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Tax Exemptions in Turkey

Tax Exemptions in Turkey: A Comprehensive Guide for Foreign Investors

Turkey’s evolving economy and strategic location make it an attractive destination for foreign investors. One of the key factors drawing international businesses is the favorable tax environment, particularly the various tax exemptions in Turkey. These exemptions aim to encourage investment across sectors like manufacturing, technology, and services, while stimulating economic growth and increasing employment.

This article explores the tax exemptions in Turkey most relevant to foreign investors. We will focus on corporate tax exemptions, value-added tax (VAT) exemptions, customs duty relief, and exemptions in special economic zones, among others. Understanding these incentives will help you make informed investment decisions and take full advantage of Turkey’s tax-friendly environment.

Overview of Turkey’s Tax System

Turkey has a structured tax system governed by the Turkish Tax Procedure Law (Vergi Usul Kanunu). The country imposes taxes such as corporate tax, income tax, value-added tax (VAT), and withholding tax on companies and individuals. For foreign investors, tax exemptions can significantly reduce the cost of doing business in Turkey, making it easier to operate profitably.

Major Types of Tax Exemptions in Turkey

The following are the primary tax exemptions available in Turkey, targeting different industries and investment models:

  1. Corporate Tax Exemptions
  2. VAT Exemptions
  3. Customs Duty Exemptions
  4. R&D and Innovation Exemptions
  5. Exemptions in Free Zones
  6. Exemptions for Foreign Employees and Employers
  7. Real Estate Tax Exemptions
  8. Exemptions through International Tax Agreements
  9. Exemptions for Exporters

1. Corporate Tax Exemptions

Corporate tax exemptions in Turkey are one of the key attractions for foreign investors. The standard corporate tax rate is 25%, but various exemptions can significantly reduce this amount, depending on the nature of the investment.

  • Investment incentives: Turkey offers comprehensive tax relief through its Investment Incentive Program, which includes reduced corporate tax rates for investments in specific sectors or regions. These exemptions are particularly appealing for investors in industries like energy, manufacturing, and technology.
  • Exemptions for holding companies: Foreign investors establishing holding companies in Turkey can benefit from corporate tax exemptions on dividends and income from foreign subsidiaries.

In addition to standard exemptions, special tax regimes apply to certain strategic sectors, offering reduced or zero corporate tax on profits derived from eligible activities.

2. VAT Exemptions

Value-added tax (VAT) in Turkey is typically applied at a rate of 20%, but several exemptions exist for foreign investors, particularly those engaged in export-oriented or strategic industries. Some of the most relevant VAT exemptions include:

  • Exports: Goods and services exported from Turkey are generally exempt from VAT, making it easier for businesses to focus on international markets.
  • Investment goods: Foreign investors purchasing machinery, equipment, and other capital goods for investment purposes are often exempt from VAT, especially if they are part of an incentive program.
  • Technology and R&D projects: Companies engaged in R&D and high-tech industries may qualify for VAT exemptions on goods and services used in innovation and technology development.
  • Free Zones: Businesses operating in Turkey’s Free Zones are exempt from VAT on all goods and services related to their operations (more on this below).

3. Customs Duty Exemptions

Customs duties can add significant costs to businesses involved in the import and export of goods. Turkey, however, offers customs duty exemptions for foreign investors, which reduce the financial burden on international trade activities.

  • Investment incentives: Under Turkey’s Investment Incentive Program, companies importing machinery and equipment for production purposes are often exempt from customs duties. This applies to both local and foreign investors.
  • Export exemptions: Goods imported to be processed and re-exported (within the framework of an inward processing regime) can also be exempt from customs duties, making Turkey an appealing hub for manufacturing and re-export activities.

These exemptions are particularly advantageous for companies involved in manufacturing, logistics, and trade.

4. R&D and Innovation Exemptions

Turkey promotes innovation through generous tax exemptions for companies engaged in R&D and high-tech development. These exemptions, governed by R&D Law No. 5746, apply to foreign investors in industries like biotechnology, software, and engineering. The main benefits include:

  • Corporate tax exemption: Companies that qualify as R&D centers can benefit from a 100% corporate tax deduction on their R&D expenditures.
  • Income tax exemption: R&D personnel and staff involved in innovation projects may benefit from income tax exemptions on up to 80-90% of their salaries.
  • VAT and customs exemptions: Goods and services purchased for R&D activities are exempt from VAT, and any imported equipment used in R&D is exempt from customs duties.

