Proposed Amendments to Turkey's Corporate Tax Incentive Scheme: What Investors Need to Know
Proposed Amendments to Turkey's Corporate Tax Incentive Scheme: What Investors Need to Know
Proposed Amendments to Turkey's Corporate Tax Incentive Scheme: What Investors Need to Know
1. Background and Legislative Framework
Turkey's current corporate tax incentive mechanism for promoted investments was introduced through Law No. 5838, published in the Official Gazette dated February 28, 2009. The law added a new article to the Corporate Tax Law, allowing reduced corporate income tax rates for profits generated from investment projects covered by an investment incentive certificate.
Subsequent secondary legislation was enacted through Council of Ministers Decisions No. 2009/15199 and later No. 2012/3305. Most recently, Presidential Decree No. 9903—published on May 30, 2025—entered into force, thereby repealing the 2012 regulation.
As of June 16, 2025, a new bill has been submitted to the Grand National Assembly of Turkey, proposing significant amendments to Article 32/A of the Corporate Tax Law, aligning the incentives more closely with the current government’s fiscal policy and the minimum corporate tax framework outlined in Presidential Decree No. 9903.
2. Key Proposed Changes
a. Incentive Duration Limited to 10 Years Under the current framework, there is no explicit time limit for benefiting from the tax incentive. Investors could enjoy reduced tax rates for decades until the investment contribution amount is fully utilized.
The new proposal introduces a cap: the reduced corporate tax rate can only be applied for a maximum of 10 fiscal periods starting from the initial fiscal year in which the incentive becomes applicable.
b. Uniform Tax Reduction Rate of 60% Article 32/A currently does not specify the exact rate of reduction, granting the President authority to lower the corporate tax rate by up to 90%. Historically, reductions have ranged from 50% to 90%, depending on the region.
Decree No. 9903 standardized this rate to 60% across all regions. The new bill formalizes this uniform rate and removes the President’s authority to alter it.
Effectively, for a 25% corporate tax rate, the reduced rate would be 10%, which aligns with the proposed minimum corporate tax regime.
c. Limitations on Preferential Rates for Non-Investment Income Currently, two restrictions apply to using reduced rates on other (non-investment) income:
The incentive applies only during the investment period.
The eligible amount is the lesser of 50% of the total investment contribution or the amount of investment expenditures.
The new bill proposes two major changes:
Removes the investment-period limitation, replacing it with a fixed four-year window beginning from the initial fiscal year.
Alters the second limitation to consider "earned contribution amount" instead of actual expenditures, which could further restrict tax savings during the early years.
d. Four-Year Limit for Other Activities’ Income The use of reduced corporate tax rates on income from other activities (outside the promoted investment) is limited to four years.
In effect, the bill introduces a dual cap: 4 years for other income, and 10 years total for the full tax benefit.
e. Loss of Contribution Amount Due to Non-Utilization The bill includes a controversial clause: if taxpayers fail to apply the reduced tax rate on eligible income during a profitable period, the associated investment contribution will be forfeited in subsequent years.
The rationale is to enforce accurate tax filing. However, this provision is criticized as unnecessary, especially when current regulations already treat such situations as correctable tax errors via amended returns.
f. No Change in Indexation for Unused Contributions Unused contribution amounts can still be indexed using the revaluation rate, provided the investment is completed. This remains unchanged in the bill.
3. Commentary and Implications
While Turkey's reduced corporate tax incentive has been criticized for its complexity and delayed financial impact, it has historically been a generous tool for attracting investment.
Unfortunately, the new bill does not simplify the structure. On the contrary, it introduces stricter limits and adds operational complexity by enforcing new timelines and eligibility conditions.
The requirement to separately account for profits from the incentivized investment and from other activities continues to burden taxpayers. For most investors, reaching the full contribution benefit within four years remains challenging. With the total incentive capped at 10 years, a significant portion of the tax benefit may be permanently lost.
Moreover, the longstanding investor demand to front-load tax savings—especially during capital-intensive early years—remains unmet. In fact, the new framework risks deferring and diminishing the incentive, which could dampen investment appetite.
In conclusion, while aligning the tax incentive system with current fiscal discipline and minimum tax principles, the proposed changes fall short of delivering a simplified or more investor-friendly structure. Stakeholders are encouraged to review their investment models and consult with tax advisors promptly to assess the impact of these upcoming changes.
For expert advice on how these proposed changes may affect your investment strategy in Turkey, feel free to contact our international tax advisory team.
info@ozmconsultancy.com
