Turkey's free trade zones (serbest bölgeler) sit outside the Turkish customs territory for customs and foreign-exchange purposes, but inside it for civil, commercial, employment, and (post-2024 reform) parts of the tax system. That hybrid status is the whole reason the structure exists, and it is also the reason most foreign investors get the tax planning wrong on day one. The headline narrative still circulating online — "100% tax-free, no VAT, no corporate tax" — has not been accurate since Law No. 7524 was published on 2 August 2024 and amended the corporate income tax exemption with effect from 1 January 2025. Anyone setting up a Turkish FTZ company in 2025 or later is operating under a different rulebook from the one most legacy guides describe.
The legal framework rests on the Free Zones Law (Law No. 3218, dated 6 June 1985) and its implementing regulations, the Customs Law (Law No. 4458), the Corporate Tax Law (Law No. 5520), the Income Tax Law (Law No. 193), the Foreign Direct Investment Law (Law No. 4875), and the Turkish Commercial Code (Law No. 6102). Operational supervision sits with the Ministry of Trade's Directorate General for Free Zones, Overseas Investments and Services, which issues activity licences (faaliyet ruhsatı) and supervises zone operators. ER&GUN&ER Law Firm advises foreign manufacturers, traders, logistics operators, and service exporters on FTZ entity formation, activity licence applications, lease negotiations with zone operators, post-formation tax modelling, and ongoing compliance with the customs, foreign-exchange, and reporting regimes specific to the zone environment.
What a Free Trade Zone Actually Is Under Turkish Law
The starting definition in Article 1 of Law No. 3218 is precise and worth reading carefully: free zones are parts of the Turkish customs territory that are treated as outside it for the application of import duties, trade-policy measures, and foreign-exchange rules. Goods placed in a free zone are not in free circulation in Turkey; they remain in the customs status they had at entry, and customs duties are not triggered until the goods leave the zone for the Turkish mainland. This is the operational core of the FTZ proposition. Practice may vary by authority and year on procedural details, but the duty-suspension regime has been stable since the law was first enacted.
What this status means in practical terms is that a Turkish branch or subsidiary located in a free zone can import raw materials, components, and equipment into the zone without paying Turkish customs duty or VAT at entry, hold or process those goods inside the zone, and then either re-export them abroad (no duty trigger), move them to another free zone (no duty trigger), or release them to the Turkish mainland (duty and VAT trigger at the standard import rates). The same goods that would carry an immediate VAT and customs cost on direct import to mainland Turkey can be parked in a zone, processed, and re-exported without ever triggering Turkish import taxation.
Foreign-exchange rules under Decree No. 32 on the Protection of the Value of Turkish Currency and the Capital Movements Circular do not apply inside the zone. Companies can hold and transact in foreign currency without the contracting-currency restrictions that the 2018 amendments brought to mainland transactions. Profits, dividends, and capital are repatriable without prior authorisation, subject to the zone operator's standard reporting and the bank's KYC. A Turkish lawyer running these files for foreign clients usually treats the foreign-exchange flexibility as an underrated benefit — for many treasury teams it matters more than the headline tax exemption.
The Activity Licence: What You Are Actually Applying For
An FTZ company does not exist until it holds an activity licence (faaliyet ruhsatı) issued by the Ministry of Trade's Directorate General for Free Zones. The licence specifies the activity category — production, purchase-sale, storage, assembly-disassembly, maintenance-repair, banking, insurance, leasing, or other approved categories — and the zone in which the activity will take place. The legal effects flow from the activity category selected; the production licence carries the deepest tax benefits, while a purchase-sale licence carries only the customs and foreign-exchange advantages. Choosing the wrong category at application is one of the most expensive mistakes a foreign founder can make, because changing it later requires a new application and can trigger a re-examination of the whole file.
Article 5 of Law No. 3218 sets the licence framework, and the implementing regulation specifies the documentary requirements: a detailed business plan, projected investment and employment figures, projected exports as a share of turnover, a financial capacity statement, the proposed lease arrangement with the zone operator, and the parent company's corporate documents apostilled and translated where the applicant is a foreign-incorporated entity or a Turkish entity with foreign shareholders. The Directorate General reviews the file, and where applicable forwards questions to the zone operator before deciding. An English speaking lawyer in Turkey advising the client during this phase usually focuses on three things: aligning the projected export ratio with the tax exemption design, drafting the lease so it survives renewal cycles, and preparing the business plan in a form the Directorate General accepts without revisions.
