Tax Exemptions for Operations in Turkish Free Trade Zones

Turkish Free Trade Zones (FTZs) are the areas specified by the Presidency within the political borders of Turkey but considered outside the customs borders, where all types of industrial, commercial and certain types of service activities are encouraged through certain tax exemptions and incentives with the following objectives:

• Increasing export-oriented investment and production,

• Accelerating the inflow of foreign capital and technology,

• Procuring the inputs of the economy in an economic and orderly fashion,

• Increasing the utilization of external finance and trade possibilities.

The Presidency of the Republic of Turkey is authorized to specify and determine the location and boundaries of FTZs in Turkey. There are 18 FTZs that are currently operating in Turkey based on the relevant legislation in effect as of June 2022. It is possible both for individuals and legal persons to operate in FTZs regardless of their residency status. In all cases, in order to operate in FTZs, it is compulsory to obtain an “Operation License” from the General Directorate of Free Trade Zones (GDFTZ) governed by Ministry of Trade. If the application is accepted by the GDFTZ, an Operation License is granted for an appropriate period usually varying between 10-30 years (up to 99 years for very special projects) taking into consideration the request of the applicant, the type of activity to be conducted, the amount of the investment and other issues as applicable for each FTZ.

Important changes have been made in FTZ Legislation through Law No. 5084 with effect from 6 February 2004. The most important change is that income and corporate income tax exemptions in Turkish FTZs have been abolished with effect from 6 February 2004. However, those users already operating in Turkish FTZs based on a valid operation license obtained prior to 6 February 2004 shall still continue to benefit from income and corporate income tax exemptions within the limit of the operation period specified in their operation licenses. The exemption from income withholding tax on the salaries of personnel employed in Turkish FTZs and the exemption from levies and duties, which were available until 31 December 2008, are no longer available starting from 2009. However, income withholding tax exemption on salaries will continue to be available starting from 1 January 2009 only for those companies that are engaged in manufacturing within Turkish FTZs provided that certain conditions are satisfied as per FTZ General Communiqué No.1 about application of income withholding tax exemption on salaries. The major condition required is that the manufacturing company must export at least 85% of the total FOB value of the products manufactured within the Turkish FTZ. This exemption shall be provisionally applicable until the end of the year in which Turkey becomes full member of the European Union (EU). The income tax exemption mentioned above does not cover withholding tax to be imposed on dividends to be distributed. Accordingly, dividends to be distributed by companies established and operating in Turkish FTZs to their shareholders shall be subject to 10% dividend withholding tax.