Foreign investors involved in R&D can also benefit from social security premium support, which reduces labor costs associated with hiring specialized personnel.

5. Free Zones: Tax-Free Business Hubs

Turkey’s Free Zones (Serbest Bölgeler) offer some of the most comprehensive tax exemptions for foreign investors. These zones are designed to promote export-oriented investments by providing tax-free operations.

Key tax exemptions in Free Zones include:

  • Corporate tax exemption: Companies engaged in manufacturing in Free Zones are exempt from corporate tax if they export at least 85% of their production.
  • Income tax exemption: Personnel working in Free Zones benefit from income tax exemptions.
  • Customs and VAT exemptions: Goods entering and exiting Free Zones are not subject to customs duties or VAT.

Popular Free Zones like the Aegean Free Zone and Istanbul Airport Free Zone provide excellent infrastructure and offer an ideal base for export-oriented businesses looking to maximize tax exemptions in Turkey.

6. Exemptions for Foreign Employees and Employers

Foreign employees and employers can also benefit from various tax exemptions in Turkey, depending on the type of employment and the sector in which they operate.

  • Expatriate employees: In some cases, foreign employees working in Turkey are eligible for income tax exemptions, particularly if they work in sectors related to technology, innovation, or Free Zone operations.
  • Exemptions for foreign directors: Non-resident directors of Turkish companies may be exempt from income tax on their earnings, especially if the company operates in a Free Zone or is engaged in export-oriented activities.

These exemptions aim to attract skilled labor and top-tier talent to Turkey, benefiting both employers and employees.

7. Real Estate Tax Exemptions

Turkey offers several real estate tax exemptions aimed at encouraging foreign investment in the country’s booming real estate market.

  • VAT exemption for foreign property buyers: Foreign investors purchasing property in Turkey for non-residential purposes are often exempt from VAT, provided they meet specific criteria, such as not selling the property within one year.
  • Stamp duty exemptions: Real estate transactions involving foreign investors may qualify for stamp duty exemptions, reducing the overall cost of property acquisition.

The real estate market in cities like Istanbul, Antalya, and Izmir has seen significant interest from foreign investors, and these tax exemptions make property investment more attractive.

8. Exemptions through International Tax Agreements

Turkey has signed Double Taxation Agreements (DTAs) with over 80 countries, including major economies like the United States, Germany, the United Kingdom, and China. These agreements prevent foreign investors from being taxed twice on the same income in both Turkey and their home country.

Key tax exemptions under DTAs include:

  • Reduced withholding tax rates: DTAs often lower the withholding tax rates on dividends, royalties, and interest, reducing the tax burden on foreign investors.
  • Tax credits: Taxes paid in Turkey can be credited against the taxes owed in the investor’s home country, ensuring they are not double-taxed.
  • Tax exemptions on certain types of income: DTAs may provide for full or partial exemptions on income earned from specific activities, such as shipping, aviation, or intellectual property.

DTAs significantly reduce the complexity of cross-border taxation and provide foreign investors with valuable exemptions that improve profitability.

9. Exemptions for Exporters

Foreign investors involved in exporting from Turkey can benefit from a wide range of tax exemptions designed to stimulate export activities.

  • VAT exemptions: Exports of goods and services are generally exempt from VAT, allowing companies to offer competitive pricing in international markets.
  • Customs exemptions: Exporters are exempt from customs duties on imported goods used in the manufacturing of products intended for export.

These exemptions help foreign investors reduce costs and increase profitability, making Turkey an attractive base for export-oriented businesses.

How to Maximize Tax Exemptions in Turkey

To fully benefit from the tax exemptions in Turkey, foreign investors should:

  1. Consult with tax advisors: It’s essential to work with experienced tax professionals who understand Turkish tax laws and international taxation agreements.
  2. Plan long-term investments: Many tax exemptions are tied to long-term investments in strategic sectors, so it’s important to plan accordingly.
  3. Take advantage of regional incentives: Certain regions in Turkey offer additional tax benefits for foreign investors, particularly in less-developed areas.
  4. Leverage Free Zones: For maximum tax benefits, consider establishing your business in one of Turkey’s numerous Free Zones, which provide significant exemptions on corporate tax, VAT, and customs duties.

