Turkey slashes taxes radically to lure investors

Recent tax reforms announced by the finance minister of Turkiye are a game changer. With collaboration between the current government of President Recep Tayyip Erdogan, opposition political parties, think tanks, and the Istanbul Chamber of Commerce, a tax policy has been introduced to attract high-net-worth individuals and large corporate entities to relocate to Turkiye.

The Istanbul Chamber of Commerce statement says: "The announced incentives, in this period when global supply chains are being reshaped by the developments in the Middle East, will reinforce our country's position as a financial, logistics and trade centre, as well as strengthen its mission as an island of regional stability."

Turkiye's strategic location between Europe, the Middle East, Central Asia and North Africa is reinforced by its advanced seaports, international airports, rail links and integrated supply chains, enabling manufacturers to respond quickly to global demand. The tax reforms are as follows:

1-Reducing corporate tax rate from 25% to 9% for manufacturing exporters (local and foreign). This supply-side tax reform will not only increase the manufacturing sector investment-to-GDP ratio but also increase the much-needed employment (Turkiye's population has a huge youth bulge). Increasing exports and employment is like killing two birds with one stone. A win-win situation.

2-Twenty years of zero income tax on foreign income for new residents and corporate entities (residents must be in the country for at least 183 days a year). This measure is not only to attract investment but, more importantly, talent. Furthermore, if a foreign individual invests $200,000 or more in Turkiye property, they become a permanent resident and if you invest more than $400,000 then you, your spouse and children can obtain Turkiye citizenship, which can be passed on to the next generation.

3-Inheritance tax: This reform works hand in hand with reform No 2. Currently, Turkiye imposes a 10% inheritance tax, which is considerably lower than most other OECD countries that impose an inheritance tax. Now, Turkiye will tax inheritance at 1%. Yes, at 1%!

High-net-worth individuals generally plan ahead to pass on their wealth to the next generation, so if you add the 1% inheritance tax with the 0% income tax on all foreign income, it's a no-brainer to attract foreigners to move their money and skills to Turkiye.

4-Regional headquarters exemptions for up to 20 years of tax-free overseas income, particularly if it's in the Istanbul Financial Centre (akin to Dubai's DIFC). This exemption is basically the corporate version of the individual tax at zero per cent.

5-Hundread per cent transit trade tax exemption at the Istanbul Financial Centre. This incentive is to entice companies currently based in Dubai, Hong Kong, Singapore, Geneva, Amsterdam, etc, to move their operations to Istanbul. The 100% transit trade tax exemption only applies to profits that are made for goods and services not produced in Turkiye.

6-Two per cent tax on assets repatriation – bringing assets such as gold, cash in bank, foreign currency deposits, securities, etc into Turkiye. More importantly, there is a no audit clause in this reform package to the source of the assets.

7-One-stop office established to ease the cumbersome bureaucratic maze in company incorporation, tax and residency permits, work permits, incentive applications and environmental approvals. These will not be centralised into a single digital hub.

8-For corporate entities that manufacture for exports, capital outlays such as land and machinery equipment, there will be no VAT (value-added tax) and no customs duties. These measures will save corporations up to 25% on their capital investments, combined with a 9% corporate tax rate.

President Erdogan's bold move on this supply-side economic policy will accelerate Turkiye's economic and employment growth for the foreseeable future. It will demonstrate that Turkiye is eager to take in foreigners with money and skills. Is it any wonder that Turkiye will now owe its growth to tax cuts, an equal opportunity employer?

The writer is a philanthropist and an economist based in Belgium