

There was also relief for domestic industry. Corporate tax for manufacturers producing for the export market is cut to 9 percent, with the tax applied to other exporters reduced to 14 percent. 

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The newly announced package has much to offer, particularly for manufacturers and those in the export trade, said Ayhan Zeytinoğlu, chairman of the board of directors of the Chamber of Industry of the northwestern province of Kocaeli.

“This is an important move, especially the changes made to corporate taxes that currently range between 20 and 25 percent. This is very appealing to producers and exporters,” he told AGBI.

The cut to corporate tax for manufacturers will help to offset the high value of the lira, which has made Turkish exports more expensive. Manufactured goods account for more than 93 percent of all Turkish exports. 

However, Zeytinoğlu cautioned that as not all the details of the incentive programme have been released, it remained unclear how long the lower rate of corporate tax would be in place. 

“The OECD has a gentlemanly rule of no corporate taxes under 15 percent but as this is most likely for the short term, it should not pose issues there.”