Tax Incentives for Services Exported from Turkey

Blog Post: Tax Incentives for Services Exported from Turkey – Updates for 2023

In recent years, Turkey has implemented several tax incentives to promote the export of services. These incentives, outlined in the Income Tax Law (Article 89) and the Corporate Tax Law (Article 10), were first introduced in 2012 with Law No. 6322. Here's a detailed overview of the key developments, including recent changes effective in 2023.

Key Milestones in Tax Incentives for Exported Services

1. 2012 - Initial Introduction
   With Law No. 6322, a provision allowed a 50% deduction of income earned from specific services provided to non-residents of Turkey, including:

   • Architecture

   • Engineering

   • Design

   • Software Development

   • Medical Reporting

   • Accounting Services

   • Call Centers

   • Data Storage
     The condition was that these services must be utilized exclusively abroad.

2. 2016 - Expansion of Covered Services
   Law No. 6728 added more services under the scope of the tax incentive, including:

   • Product Testing

   • Certification

   • Data Processing

   • Data Analysis

3. 2023 - Major Changes with Law No. 7491
   The 2023 amendments significantly enhanced the incentive by:

   • Increasing the tax exemption rate from 50% to 80% for qualifying income.

   • Introducing a new requirement: all earnings must be transferred to Turkey by the tax return filing deadline for the relevant fiscal year.
     These changes apply to income earned from January 1, 2023, onward.

Conditions for Benefiting from the Incentive

To qualify for the tax exemption, certain conditions must be met:

1. Service Scope

   • The service must be among the primary activities of the business.

   • It must be provided to individuals or entities not resident in Turkey.

2. Invoicing Requirements

   • The invoice must be issued in the name of the foreign entity or individual.

3. Utilization of the Service Abroad

   • The service must be exclusively utilized outside Turkey.

   • It must not be related to activities within Turkey.

4. Revenue Transfer

   • The total income must be transferred to Turkey by the tax return deadline for the year in which the income was earned.

Common Scenarios and Clarifications

Does the Customer Need to Be Abroad?

Yes, the customer must be a non-resident. Additionally, the invoice must be issued to a foreign entity. For example:

• Architectural projects for Turkish embassies abroad are deemed services provided to the Turkish state, thus not qualifying for the exemption. (Circular dated 09.05.2016 and numbered 53061)

Must the Service Be Exclusively Used Abroad?

Yes, services must not be related to the customer’s activities in Turkey. For example:

• Design and engineering services provided to a foreign-led consortium working on a project in Turkey do not qualify. (Circular dated 14.07.2014 and numbered 716)

• Quality control services conducted for goods purchased in Turkey also do not qualify, as the benefit is not exclusive to operations abroad. (Circular dated 12.04.2017 and numbered 101659)

Does the Currency Matter?

No, the income can be in Turkish Lira or a foreign currency. Both are eligible for the deduction. (Circular dated 03.02.2023 and numbered 166967)

2023 Update: Mandatory Transfer Requirement

As of 2023, to benefit from the exemption, all earnings must be transferred to Turkey by the tax return deadline for the respective fiscal year. For instance, for the 2023 tax year:

• Income must be fully transferred to Turkey by the filing deadline for the annual income or corporate tax return (April for corporate tax returns).

Final Thoughts

These tax incentives provide a significant opportunity for service exporters in Turkey to reduce their taxable income. However, meeting all conditions, especially the mandatory transfer of income, is critical to avoid disqualification.

If you're navigating the complexities of these regulations or need support with compliance, reach out to our expert team today!