Activity licences are issued for a defined term — under Law No. 3218, the maximum is 30 years from the date of issuance, with the actual term specified in the licence itself. Production licences typically receive longer terms than purchase-sale licences. The zone operator's lease is separately documented and runs in parallel; lease terms can extend up to 49 years for investor-tenants who construct their own facilities under Article 14 of the implementing regulation, but this is the lease term, not the licence term, and the two are commonly conflated in marketing materials. We separate them in every client engagement because the renewal mechanics are different.
Corporate Tax Exemption After the 2024 Reform: What Changed and What Did Not
This is the section most existing FTZ guides on the internet get wrong, because the law changed materially in 2024 and the change is still working its way through commentary. The provisional Article 3 of Law No. 3218 contains the corporate income tax and income tax exemption regime for FTZ users. Until the end of 2024, taxpayers holding production licences were exempt from corporate tax on income from the sale of products manufactured in the zone, regardless of whether the buyer was abroad or in Turkey. Law No. 7524, published in the Official Gazette on 2 August 2024, amended this provision by inserting the words "to abroad" (yurt dışına) into the qualifying language. With effect from 1 January 2025, the exemption applies only to income from sales of zone-manufactured products to buyers abroad. Sales to Turkish mainland buyers became fully taxable.
A second amendment in 2026 broadened the scope again, this time to include sales within the same free zone and sales to other Turkish free zones in the exempt category. Sales to mainland Turkey remain outside the exemption. The current operational rule, as Turkish lawyers who advise on FTZ tax modelling now describe it: corporate tax exemption applies to (i) export sales abroad, (ii) intra-zone sales, and (iii) sales to other Turkish free zones, but not to sales to mainland Turkey. For service-licence holders providing maintenance, repair, assembly, disassembly, handling, sorting, packaging, labelling, testing, or storage services, the exemption applies to services rendered to non-residents where the goods leave the zone for abroad without entering Turkish mainland circulation. The 25% standard corporate income tax rate under Article 32 of the Corporate Tax Law applies to any income outside the exempt scope, with the 10% domestic minimum corporate tax floor introduced from 1 January 2025 also applicable.
Cost allocation between exempt and taxable income streams becomes the practical battleground after the reform. An Istanbul Law Firm reviewing FTZ tax positions in 2025 typically finds the same gap in client files: a single set of accounts treats domestic and export sales identically because the legacy software was set up before the reform. Separating revenue streams by destination, allocating direct costs accurately, and apportioning common costs on a defensible basis is now an audit-ready compliance requirement, not a planning option. Practice may vary by authority and year on apportionment methodology; the Revenue Administration's general communiqué provides examples but leaves judgment to the taxpayer subject to inspection challenge.
The Wage Income Tax Exemption: The 85% Export Threshold
Provisional Article 3 of Law No. 3218 also contains a separate exemption for wage income tax on employees working in production activities. The mechanism is structured as a withholding tax that is calculated and reported but not paid: the income tax computed after the application of the cost-of-living allowance is reflected on the monthly muhtasar declaration as accrued and then terminated (terkin) without payment. The benefit flows through to the employee in the form of higher take-home pay, and the employer's gross payroll cost remains stable.
The condition is the export ratio. Taxpayers qualify only if at least 85% of the FOB value of products manufactured in the zone is exported abroad in the relevant year. The Council of Ministers retains authority to lower this threshold to 50%. The ratio is calculated on the FOB value of products manufactured in the zone, not on total revenue. Goods brought into the zone from the Turkish mainland on a fason (toll-manufacturing) basis or under the inward processing regime are excluded from the 85% calculation. Where the threshold is missed in a given year, the taxes that were terminated in that year become due retrospectively without penalty but with statutory interest. A Turkish Law Firm running the wage exemption for foreign manufacturers builds the export-ratio monitoring into the monthly close, not into the annual review, because catching a slippage in November is recoverable, while catching it in March of the following year is not.
