President Erdoğan Announces New Tax Cuts and Incentives for Investors, Proposing a 20-Year Tax Holiday on Foreign-Sourced Income

Last week President Recep Tayyip Erdoğan announced a new draft economic package at the “Türkiye’s Century: A Strong Centre for Investment” program held at the Presidential Dolmabahçe Office which has attracted a lot of attention.

Most importantly from an investment perspective, the government is planning to introduce a 20-year tax holiday on foreign-sourced income. For individuals who have resided outside of Türkiye and have not been registered as tax residents for the last 3 years, their foreign-sourced income shall benefit from a tax holiday for 20 years; only their income generated within Türkiye will be taxed. Also, these individuals will benefit from an inheritance tax and gift tax rate of only 1% in Türkiye.

Under the tax incentive package in question, the concept of “foreign-sourced income” is quite broad; examples of such income include the following:

• Interest income from foreign banks
• Dividend income from foreign companies
• Rental income from real estate located abroad
• Income from wages earned for work performed outside Türkiye
• Royalty and intellectual property income earned outside Türkiye
• Pension and retirement benefit distributions from foreign pension schemes
• Capital gains derived from securities traded on foreign stock exchanges, foreign real estate, or shares in foreign companies

Regulations aimed at encouraging Turkish companies and citizens living abroad to bring their assets back into the Turkish economy will be introduced. Under this framework, a new lower tax rate is being planned time to facilitate the repatriation of cash, gold, and securities held abroad.

The government is especially targeting successful young professionals and entrepreneurs in sectors such as architecture, engineering, and software development. While 80% of the foreign earnings of these high achievers were previously exempt from taxation, plans are now underway for the full exclusion of these earnings from the income and corporate tax base. In doing so, the government aims to encourage entrepreneurs residing abroad and partners of foreign firms to repatriate their earnings to Türkiye.

This sits alongside the long-term goal of the government to transform Türkiye into a regional hub for the startup and venture capital ecosystem. Through introducing the “Digital Company” application system, company incorporation and management processes will be concluded faster and in a more flexible manner. Stock option incentives for employees are being restructured to be more effective and attractive and convertible debt mechanisms are being streamlined to facilitate access to financial resources. By launching the first phase of the Terminal Istanbul Project, the government aims to establish a robust entrepreneurial infrastructure.

Tax incentives provided to institutions operating within the Istanbul Finance Centre are going to increase. The existing 50% deduction rate on the current income tax rate will rise to 100% for income derived from transit trade or intermediation services related to the purchase and sale of goods executed abroad. Consequently, such earnings will be fully exempt from corporate income tax.

This incentive is also being extended beyond the Istanbul Finance Centre; the government is planning to exempt 95% of earnings from transit trade activities conducted outside the Istanbul Finance Centre from taxation.

The government aims to encourage global corporations to relocate their regional headquarters to Türkiye by providing significant tax advantages on earnings generated by these entities. Over the next 20 years, 100% of income derived within the Istanbul Finance Centre, and 95% of income derived outside of it, shall be exempt from corporate income tax . The proposal will also introduce income tax exemptions for qualified personnel employed in these institutions, subject to specific conditions to be further defined.

The establishment of a streamlined, rapid, and digitally supported investor-friendly framework where investment processes are simplified, “One-Stop Office”, will allow the centralized management of large-scale and qualified foreign direct investment (FDI) processes. Many procedures; ranging from company incorporation, work and residence permits, tax and Social Security Institution (SGK) filings to İŞKUR (Employment Agency) processes, land allocation, incentives, and Environmental Impact Assessment (ÇED) permits, will be centrally managed through this “One-Stop Office.”

To stimulate growth, the Turkish government had previously applied a 5-percentage-point reduction on the general corporate tax rate of 25% for exporters, and an additional 1-percentage-point reduction for manufacturers. Now, the proposal is to reduce this tax to 9% for manufacturing exporters. For other export-oriented institutions, this will be reduced to 14%.

To provide future clarity and predictability for large-scale and qualified investments that hold strategic importance for Türkiye, the government aims to provide project-based guarantees to minimize the impact of subsequent tax and regulatory changes and promises to define reasonable transition periods in all future legislation.

The legal, financial and fiscal details of the new package of proposals will be presented to business leaders and investors in Türkiye, after which the legislative process in the Parliament will start. There is clearly a lot to do to bring the proposed changes to fruition.

We will continue to watch this space closely and provide further updates on how these changes may impact investment into the Turkish economy. Stay tuned for our upcoming alerts as more concrete timelines and legal frameworks emerge.