Turkey has positioned itself as one of the most investment-friendly economies in its region, offering a wide range of tax benefits and government incentives to attract foreign capital. Through a well-structured incentive system, foreign investors can reduce their operational costs, gain access to favorable tax regimes, and secure long-term business advantages. Whether a company operates in manufacturing, technology, logistics, or renewable energy, the Turkish investment climate offers numerous fiscal opportunities that support sustainable growth and profitability.

Overview of the Turkish Incentive System

The investment incentive system in Turkey is primarily governed by the Council of Ministers Decree No. 2012/3305, which provides several categories of state support. These incentives are designed to enhance regional development, promote technology-based industries, and strengthen export capacity. The framework is open to both domestic and foreign investors, ensuring equal treatment under the law.

The incentive schemes include:

• General Investment Incentive Program
• Regional Investment Incentive Program
• Strategic Investment Incentive Program
• Project-Based (Super) Investment Incentive Program
• Technology Development Zones and Free Zones Incentives

Each program offers distinct advantages depending on the project’s size, location, and sector.

Corporate Income Tax Advantages

One of the most important tax benefits available to foreign companies in Turkey is the reduction or exemption of corporate income tax. The standard corporate tax rate is 25%, but under the investment incentive system, qualifying projects can enjoy corporate tax reductions of up to 100%, depending on the region and investment scale.

For example, a company investing in a less-developed region (such as Eastern Anatolia) can offset its tax liabilities entirely until it reaches a predefined contribution threshold. These reductions are applied over a period determined by the government and may continue even after the investment phase is complete.

Additionally, companies operating in Free Zones are fully exempt from corporate income tax on profits generated from manufacturing and export activities.

Value Added Tax (VAT) Exemptions

VAT exemptions are among the most commonly utilized incentives in Turkey. Investors can benefit from:

• VAT exemption on imported machinery and equipment used in the investment project.
• VAT refund mechanisms for exporters, allowing them to recover VAT paid on inputs used in export production.
• VAT exemption for certain strategic or R&D-oriented projects, helping reduce cash flow constraints during the early stages of investment.

These exemptions significantly improve liquidity and lower capital expenditure, making Turkey a competitive hub for production and trade.

Customs Duty Exemption

Foreign investors who import machinery, raw materials, or intermediate goods for their investment projects benefit from customs duty exemptions. This measure applies to items imported under an investment incentive certificate issued by the Ministry of Industry and Technology. By removing import duties, the government ensures that businesses can access global technology and equipment without additional cost barriers.

This is particularly advantageous for sectors such as automotive, electronics, renewable energy, and pharmaceuticals, where imported machinery represents a significant share of initial investment costs.

Social Security Premium Support

To encourage job creation, Turkey offers Social Security Premium (SSP) support for both employer and employee contributions. Depending on the region and incentive type, the state may cover employer contributions for up to 10 years.

This not only reduces labor costs but also promotes employment in developing regions. For example, a company establishing in Turkey a factory in a priority development zone can benefit from full employer premium support for a decade, making Turkey’s labor market one of the most cost-effective among OECD countries.

Investment Allowance and Interest Rate Support

Certain projects are eligible for investment contribution allowances, allowing investors to deduct a specific portion of their investment amount from future tax liabilities. This incentive directly reduces the effective tax burden on profits generated from the project.

Moreover, interest rate support is available for investors who finance part of their investment through bank loans. The government covers a portion of the interest expenses — up to 5 percentage points for Turkish lira loans and 2 points for foreign currency loans — helping businesses manage financing costs during expansion phases.

R&D and Innovation Incentives

Turkey has placed a strong emphasis on innovation and technological development. Companies engaged in Research and Development (R&D) or design activities benefit from one of the most comprehensive incentive packages in Europe.

Key advantages include:

• 100% corporate tax exemption on R&D-related profits.
• Income tax withholding exemption for researchers and engineers.
• Social security premium support for R&D personnel.
• Customs duty and VAT exemptions for R&D-related imports.
• Deduction of R&D expenditures from taxable income.

Businesses operating in Technology Development Zones (TDZs) — also known as Technoparks — are exempt from corporate tax on their software, R&D, and innovation income until December 31, 2028. Additionally, profits from software exports are exempt from VAT.

Free Zones: The Ultimate Tax Haven for Exporters

Turkey’s Free Zones offer an exceptionally favorable fiscal environment for export-oriented businesses. Companies operating within these zones can enjoy:

• 100% exemption from corporate income tax on manufacturing activities.
• 100% exemption from customs duties and VAT on goods imported into the zone.
• Exemption from income tax for employees working in export-related operations (provided that 85% of production is exported).
• Unlimited profit repatriation with no restrictions on foreign currency transactions.

There are currently 19 active Free Zones across Turkey, located in major cities such as Istanbul, Izmir, Mersin, and Bursa, offering strategic proximity to global logistics routes.

Regional and Strategic Investment Incentives

Turkey’s incentive system divides the country into six regional categories, with support intensity increasing toward less developed regions. Investors in lower-tier regions benefit from longer tax holidays, higher social security contributions, and larger corporate tax reductions.

Meanwhile, strategic investments — such as those reducing import dependency or developing critical technologies — receive the highest level of state aid. These include:

• 100% corporate tax reduction
• VAT and customs duty exemption
• Land allocation
• Interest and social security support
• Potential cash grants up to 50% of the investment value in specific cases.

Repatriation and Double Taxation Treaties

Turkey’s liberal foreign exchange regime allows free repatriation of profits, dividends, and capital abroad after tax obligations are fulfilled. There are no restrictions or approvals required for transferring funds to foreign shareholders.

Moreover, Turkey has signed Double Taxation Avoidance Agreements (DTAAs) with over 85 countries, ensuring that investors are not taxed twice on the same income. These treaties typically provide for reduced withholding tax rates on dividends, interest, and royalties, further enhancing post-tax profitability.

Conclusion

Turkey’s comprehensive network of tax incentives, exemptions, and financial supports reflects the government’s strong commitment to fostering a competitive investment environment. From corporate tax reductions and customs duty exemptions to R&D support and regional grants, the Turkish incentive system offers significant advantages for foreign investors seeking both profitability and long-term stability.

By leveraging these fiscal opportunities and aligning their business strategy with the right incentive program, foreign companies can optimize their cost structures, strengthen their market position, and gain a powerful foothold in one of the world’s fastest-growing economies.