The exemption applies only to employees physically working in production at the zone facility. Office staff, administrative employees, and personnel located outside the zone are excluded. Software development qualifies under defined conditions: the work must be performed in the zone, the customer must be abroad, the foreign currency must be brought into Turkey, and the export must be evidenced by a customs export declaration or the equivalent free zone transaction form (serbest bölge işlem formu) supported by a sworn financial advisor (YMM) report. Practice may vary by authority and year on the precise documentary set required for software exports; the Revenue Administration's practice note for software has been refined several times since the original communiqué.
Stamp Duty, Fees, and Other Indirect Tax Treatment
Operations and documents related to FTZ activities are exempt from stamp duty and from the fees regulated under the Fees Law (Law No. 492). The exemption covers contracts, payment instruments, and documentation generated in connection with the zone activity. This is operationally meaningful because the standard 0.948% stamp duty under Law No. 488 applies to most commercial contracts in Turkey and adds up quickly on long-term supply agreements or financing documents. The FTZ exemption removes that line item from in-zone documentation.
Two FTZ-specific fees do apply, and they are easy to miss. Article 7 of Law No. 3218 charges a fee of 0.1% (one per thousand) on the CIF value of goods entering the zone from abroad, and 0.9% (nine per thousand) on the FOB value of goods exiting the zone to mainland Turkey. These fees are paid in advance to the special account at the Central Bank of the Republic of Turkey (Türkiye Cumhuriyet Merkez Bankası) administered for the zones. The fees do not apply to goods exiting the zone to abroad, which keeps the export channel clean. Goods moved between two Turkish free zones are also outside the FOB fee.
VAT and customs duty are not "exempt" inside the zone in the strict sense; they are not triggered, because the zone is treated as outside the customs territory for these purposes. The semantic difference matters when the goods leave the zone to mainland Turkey, because at that point a regular import event occurs and standard VAT (20% under Law No. 3065, with reduced 10% and 1% rates for specified supplies), customs duty (per the customs tariff applicable to the goods), and any special consumption tax (Law No. 4760 where applicable) all apply. Turkish lawyers who model the cost flow for foreign manufacturers usually run two scenarios in parallel: full export resale, and partial domestic resale, because the tax burden on the second scenario is materially higher than zone-marketing materials suggest.
Foreign Ownership, Entity Form, and the Choice Between Branch and Subsidiary
The Foreign Direct Investment Law (Law No. 4875) applies inside FTZ activities exactly as it does outside them: foreign investors enjoy the principle of national treatment under Article 3, with no Turkish-partner requirement and no special pre-approval for ordinary FTZ activities. A foreign company can operate in a Turkish FTZ through three structures: a branch of the foreign parent (under Article 40/4 of the Turkish Commercial Code), a Turkish-incorporated joint stock company (anonim şirket, minimum capital TRY 250,000 under TTK Article 332 following the Presidential Decree effective 1 January 2024, or TRY 500,000 in the registered capital system), or a Turkish-incorporated limited liability company (limited şirket, minimum capital TRY 50,000 following the same Presidential Decree).
The choice is rarely arbitrary in the FTZ context. The activity licence is issued in the name of the Turkish entity holding the zone facility, and the entity is the taxpayer for the corporate tax, the employer for the wage tax exemption, and the contracting party for the lease. Branch structures work where the foreign parent wants to consolidate the zone operation directly into its global accounts, where the activity is a continuation of the parent's existing business, and where the foreign parent is comfortable accepting direct legal exposure in Turkey under TTK Article 40/4. Joint stock or limited liability subsidiaries work where the foreign group wants ring-fenced liability, easier sale or transfer of the zone operation, and a separate Turkish balance sheet for local financing. An English speaking lawyer in Turkey will usually run both structures past the foreign parent's tax adviser before deciding, because the home-country treatment of branch versus subsidiary income affects the after-Turkish-tax economics more than the Turkish side does.
