A Guide To Tax-Free Zones In Turkey

Calculator Saying "Tax-Free" With tax Paperwork

The allure of the Tax-Free Zone Turkey offers is a magnet for businesses seeking to maximize their profits through strategic tax advantages. These Tax-Free Zones stimulate economic growth by attracting foreign investment and promoting export-led production. Within these areas, companies enjoy many benefits ranging from substantial tax exemptions to simplified customs procedures, establishing an environment ripe for international trade and investment.

We look into the history, objectives, and operational perks of Turkey’s Tax-Free Zones, providing valuable insights for businesses and investors looking to tap into these zones’ lucrative opportunities. Whether you aim to become a tax resident or explore the investment landscape, understanding the framework and incentives of Turkey’s Tax-Free Zones is crucial for capitalizing on their full potential.

Introduction to Tax-Free Zones in Turkey

The Concept of Tax-Free Zones

Tax-Free Zones are specific areas within Turkey with unique economic regulations. These regulations are different from the rest of the country. They are mainly aimed at boosting export activities and drawing in foreign investment. The various Tax-Free Zones offer and are celebrated for their business-friendly environment, offering a slew of benefits to companies.

In these enclaves, businesses can take advantage of special tax exemptions, special regulatory treatment, and incentives. They also benefit from streamlined customs procedures and infrastructural support, making trade operations smoother and more profitable.

Historical Background in Turkey

The concept of Tax-Free Zones in Turkey was rolled out in 1987, marking a strategic move to weave the Turkish economy into the international markets. Establishing these zones was pivotal in fostering an export-oriented, investment-oriented growth model for the country.

Since then, these zones have evolved significantly. You’ll find several active Free Zones in Turkey today, such as the Mersin Free Zone and the company the Antalya Free Zone, along with others like the Aegean Free Zone, Istanbul Leather Industry Free Zone, and the European Free Zone. These areas have become crucial hubs of economic activity and have significantly contributed to Turkey’s trade and export numbers.

Objectives of Turkish Tax-Free Zones

The primary aims of Turkish Tax-Free Zones are to promote export-led investments and production, attract foreign direct investment, and encourage the adoption of cutting-edge technology. These zones play a crucial role in Turkey’s economic advancement by zeroing in on export activities and developing international trade further.

The incentives in these zones, like the total exemption from Corporate Tax for manufacturing companies, are significant. There’s no Customs Duty, VAT, or KKDF on goods entering the zones, which are powerful motivators for businesses to establish operations there.

Moreover, the zones provide various services and infrastructure to back businesses. Companies can access ready-to-use offices, warehouses, and production facilities that come with essential infrastructure and are VAT-exempt.

The financial perks that promote exports extend to employees as well. Companies that export at least 85% of their production can exempt their employees’ salaries from income tax. Thanks to the Customs Union Agreement with the EU, Turkish-origin goods can move freely within the EU market, knocking down tax barriers and enhancing the appeal of Turkish exports.

The zones offer foreign investors the freedom to transfer profits and earnings without restrictions. They can buy goods from Turkey at export prices without VAT and carry out transactions in convertible foreign currencies, creating an incredibly attractive investment environment.

The operational flexibility in these zones is also impressive. Investors can import second-hand machinery and keep stock duty-free indefinitely, making tax-free zones in Turkey a tempting choice for businesses looking to expand their international footprint.

Tax-Free Zones in Turkey

Major Tax-Free Zones

The EFZ, İstanbul-Leather and Industrial Free Zone, and Aegean Free Zone stand out among the various enclaves dedicated to economic activity. These zones are equipped with a range of facilities to bolster businesses, including lands with necessary infrastructure, simplifying companies’ establishment and expansion.

The infrastructure services in these zones, such as utilities and waste treatment, are overseen by Founder and Operator Companies. Many additional services are available, encompassing construction, catering, IT support, maintenance, insurance, and logistics operations. Amenities like private security and conference halls are also provided as free trade zones to facilitate business activities.

