Turkey has offered a generous package of tax breaks for 20 years. What do investors need to know?

On Friday, April 24, Turkish President Recep Tayyip Erdogan unveiled a tax regime plan that promises to be the most aggressive for residents in the developed world. What investors need to know about it was written by Level International partner Ramazan Beecher and Academy of BEPS co-founder Rustam Vakhitov.

There are many measures in the package. But at least one should force every family office and every wealth advisor to immediately open their calendar and schedule an appointment.

This is a key indicator for individuals: 20 years of zero taxation of foreign income combined with a flat 1% inheritance and gift tax rate.

This is the loudest signal to date that there is a new player in the global competition for the wealthy, and with the longest window of tax relief currently available in the market.

This is a big deal for the industry. Advisers and their clients have been reshaping their strategies over the past 18 months after the UK introduced taxation of global income, Italy is actually tightening tax laws, and war with Iran has called into question the attractiveness of the Gulf states.

What is the essence of the proposal? The mechanism is simple. An individual who has not been a tax resident in Turkey for three calendar years preceding the move will not pay tax on foreign-source income for 20 years. Dividends and interest from foreign companies and accounts, capital gains on securities listed on foreign exchanges, rental income from properties abroad, payments from foreign pension funds, royalties and income from employment outside Turkey are expected to be exempt.

This offering has no minimum investment requirements.

You will have to pay taxes only on income from Turkish sources - on wages from a Turkish employer, on profits from a Turkish company, on income from renting out real estate in Istanbul or Antalya.

The condition of no tax residency for three years is a key "filter". It excludes those who have only temporarily left the Turkish tax system, and will require proof: certificates of tax residency, documents confirming actual presence, proof of deregistration.

It is important that the 20-year tax exemption period arises only when a person becomes a tax resident of Turkey. For this purpose, it is necessary to spend a total of 183 days in the country during the year.

Importantly, the boundary between Turkish and foreign income will require careful analysis prior to arrival in the country. This is especially true for those who work remotely and plan to live in Turkey, board members, and dividends from holding companies with a mixed asset structure.

A more important provision for many families is the flat inheritance and gift tax rate of 1%. Turkey proposes to introduce it in place of the current progressive scale. The standard tax rate in this country reaches 10% on inheritance and 30% on gift at the upper ranges of the progressive scale.

There is no equivalent to this proposal in Italy, Greece, Portugal or the UAE: this inheritance and gift tax regime at a rate of 1%, effective for 20 years, along with the income tax exemption, is the most distinctive feature of the new Turkish tax reform in terms of multi-generational planning.

For a family considering Turkish residency with offshore assets between $50 million and $500 million, the difference between progressive treatment and a flat 1 percent treatment is the difference between a complete overhaul of the succession plan and a moderate adjustment. Wills drafted based on standard Turkish inheritance taxation, offshore trusts set up to avoid having to pay Turkish tax, multi-jurisdictional succession plans all deserve fresh analysis.

Overall, Turkey's offering outperforms almost all of its European competitors in terms of duration.

Here are just a few examples: the Italian lump sum tax for new residents implies exemption of foreign income from taxes for up to 15 years, but it is necessary to pay an annual contribution of €300 thousand, the country raised it from this year by €100 thousand.

Non-dom regime in Greece is valid for 15 years - also with an annual contribution of €100 thousand, plus you need to invest once €500 thousand.

Portugal's IFICI regime provides tax exemption on foreign income for 10 years without fees, but the country has criteria for selecting those who can apply this regime. They are based on the type of activity, which significantly narrows the range of applicants.

Switzerland has a lump-sum tax (lump-sum) for wealthy foreigners in perpetuity. It is agreed at the cantonal level, and the tax base is determined on the basis of the annual expenses of the taxpayer and his family. The minimum spending threshold starts at 435 thousand Swiss francs (this is the federal minimum for 2026, in Geneva it is 500 thousand francs, in the canton of Vaud - 450 thousand francs).

Corporate tax for exporting manufacturers is reduced from 25% to 9-14% (permanent rate reduction, not limited to a 20-year period). This is a radical step to attract foreign direct investment in manufacturing. And exporters of software, video games, medical tourism and education services, engineering, design and architecture are completely exempt from paying income tax for 20 years. Right now, 80% of their profits are tax-free.

