In Turkey, companies operating in Free Zones can benefit from a corporate income tax exemption on the profits they earn from production activities carried out within the zone.
The main purpose of this incentive is to promote exports, enhance foreign trade, and strengthen Turkey’s international competitiveness.
Conditions for the Exemption
- Establishment in Turkey
Only companies registered and incorporated in Turkey are eligible for the exemption. - Activity within a Free Zone
The income must arise from operations conducted in an officially designated Free Zone in Turkey. - Export Requirement
The exemption applies solely to profits derived from the export of goods manufactured in the Free Zone. - Valid Operating License
The activity must be covered by a valid Operating License issued by the Free Zone Directorate.
Application and Explanation
The Free Zone income exemption is specifically targeted at production activities.
Profits arising from trading, warehousing, assembly, or service operations do not qualify.
“Production” includes the processing, transformation, assembly, or packaging of raw materials or semi-finished goods.
If a company performs activities beyond the scope of its license, the resulting income is taxable.
Additionally, profits generated within the Free Zone must be kept separate from those earned through other domestic operations in Turkey.
A manufacturing company produces electronic components at its factory in a Turkish Free Zone and exports them to Europe.
The profits from these exports are fully exempt from corporate income tax.
However, if the same company sells its products to the domestic Turkish market, those earnings are taxable.
Legal Basis
The Free Zone Income Exemption is regulated under Article 5/1-ğ of the Turkish Corporate Tax Law (No. 5520) and implemented within the framework of the Free Zones Law (No. 3218).
This regulation aims to transform Turkey’s Free Zones into export-oriented production hubs by offering favorable tax conditions to manufacturers.
For professional advice on Free Zone tax exemptions, licensing requirements, and corporate tax compliance in Turkey, contact ÖzbekCPA.