Geographic Advantages

Turkey’s geographical position offers a significant advantage for businesses operating within these zones, providing expedited access to vital international trade routes and proximity to the EU, a free trade zone, which is beneficial due to the Customs Union Agreement.

Sector-Specific Zones

The tax incentives are tailored to bolster specific sectors, particularly manufacturing. Companies with a manufacturing license in these zones benefit from a complete exemption from Corporate Tax and Income Tax. Additionally, there are no customs duties, VAT, or KKDF on imports.

Companies exporting a substantial portion of their output receive additional benefits, including the ability to purchase goods from the rest of Turkey at export prices without VAT, further reducing operational costs.

The financial advantages extend to infrastructure services within the zones, which are also exempt from VAT. Investors have the option to import cost-effective second-hand machinery. Transactions are conducted in convertible foreign currencies, safeguarding against local currency fluctuations. Moreover, goods can be returned with minimal paperwork if found defective.

The ability to store inventory without time constraints or duties is particularly appealing to foreign investors. The freedom to repatriate profits and earnings offers significant financial flexibility.

Turkey is home to 19 Free Zones, with one still under development. These zones provide a comprehensive exemption from customs duties and various taxes for businesses. Real estate transactions are spared from title deed fees, and construction, design, settlement, and approval activities are not subject to VAT. These incentives position Turkey’s Free Zones as an attractive destination for foreign investors seeking to establish or broaden their business presence in a tax-advantaged environment.

Istanbul In Turkey At Night

Benefits of Operating in Tax-Free Zones

Tax Incentives and Exemptions

Foreign investors will find the country’s Tax-Free Zones alluring due to the flexible business climate and the significant tax incentives and exemptions available. These areas are deliberately positioned to optimize the business climate. Under the Free Zones Law No. 3218, a variety of activities, including manufacturing, R&D, and trading, can be conducted with financial advantages such as exemptions on certain transactions and incomes that adhere to predefined conditions.

For example, manufacturers in these zones are not subject to income and corporate taxes on profits from their goods, a benefit that remains until Turkey joins the European Union. Additionally, workers’ salaries in these companies are exempt from income tax, provided that the company’s exports constitute at least 85% of the FOB value of the goods. Furthermore, operations within the zones are not subject to stamp duties and fees, and property tax on buildings or land is absent.

Customs and Duty Advantages

Goods and services procured from Turkey for use in the Tax-Free Zones are not subject to VAT, and transactions between the zones and non-EU countries are exempt from the usual foreign trade regulations. This facilitates the maintenance of free circulation status for goods from Turkey or the EU, exempting them from customs duties when entering these markets.

The affiliation with the Turkey-EU Customs Territory allows for the use of an A.TR certificate when exporting goods to EU countries. Additionally, there is no trading volume or duration restriction for storing goods in the zones, and sales to the domestic market are permitted, subject to certain conditions.

Financial and Investment Incentives

The incentives are designed to attract and bolster foreign direct investment. The duration of an operating license in these zones can extend up to 45 years, offering a stable environment for investors.

Revenue and earnings from industrial and commercial activities within the zones can be transferred without restrictions, providing a high degree of financial autonomy. Professional private sector companies’ management of these zones streamlines the application and operational procedures for businesses.

Employment Benefits

The exemption of income tax for employees in manufacturing firms that export a substantial portion of their goods is a significant incentive for employers, potentially leading to cost savings. This, in turn, can influence the decision-making of foreign investors regarding the location of their operations.

The financial benefits available to employees in these zones enhance the ability to attract and retain a skilled workforce.

How To Become A Tax Resident In Turkey

Turkey’s strategic position as a nexus between Europe and Asia is further enhanced by its Citizenship by Investment Program, designed to draw investment and bolster the economy. This initiative is particularly attractive for those seeking to leverage Turkey’s economic landscape and the tax benefits for foreign investors.