Capital deposit mechanics are identical to mainland incorporation: 25% of subscribed cash capital must be deposited before registration for joint stock companies under TTK Article 344, with the remaining 75% paid within 24 months. Limited liability companies pay capital per the agreed schedule, with payment terms set in the articles of association. Capital paid in foreign currency requires a foreign currency acquisition document (döviz alım belgesi, DAB) under Decree No. 32, even though the zone itself is outside the foreign-exchange regime. The DAB matters for two later events: capital repatriation on liquidation, and the parent's E-TUYS reporting under the Foreign Direct Investment Implementation Regulation.
Employment, Work Permits, and the FTZ Wage Mechanic
Employment inside an FTZ runs under the Labour Law (Law No. 4857), the Social Insurance and General Health Insurance Law (Law No. 5510), the Occupational Health and Safety Law (Law No. 6331), and the International Labour Force Law (Law No. 6735) for foreign employees. The labour-law substance is identical to mainland Turkey: the same severance accrual rules under Articles 14 and 17 of Law No. 4857, the same notice periods, the same 45-hour weekly limit under Article 63, the same annual leave entitlements under Article 53, and the same termination protections at Articles 18 to 21 for workplaces with 30 or more employees. SGK employer registration must be completed within 30 days of hiring the first employee. The wage tax exemption discussed earlier applies on top of this framework, not as a substitute for it.
Work permits for foreign employees are issued by the Ministry of Labour and Social Security under Law No. 6735. The standard rule for non-FTZ employers is a minimum of five Turkish employees per foreign employee at the workplace, applied from the second year, with the employer required to hold either at least TRY 100,000 paid-in capital or report annual turnover above TRY 800,000. A separate set of regulations governs the employment of foreign personnel in free trade zone areas, and these regulations have at times applied a softened set of criteria in recognition of the export-oriented nature of FTZ activity. Practice may vary by authority and year on which easings remain in force. Practice may vary by authority and year on the exact application of FTZ-specific work permit easings; the Ministry of Labour and Social Security has revised the implementing rules on multiple occasions since 2018, and a specialist review of the current circular is part of every work permit file we run.
For senior foreign managers, the work permit doubles as a residence permit under Law No. 6458 for the period of its validity. The Turquoise Card (Turkuaz Kart) regime under Law No. 6735 remains formally available for highly qualified foreign workers, large investors, and individuals contributing to the international recognition of Turkey, although in practice the application procedures and forms remain partially unimplemented and the Card is not a primary planning route for FTZ founders.
Lease Arrangements with the Zone Operator
Every FTZ company occupies space inside the zone under a lease with the zone operator. The operator is a Turkish-incorporated company licensed by the Ministry of Trade to manage one or more zones; major operators include Mersin Free Zone Operator, Aegean Free Zone Operator (in İzmir), Istanbul Industry and Trade Free Zone Operator, and several others across Turkey's twenty-plus active zones. The lease is the practical contract the FTZ company will live with day-to-day, and its terms determine the company's cost base far more than the headline tax exemption ever will.
A Turkish Law Firm reviewing the operator's standard lease for a foreign client typically pushes back on three categories of clauses: rent-escalation mechanics tied to USD/EUR or to CPI without caps, operator's unilateral termination rights for breach without cure periods, and indemnity clauses that allocate zone-wide risks to individual tenants. Operators are sophisticated commercial counterparties, and the standard lease tilts toward them as starting position. Negotiation is possible and routinely productive, particularly for production tenants making capital investment in the zone facility.
Investor-tenants who construct their own buildings on leased land inside the zone receive longer lease terms — up to 49 years under the implementing regulation — and stronger tenure protection than tenants leasing prebuilt facilities. The construction route makes financial sense where the activity will run for 15+ years and the capital investment justifies the longer commitment. We structure these deals with attention to the residual value of the building at lease end, the operator's option to extend, and the regulatory continuity of the activity licence across the lease term. Practice may vary by authority and year on lease renewal mechanics, particularly where zone operator ownership has changed in the relevant period.
Customs Movements In and Out of the Zone
Goods enter the zone from abroad on a customs summary declaration (özet beyan) and are placed in the zone without customs duty or VAT being triggered. Inside the zone, goods can be processed, stored, repackaged, repaired, or assembled without customs supervision of the kind that applies to inward processing in mainland Turkey. When goods leave the zone, the customs treatment depends on the destination: re-export abroad triggers the export procedure (no duty, possible VAT zero-rating depending on classification), entry to mainland Turkey triggers the import procedure with full customs duty, VAT, and any special consumption tax, and movement to another Turkish free zone triggers the transit-style procedure with no duty event.