Companies registered in the Istanbul Financial Center (IFM), opened three years ago, receive effectively zero corporate tax on income from transit trade and intermediary activities and a 95 percent deduction to the same activities outside the center.

Companies moving regional headquarters functions to IFM receive a 20-year corporate tax exemption and a 95 percent tax deduction - when moving headquarters to other regions of Turkey. Employees of such regional headquarters receive, under certain conditions, an income tax exemption on monthly income up to approximately $3,000 (four times the minimum wage in Turkey).

In addition, Turkey has conceived a new - the eighth phase of the capital amnesty program. "Window" 2026 will allow cash, gold, securities and crypto-assets held abroad to be returned to the Turkish economy at a preferential rate of 2-3%.

Turkey's generous new tax proposal has now appeared for a reason.

The war with Iran this year has not only caused significant damage to Gulf infrastructure and shocked commodity markets, but has also caused anxiety among the wealthy, who chose to move mainly to the UAE, but also to other wealthy Gulf countries, precisely based on the assumption of a stable life here.

As a result, dozens of companies operating in the Gulf countries have already considered the possibility of moving part of their business to the Istanbul Financial Center, writes Reuters citing the head of the center Ahmet Ihsan Erdem. A total of about 40 companies from Asia and the Gulf countries held meetings with IFC representatives in March and early April.

When you add to this the abolition of the non-dom regime in the UK, resulting in a significant group of wealthy individuals entering the alternatives market, the timing looks strategic.

Turkey is banking on the wealthy, which the Gulf States, the UK and parts of Southern Europe have either already lost or are in danger of losing.

In his Istanbul speech, Erdogan positioned Turkey as an "island of stability" and as one of the major poles of the emerging multipolar world order - language deliberately chosen for an audience considering moving into a turbulent year.

The 20-year exemption from taxation of foreign income, combined with the existing program to obtain Turkish citizenship for investment, requires special attention.

Turkish passport provides visa-free entry to about 116 countries. The Citizenship by Investment (CBI) program requires $400,000 to be invested in real estate with a three-year ban on resale or $500,000 in alternative instruments.

However, holders of CBI citizenship previously faced a progressive income tax of 15-40% on worldwide income, and double tax treaties provided only partial exemption of income.

The new tax reform is expected to completely eliminate this problem for new residents.

The final wording of the law will determine whether CBI citizenship applicants who were not previously tax residents of Turkey will be able to claim tax exemption. This will have a significant impact on whether passport and tax residency planning should be conducted jointly or separately.

To date, this tax reform is only a proposal. Turkish Finance and Treasury Minister Mehmet Şimşek said in Ankara on April 27 that the tax package will soon be submitted to the parliament - the Grand National Assembly - and presented to the business community in advance.

This is a reason not to act prematurely. It is important to realize that all final conditions will become clear only after the law is adopted and the relevant communiqués are published in the Official Gazette.

Of course, one should also take into account the economic realities of life in the country - Turkey has high inflation (in March, the annual rate was 30.87%), a volatile lira and strict currency regulations, especially when it comes to withdrawing large sums of money. In addition, the 20-year planning horizon itself carries risks of possible policy changes.

What should family offices be doing now for a client who is considering a move to Turkey?

First, document for him the fact that he has not been a tax resident of this country for the last three years.

Secondly, review existing offshore structures, wills and succession plans in light of if the Turkish authorities approve a 1% inheritance tax. Even a cursory analysis shows that there is room for optimization and that offshore trust structures set up to avoid Turkish taxes need to be reviewed.

Thirdly, it is necessary to take into account the tax requirements of the country from which a person plans to leave: we are talking about the British Statutory Residence Test, taxation of US citizens on worldwide income, German tax on emigration, Dutch "exit" taxes, French exit tax. Potential tax benefits in Turkey do not cancel the right of other countries to tax these incomes.

Fourth, companies need to consider corporate options: establishing a regional headquarters, relocating to an IFM, or returning capital under a tax amnesty. Residency and corporate measures are linked, so it is best to plan them together.

The period between announcement and enactment is the most strategically valuable phase of any major tax reform.

For the Capitals, who have been looking for two years to land, Turkey has just made a twenty-year offer. It deserves serious consideration.

Does not constitute legal or tax advice.

This article was AI-translated and verified by a human editor