Turkey provides a corporate income tax exemption for profits derived from construction, repair, assembly, and technical service projects carried out abroad by Turkish resident companies.
This regulation aims to enhance the international competitiveness of Turkish contractors and engineering firms in global markets.
Conditions for the Exemption
- Full Tax Liability in Turkey
The company performing the activity must be a Turkish tax resident (fully liable taxpayer). - Foreign Location of Activity
The service must be performed entirely outside of Turkey. - Type of Activity
The exemption applies to the following types of projects:- Construction
- Repair
- Assembly
- Technical services (e.g., engineering, consultancy)
- Earning Location
The income must be derived in the foreign country where the service is performed. - Transfer of Income Not Required
The exemption applies regardless of whether the income is transferred to Turkey.
Application and Explanation
The exemption applies only to services physically performed abroad.
Projects executed through foreign branches, subsidiaries, or project offices of Turkish companies are also covered.
The income from such projects is excluded from the Turkish corporate tax base, even if the accounting records are maintained in Turkey.
However, if the activity is carried out in Turkey and only the result is delivered abroad (for example, software developed in Turkey for a foreign client), this income does not qualify for the exemption and is instead subject to different tax rules.
This exemption applies even if no Double Taxation Agreement (DTA) exists between Turkey and the country where the income is earned.
A Turkish construction company completes a highway project in Azerbaijan, earning TRY 15 million from the contract.
Even if this income is not repatriated to Turkey, it qualifies for the corporate income tax exemption.
However, if the same company builds a structure in Turkey and sells it to a foreign company, that income does not qualify, as the activity was not physically performed abroad.
Legal Basis
This exemption is provided under Article 5/1-h of the Turkish Corporate Tax Law (No. 5520).
Its primary objective is to support Turkish contractors and engineers in international markets and strengthen their competitive position abroad.
For expert guidance on tax exemptions, project structuring, and cross-border compliance for your overseas operations, contact ÖzbekCPA.
RELATED ARTICLES
- Education and Healthcare Facility Tax Exemption in Turkey
- Technology Development Zone (TDZ) Tax Exemption in Turkey
- Cooperative Income Exemption in Turkey
