Turkey’s parliament has approved a tax reform that gives new residents a 20‑year exemption from Turkish tax on qualifying foreign‑source income and a flat 1 % rate on inheritance and gift taxes. The measure is part of a broader package aimed at attracting foreign capital, businesses, and high‑net‑worth individuals.
Key Features of the Legislation
- Foreign‑source income exemption – Eligible individuals will not pay Turkish income tax on foreign‑source income and gains for up to 20 years. Turkish‑source income remains taxable at the standard progressive rates of 15 % to 40 %.
- Inheritance and gift tax – The standard progressive rates (up to 30 %) are replaced for qualifying persons by a flat 1 % rate.
- Implementation timeline – The law was passed on 21 May 2026. President Recep Tayyip Erdoğan has 15 days to promulgate it and publish it in the Official Gazette. Detailed regulations on residency, domicile, and income definition will follow.
Eligibility Criteria
According to PwC Turkey’s review, the regime applies to individuals who:
- Have not been domiciled in Turkey during the three calendar years preceding the move.
- Have not had any Turkish tax liability in those three years.
- Satisfy the additional requirements that will be set out in the forthcoming regulations.
The precise definition of “domicile” and the method for assessing prior tax liability will be clarified once the implementing rules are issued.
Scope of the Income Exemption
- Covered: Income earned abroad, including dividends, interest, royalties, capital gains, and other foreign‑source earnings, provided they meet the definition that will be issued in the regulations.
- Excluded: Any income generated within Turkey, which continues to be subject to the existing personal income‑tax brackets.
Related Corporate and Investment Measures
The personal tax incentive is bundled with several business‑oriented reforms:
| Measure | Current Status | Change |
|---|---|---|
| Corporate tax on manufacturing | 25 % | Reduced to 12.5 % |
| Repatriation of assets (money, gold, FX, securities) | – | Allowed until 31 July 2027 |
| Corporate tax exemption on financial‑services export income (Istanbul Financial Centre) | 100 % exemption until 2047 | Extended |
| Incentives for qualified service centers and other Istanbul Financial Centre schemes | – | Detailed in the package |
These provisions aim to encourage both the return of capital held abroad and the establishment of export‑oriented enterprises.
Implications for Turkey’s Citizenship‑by‑Investment (CBI) Program
Turkey already offers a CBI route, primarily through real‑estate investment. The new tax regime does not alter citizenship rules, but it adds a separate incentive for individuals who become tax residents. Potential investors should consider:
- Residency vs. citizenship – One can obtain Turkish citizenship without becoming a tax resident, and vice‑versa.
- Long‑term tax planning – The 20‑year foreign‑income holiday may make Turkey a more attractive base for families with substantial overseas assets or recurring foreign earnings.
- Estate planning – The 1 % inheritance and gift tax rate could be a decisive factor for high‑net‑worth families evaluating succession strategies.
Practical Considerations and Risks
- Regulatory clarity – Until the law is published in the Official Gazette and detailed guidelines are released, the exact criteria for domicile, qualifying income, and compliance procedures remain uncertain.
- Residency requirements – Prospective beneficiaries will need to establish tax residency in Turkey, which may involve spending a minimum number of days in the country and meeting other statutory conditions.
- Interaction with other jurisdictions – Applicants must assess double‑taxation treaties and the tax treatment of foreign income in their home countries to avoid unintended liabilities.
- Future policy shifts – While the current package is extensive, political or economic changes could modify rates or eligibility after the initial 20‑year period.
Investors and advisors should monitor the official publication of the law and the subsequent regulatory guidance before making relocation or investment decisions based on the tax holiday.
Source article: outboundinvestment.com
