Introduction
Turkey has become an attractive market for foreign investors due to its strategic geographic location, young population, advanced infrastructure, and investor-friendly tax policies.
In order to improve the investment climate and increase the inflow of foreign direct investment, various tax advantages and incentives are provided under Corporate Tax Law No. 5520, Income Tax Law No. 193, and Foreign Direct Investment Law No. 4875.
This article outlines the tax benefits, investment incentives, and key practical considerations for foreign investors in Turkey.
1. Legal Framework
- Foreign Direct Investment Law No. 4875
- Corporate Tax Law No. 5520
- Income Tax Law No. 193
- Decision on State Aids in Investments
- Free Zones Law No. 3218
These regulations guarantee equal rights for foreign and local investors, while providing additional advantages in specific cases.
2. Main Tax Advantages for Foreign Investors
2.1 Corporate Tax Reduction
Under the investment incentive certificate scheme, the corporate tax rate (currently 25% in 2024) can be reduced to lower rates depending on the investment region and strategic importance.
2.2 VAT Exemption
- Imported machinery and equipment purchases for investment projects are exempt from VAT.
- Locally purchased machinery and equipment within the scope of an investment incentive certificate are also VAT-exempt.
2.3 Customs Duty Exemption
Imported machinery and equipment for incentive-certified investments are exempt from customs duties.
2.4 Tax Advantages in Free Zones
- Companies operating in free zones are exempt from corporate tax under certain conditions.
- Goods produced in free zones and exported abroad benefit from VAT and customs duty exemptions.
2.5 Income Tax Withholding Incentive
In certain regions, part or all of the income tax withheld from employees’ salaries is covered by the state.
3. Investment Incentive Schemes
3.1 General Incentive Scheme
Available to all investors (foreign and local), including VAT exemption and customs duty exemption for eligible projects.
3.2 Regional Incentive Scheme
Turkey is divided into six investment regions. Investments in less-developed regions receive higher corporate tax reductions, longer tax holiday periods, and higher SGK premium support.
3.3 Strategic Investment Incentives
Projects that reduce import dependency, involve high technology, or create high added value benefit from the highest level of incentives.
3.4 Project-Based Investment Incentives
For projects designated by Presidential Decree as strategically important, additional supports such as full corporate tax exemption, energy cost support, and capital contribution are available.
4. Key Considerations in Practice
- To benefit from these incentives, an Investment Incentive Certificate must be obtained.
- To avoid repayment of incentives, investments must operate for a minimum duration.
- Tax advantages should be evaluated together with international tax law and double taxation avoidance treaties.
- Turkey has signed Double Taxation Avoidance Agreements (DTAAs) with more than 80 countries, ensuring that investors are not taxed twice on the same income.
5. Strategic Advantages for Foreign Investors
- Access to European, Middle Eastern, and Asian markets
- Young, educated, and competitive workforce
- International arbitration and investor protection mechanisms
- Strong logistics and infrastructure network
Conclusion
With its investor-friendly tax policies and comprehensive state incentives, Turkey offers a highly attractive environment for foreign investors.
However, the specific benefits and incentives vary depending on the investment type and location, making it essential to seek guidance from experienced legal and financial advisors.
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