Conclusion: A Tax-Friendly Environment for Foreign Investors

Turkey offers a variety of tax exemptions designed to attract foreign investment and stimulate economic growth. From corporate tax reductions to VAT and customs exemptions, these incentives provide foreign investors with numerous opportunities to reduce their tax liabilities and increase profitability.

[OUR SERVICES] Unlock Tax Exemptions in Turkey with Professional Advisory

Tax exemptions can provide substantial financial relief for foreign businesses operating in Turkey, allowing them to reduce tax liabilities and increase profitability. Navigating the eligibility requirements for these exemptions requires in-depth knowledge of Turkish tax regulations. Our services are tailored to help your business identify and access relevant tax exemptions, ensuring compliance and maximizing savings.

  • Advisory on Turkish tax exemptions applicable to your industry and business activities
  • Assistance with preparing and submitting documentation to qualify for available exemptions
  • Structuring transactions and business operations to align with exemption requirements
  • Monthly management reports to track exemption benefits and monitor compliance
  • Training for your accounting team on maintaining eligibility and understanding Turkish tax relief options

Contact us for professional support to unlock the financial advantages of Turkey’s tax exemption opportunities.

FAQ

1. What are the main tax exemptions for foreign investors in Turkey?

Answer:
Foreign investors in Turkey can benefit from several tax exemptions, including Value-Added Tax (VAT) exemptions on certain goods and services, Corporate Income Tax exemptions in free zones, and exemptions for R&D activities, among others.

2. Are there VAT exemptions for foreign investors in Turkey?

Answer:
Yes, VAT exemptions apply to various transactions involving foreign investors. For instance, exports, certain services provided to non-residents, and goods purchased for export purposes are exempt from VAT. Real estate purchases by non-residents can also qualify for VAT exemption under specific conditions.

3. Do foreign investors pay property tax in Turkey?

Answer:
While foreign investors are generally subject to property tax, first-time property buyers who are non-residents may be exempt from VAT on their purchase, provided they meet specific requirements, such as paying for the property in foreign currency and holding it for at least one year.

4. What tax exemptions are available in Turkish free zones?

Answer:
Companies operating in Turkish free zones enjoy full exemptions from Corporate Income Tax (CIT), VAT, and customs duties. These exemptions apply to income generated from activities within the zone, encouraging foreign investors to engage in export-oriented business.

5. Is there a tax exemption for foreign income in Turkey?

Answer:
Yes, under certain conditions, foreign income, such as income from investments abroad or profits generated from foreign operations, may be exempt from tax in Turkey. This exemption applies if Turkey has a double taxation agreement with the foreign country.

6. Are there tax exemptions for R&D investments in Turkey?

Answer:
Turkey offers significant tax exemptions for companies engaging in R&D activities. These include Corporate Income Tax exemptions on R&D expenses, income tax exemptions for employees involved in R&D, and social security premium reductions in R&D and technology development zones.

7. Do renewable energy projects qualify for tax exemptions in Turkey?

Answer:
Renewable energy projects in Turkey are eligible for various tax exemptions, including VAT and customs duty exemptions on the import of machinery and equipment. These projects may also qualify for Corporate Income Tax reductions under the Investment Incentive Program.

8. Can foreign investors benefit from customs duty exemptions in Turkey?

Answer:
Yes, foreign investors can benefit from customs duty exemptions, especially when importing machinery, equipment, and raw materials for use in free zones or for projects under the Investment Incentive Program. This makes it easier to establish and expand operations

9. What are the tax exemptions for non-resident companies in Turkey?

Answer:
Non-resident companies in Turkey may be eligible for tax exemptions on income derived from certain activities, such as consultancy services, provided they do not have a permanent establishment in Turkey. These exemptions are often supported by Turkey’s double taxation agreements.

10. Are there tax exemptions for capital gains in Turkey?

Answer:
In certain cases, foreign investors may be exempt from capital gains tax in Turkey. For example, the sale of shares held for more than two years in a Turkish company may qualify for a 75% exemption on capital gains, subject to specific conditions outlined in Turkish tax law.