Documentary discipline matters here because the zone customs record is auditable. Each movement is logged in the operator's tracking system and reflected in the company's customs file. Goods that physically left the zone but were not accurately recorded create reconciliation problems at the zone operator level, at the customs authority level, and at the tax inspection level. We rebuild client customs files when they come to us with reconciliation gaps, but the rebuild is expensive and slow; getting the discipline right at the start is materially cheaper. Practice may vary by authority and year on inspection intensity, but the Customs Authority's IT integration with zone operators has tightened the audit trail since 2020, and discrepancies that would have closed quietly five years ago now generate formal queries.
Banking, Currency, and Repatriation
FTZ companies open Turkish bank accounts in their own registered name once the activity licence is issued and the entity is registered. Multi-currency accounts (TRY, USD, EUR, sometimes CHF or GBP depending on the bank) are standard for FTZ tenants, and several Turkish banks operate dedicated zone-tenant onboarding teams. Foreign-currency invoicing is unrestricted inside the zone, and the contracting-currency limitations introduced in 2018 for mainland Turkey under the September 2018 amendments to the Capital Movements Circular do not apply to FTZ-zone contracting.
Profit repatriation to the foreign parent runs without prior authorisation. Where the structure is a Turkish subsidiary (joint stock or limited liability), the standard 15% dividend withholding tax under Article 30 of the Corporate Tax Law applies on declared dividends, raised from 10% to 15% by the Presidential Decree of 21 December 2024, and reduced under applicable double taxation treaties to 5% or 10% for qualifying parents. Where the structure is a branch, the after-tax profit transfer to the foreign parent is treated as a deemed dividend distribution under Article 30 with the same 15% baseline and the same treaty relief access. Treaty relief requires a tax residency certificate (mukimlik belgesi) from the parent's home jurisdiction, filed before the withholding moment to avoid the post-event refund procedure.
Capital repatriation on exit follows the foreign-currency acquisition document (DAB) trail. The DAB issued at the original capital inflow is the legal basis for repatriating an amount equivalent to the original foreign-currency capital free of repatriation restrictions. Profits beyond the original capital are repatriable as dividends under the regime above. We coordinate the DAB documentation, the bank, and the E-TUYS reporting at every capital movement so the records reconcile if the zone tenant ever exits or restructures. Practice may vary by authority and year on documentary thresholds for capital movements; bank-level KYC has tightened on cross-border transfers since the MASAK guidance updates.
Reporting, Renewal, and Long-Term Compliance
FTZ activity licences carry semi-annual reporting obligations to the Ministry of Trade's Directorate General for Free Zones. The reports cover production volumes, sales by destination (the destination split now matters for the corporate tax exemption), employment figures, and foreign-currency movements. Annual financial statements are filed with the Trade Registry and with the tax authorities under standard rules. The zone operator separately reports tenant activity to the Directorate General, and the two reports are cross-referenced.
Activity licence renewals are governed by Article 5 of Law No. 3218 and the implementing regulation. The renewal process examines the licence-holder's compliance history, the projected activity for the renewal term, and the lease continuity with the zone operator. We start renewal preparation 12 months before expiration on every active client file, because the renewal application requires updated documentation that is most efficient to compile during the current term, and a gap between licence terms triggers an operational suspension that can break export commitments.
Significant regulatory changes — the 2024 reform to provisional Article 3, the 2026 broadening of the exempt scope, periodic adjustments to the FOB and CIF fees, sector-specific regulatory developments — require annual review of the company's tax model and operating procedures. Turkish lawyers who maintain FTZ portfolios run a quarterly regulatory tracker on Ministry of Trade and Revenue Administration communiqués, with material changes pushed to client memos within five business days of publication. The zone-tenant population is technically sophisticated and watches the regulatory pipeline carefully; firms that wait for client questions before flagging changes lose those clients to firms that do not.
