Tax Advantages Provided to Companies Operating in the Istanbul Financial Center
Law No. 7412 on the Istanbul Financial Center (IFC) was published in the Official Gazette dated 22 June 2022. The purpose of the Law is stated as “to enhance the international financial competitiveness of the Republic of Türkiye, to contribute to the development and deepening of financial markets as well as financial products and services, to strengthen integration with international financial and capital markets, and thereby to ensure that the Istanbul Financial Center becomes one of the leading global financial centers.”
Within this framework, certain incentives, reductions, exemptions, and privileges have been granted to participant companies for activities carried out within the financial center. The term “participant” is defined in the Law as real and legal persons who will operate within the office area by obtaining a participant certificate, as well as their branches and representative offices, joint ventures, liaison offices, regional management centers, and national wealth funds. It should be noted that these advantages cannot be utilized for activities conducted outside the designated office area.
1. Priority Activities for Participant Status
The participant certificate is issued by the management company of the Istanbul Financial Center (IFC). Details regarding participant procedures are set out in the Istanbul Financial Center Regulation, published in the Official Gazette dated 7 July 2023 and numbered 32241.
Accordingly, in applications for a participant certificate, priority is given to the following activities:
a) Services and transactions related to financial activities within the scope of the Regulation,
b) Maritime, air, road, and rail transportation, customs and logistics services, organized commodity trading and storage services, and financial consultancy services related to commodities—particularly precious metals and minerals—that may be subject to international trade,
c) Supporting and auxiliary services for financial activities such as audit, accounting, rating, valuation, electronic infrastructure and software, telecommunications, media, intellectual and industrial property, legal consultancy, and similar services,
ç) Activities in high value-added sectors—particularly energy and infrastructure—as well as healthcare and health technologies, agriculture and agricultural technologies, artificial intelligence, and similar fields, including investment and financing services related to these areas,
d) Regional treasury and financial management operations established within a company or as a separate legal entity to develop investment and management strategies of legal entities and/or to carry out their financial operations,
e) Financial services supporting green finance and sustainable finance, as well as international trade,
f) Financial services aligned with the strategic priorities of the IFC or other activities supporting the financial sector.
2. Tax and Personnel Advantages Provided to Participants
Certain tax and personnel incentives have been introduced separately under the IFC Law and the Corporate Tax Law for participants operating within the Istanbul Financial Center (IFC).
2.1. Advantages Set Forth in the IFC Law
According to the IFC Law, the advantages granted to participant companies operating within IFC office areas are outlined below:
- Deduction for Export of Financial Services
For financial institutions holding a participant certificate, 75% of the income derived from activities qualifying as exports of financial services carried out within the IFC is deductible from the corporate tax base, provided that such income is separately disclosed in the corporate tax return.
For the corporate earnings relating to the taxation periods between 2022 and 2031, this rate is applied as 100%.
Accordingly, participants engaged in the export of financial services will be able to deduct the income generated from such activities through their tax returns.
Under the IFC Law, financial services provided by institutions operating with a participant certificate to non-resident persons are considered as exports of financial services, provided that the service is ultimately utilized abroad.
Financial activities refer to the activities, services, and transactions specified under the following legislation:
- The Law No. 1567 on the Protection of the Value of Turkish Currency, dated 20 February 1930,
- The Law No. 4632 on the Individual Pension Savings and Investment System, dated 28 March 2001,
- The Law No. 5411 on Banking, dated 19 October 2005,
- The Law No. 5464 on Bank Cards and Credit Cards, dated 23 February 2006,
- The Law No. 5684 on Insurance, dated 3 June 2007,
- The Law No. 6361 on Financial Leasing, Factoring, Financing and Savings Financing Companies, dated 21 November 2012,
- The Law No. 6362 on Capital Markets, dated 6 December 2012,
- The Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions, dated 20 June 2013.
i. Banking and Insurance Transactions Tax (BSMV) Exemption
Under the IFC Law, an exemption from the Banking and Insurance Transactions Tax (BSMV) has been introduced for transactions qualifying as exports of financial services, as well as for the amounts received in favor of the taxpayer in connection with such transactions carried out within the Istanbul Financial Center (IFC).
iii. Stamp Duty and Fee Exemption
Transactions related to activities qualifying as exports of financial services are exempt from all fees, and the documents issued in relation to such transactions are exempt from stamp duty.
In addition, lease agreements concerning immovable properties within the IFC are subject to fees and stamp duty. This exemption is not limited solely to office areas but applies across the entire IFC zone.
Furthermore, financial activity fees that would normally be payable under the Law No. 492 on Fees (dated 2 July 1964) for the headquarters and branches of financial institutions holding a participant certificate within the IFC will not be collected for a period of five years starting from the effective date of the IFC Law.
iv. Advantages for Employees
If an employee who will start working in the Istanbul Financial Center (IFC) has at least five years of professional experience abroad, 60% of their salary will be exempt from income tax. If the employee has at least ten years of professional experience, 80% of their salary will be exempt from income tax.
In order to benefit from this exemption, the employee must not have worked in Türkiye during the three years prior to starting employment at the IFC.
Furthermore, pursuant to Article 6/4 of the Law, these advantages also apply to regional treasury and financial management centers of participants that operate actively in at least three countries.
v. Bookkeeping in Foreign Currency
Based on the authority granted under the IFC Law, the procedures and principles allowing participants operating in the IFC to keep their books and issue documents in foreign currency, provided that certain conditions are met, have been determined by the General Communiqué on Tax Procedure Law (Serial No. 569), published in the Official Gazette dated 26 September 2024 and numbered 32674.
Further details on this matter are provided in our circular.
vi. Employment of Foreign Personnel
Participants operating in the Istanbul Financial Center (IFC), as well as the regional treasury and financial management centers of participants that operate actively in at least three countries, are allowed to employ foreign personnel under work permits issued by the Ministry of Labor and Social Security in accordance with the International Labor Law No. 6735 dated 28 July 2016.
2.2. Deduction Provided Under the Corporate Tax Law
In addition to the advantages set out in the IFC Law, with Law No. 7421, subparagraph (i) was added to Article 10/1 of the Corporate Tax Law. Accordingly, institutions that obtain a participant certificate and operate within the Istanbul Financial Center (IFC) are allowed to deduct 50% of the income derived from the following activities from their declared corporate income:
The sale of goods purchased from abroad without bringing them into Türkiye, and sold again abroad,
Acting as an intermediary in the purchase and sale of goods carried out abroad.
As can be seen, it is not required to carry out financial activities in order to benefit from this deduction.
In order for institutions to benefit from this deduction:
- They must operate within the Istanbul Financial Center Zone by obtaining a participant certificate from the Istanbul Financial Center (IFC),
- The income must be derived from the sale of goods purchased from abroad without being brought into Türkiye and sold abroad, or from acting as an intermediary in purchase and sale transactions carried out abroad,
- The income must be transferred to Türkiye by the deadline for filing the corporate tax return for the relevant fiscal year in which the income is generated,
- In intermediary transactions, both the buyer and the seller must be located outside Türkiye,
- No deduction shall apply to income derived from such activities carried out outside the IFC Zone or from other activities conducted within the Zone.
A copy of the participant certificate issued to the company or branch benefiting from the deduction must be submitted to the relevant tax office within the filing period of the corporate tax return for the first fiscal year in which the deduction is claimed.
Additionally, documents evidencing that the income subject to deduction has been transferred to Türkiye must be submitted to the relevant tax office by the end of the month following the month in which the corporate tax return is due for the period in which the deduction is utilized.
Best regards,
BİLGENER