The Turkish Citizenship By Investment Program

Initiated in January 2017, this program encourages economic contributions from investors in exchange for citizenship and the associated rights to reside, work, and travel as a Turkish national.

Investors can qualify for citizenship by meeting one of the investment thresholds, such as acquiring property valued at a minimum of USD 400,000 or making a capital investment of at least USD 500,000. Depositing the same amount in a Turkish bank or investing in government bonds, real estate investment fund shares, or venture capital investment fund shares are also viable routes. Committing to a private pension system for at least three years or creating jobs for at least 50 people, as verified by the Ministry of Family, Labour and Social Services, are additional options.

The program grants the ability to travel visa-free or obtain visas to approximately 110 countries on arrival. Turkish citizens can also apply for the E-2 Investor Visa, facilitating residence and business activities in the USA for renewable periods of five years.

While Turkey offers tax benefits for foreign investors, including no taxes on foreign income for non-residents who stay in the country for less than six months, Turkish citizens are liable for gift and inheritance taxes on global assets. Income sourced within Turkey is subject to taxation, with property tax for residential properties in metropolitan areas set at 0.2% and personal income tax rates escalating to 35% for higher income brackets.

The citizenship application process is efficient, with most cases resolved within 120 days. Turkey’s policy allows for dual or multiple citizenship, enabling individuals to maintain their original nationality. The real estate market in Turkey is particularly enticing for investors due to its potential for high returns. The Citizenship by Investment Program is one among several avenues to Turkish citizenship, which also include marriage, birth, employment, naturalization, and special merit.

Istanbul In Turkey, At Dusk

FAQS

What are the Free Zones in Turkey?

These designated areas are enclosed and provide technology access to a variety of facilities for business operations. They are equipped with comprehensive infrastructure services such as electricity, water, and telecommunications, managed by the zone’s founder and operator companies.

What are Free Zones?

These are designated areas within a country where businesses are given special tax, customs, and import regimes. Companies operating within these areas enjoy a range of incentives, including the ability to store inventory without time constraints and the freedom to repatriate profits.

What are the Disadvantages of a Free Zone?

One potential drawback is that businesses in these zones may be somewhat isolated from the domestic market due to their special status. This can sometimes result in a disconnect with the local economy. Additionally, while the zones aim to increase trade volume and bolster exports, their contribution to the national economy may be limited if the majority of goods and services are exported.

Who is Considered a Tax Resident in Turkey?

Tax residency in Turkey is based on having a legal residence or the intent to settle in the country. If you reside in Turkey for more than six months within a calendar year, you are considered a tax resident and are taxed on your global income. Those who do not meet these criteria are only taxed on income earned in Turkey. Exceptions exist for those who stay beyond six months due to extraordinary circumstances, such as illness or arrest, who do not acquire tax residency status.

How Much Does it Cost to Get Turkish citizenship?

To obtain citizenship through investment, you must meet one of several investment thresholds. The principal applicant can include their spouse and dependent children in the application, typically finalized within 120 days. Citizenship provides access to social security benefits and visa-free travel to numerous destinations, with the option to maintain dual citizenship. The investment also ensures that the property purchased is free from debts or legal disputes.

Seize the Opportunity

Turkey’s Tax-Free Zones give foreign investors a clear gateway to increased profitability and smoother operational flow. By choosing these zones, you align your business with crucial global trade routes and tap into a network that promises lucrative tax benefits, operational autonomy, and a dynamic workforce.

Secure in their infrastructure and rich with potential, these enclaves are more than just a haven from taxes; they are pivotal centers for growth, accelerating foreign direct investment and innovation. Should you wish to capitalize on Turkey’s strategic geographic and economic positioning, the Free Zones will provide an impressive platform to propel your business ambitions. Embrace the potential and let Turkey’s Tax-Free Zones be the springboard for your global success.

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Author:
Rihab Saad

Managing Director
Next Generation Equity

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