Frequently Asked Questions
- Are Turkish free trade zones outside the customs territory? They are inside the Turkish customs territory geographically but treated as outside it for customs duties, trade-policy measures, and foreign-exchange rules under Article 1 of Law No. 3218.
- Can a foreign company own 100% of a Turkish FTZ company? Yes. The Foreign Direct Investment Law (Law No. 4875) applies, and there is no Turkish-partner requirement for ordinary FTZ activities. Sector-specific exceptions exist for regulated industries.
- Is the corporate tax exemption still 100%? No. Following Law No. 7524, with effect from 1 January 2025 the exemption applies only to income from sales of zone-manufactured products to buyers abroad. A 2026 amendment extended this to intra-zone sales and sales to other Turkish free zones. Sales to Turkish mainland buyers are taxed at the standard rate.
- What is the wage income tax exemption? Income tax computed on production employees' wages is reflected on the monthly muhtasar declaration as accrued and then terminated without payment, conditional on at least 85% of the zone-manufactured FOB value being exported abroad.
- Are FTZ activities exempt from VAT? VAT under Law No. 3065 is not triggered on goods inside the zone or on goods leaving the zone for export, because the zone is treated as outside the customs territory. VAT does apply when goods leave the zone for the Turkish mainland.
- What stamp duty applies inside the zone? Documents and operations connected to FTZ activities are exempt from stamp duty under Law No. 488. The standard 0.948% rate does not apply to in-zone contracting.
- What are the FTZ entry and exit fees? 0.1% on the CIF value of goods entering from abroad, and 0.9% on the FOB value of goods exiting to the Turkish mainland, paid in advance to the Central Bank special account under Article 7 of Law No. 3218. No fee on goods exiting to abroad.
- How long is the activity licence valid? Up to 30 years, with the actual term specified in the licence itself. Production licences typically receive longer terms than purchase-sale licences.
- How long is the lease with the zone operator? Up to 49 years for investor-tenants who construct their own buildings; shorter terms apply to leases of prebuilt facilities. Lease term and licence term run in parallel but are not the same.
- Can FTZ companies hire foreign employees? Yes, through work permit applications under Law No. 6735. FTZ-specific implementing regulations provide some easings to the standard five-Turkish-employee threshold. The current rules require specialist review at application time.
- Does the foreign-exchange regime apply inside the zone? No. Decree No. 32 contracting-currency restrictions and the Capital Movements Circular do not apply to in-zone transactions. Foreign-currency invoicing and contracting are unrestricted.
- What dividend withholding applies to FTZ subsidiaries? 15% under Article 30 of the Corporate Tax Law, raised from 10% by Presidential Decree of 21 December 2024, reducible under double taxation treaties to 5% or 10% for qualifying parents.
- Can goods be moved between Turkish free zones? Yes, under a transit-style procedure, with no customs duty event and no FOB exit fee. Following the 2026 reform, intra-zone sales and sales to other free zones also fall within the corporate tax exemption.
- What happens to corporate tax exemption if I miss the export ratio for the wage exemption? The two exemptions are separate. The wage exemption requires the 85% FOB export ratio; missing it triggers retrospective collection of the terminated wage tax with interest. The corporate tax exemption, post-2025, depends on each sale's destination, not on a global ratio.
- Where does ER&GUN&ER Law Firm support FTZ matters? Pre-application structuring, activity licence application, lease negotiation with the zone operator, post-formation tax modelling under the post-2024 reform, employment and work permits, customs and reporting compliance, and disputes before the Ministry of Trade, the Customs Authority, and the Revenue Administration.
Author: Mirkan Topcu is an attorney registered with the Istanbul Bar Association (Istanbul 1st Bar), Bar Registration No: 67874. His practice focuses on cross-border and high-stakes matters where evidence discipline, procedural accuracy, and risk control are decisive.
He advises foreign companies, founders, and investors across Free Trade Zone Setup, Foreign Direct Investment, Company Formation, Corporate and Commercial Law, Tax Law, Customs and Trade, Employment Law, and cross-border documentation matters where procedural accuracy and evidence discipline are decisive.
Education: Istanbul University Faculty of Law (2018); Galatasaray University, LL.M. (2022). LinkedIn: Profile. Istanbul Bar Association: Official website.