Amendments to Income Tax Law No. 193 introduced a provision on a new tax regime that establishes a specific status of a Turkish tax resident. Such resident’s income tax liability is limited to Türkiye-sourced income; only such income is to be declared.
What's new?
With effect from 1 January 2026, new Turkish tax residents are given a 20-year exemption from Turkish income tax in relation to foreign-sourced incomeArticle 4 of Law No. 7582 introduced Repeating Article 20/D into Income Tax Law No. 193.Application of the exemption is conditional on meeting the following requirements:
- the individual should be deemed resident in Türkiye as of the date of the application for exemption;
- the individual should not have had tax residency or domicile in Türkiye during the previous three calendar years;
- the individual should not have had tax liability in Türkiye during the previous three calendar years;
- the income should be foreign-sourced income; and
- the individual should obtain an Exemption Certificate for Income Derived from Abroad (“Exemption Certificate”).
The 20-year exemption period is calculated individually for each taxpayer from the date on which such taxpayer is recognised as a tax resident of Türkiye.
The exemption does not apply by default from the moment the person is deemed to be a Turkish tax resident: a person must file an application to the tax office and obtain an Exemption Certificate.
Conditions for the application of a 20-year tax exemption
1. The individual should be deemed resident in Türkiye
As of the date of the application for the Exemption Certificate, the individual must be deemed to be a Turkish tax resident.
The Individual is deemed to be a Turkish tax resident where any of the following conditionsArticle 4 of Income Tax Law No. 193 is met:
- the individual has a domicile in Türkiye, which is usually understood to mean a place where the individual resides with the intention of remaining there permanentlyArticle 19 of Turkish Civil Code No. 4721; and
- the individual stays in Türkiye continuously for more than six months within a calendar year on legal grounds. If the specified period of stay extends over two calendar years, it will not qualify for the exemption, while temporary departures do not interrupt the period of stay.
Foreign nationals should hold a residence permit, work permit or another comparable legal status in order to lawfully reside in Türkiye.
2. No tax residency or domicile in Türkiye during the previous three calendar years
The individual must not have had a domicile in or have been a tax resident of Türkiye during the three calendar years preceding the year in which the individual became a Turkish tax resident for the purposes of obtaining the Exemption Certificate.
3. No tax liability in Türkiye during the previous three calendar years
Passive income sourced from Türkiye does not preclude the application of the exemption. Therefore, an individual can have tax liability, among other things, in relation to income from immovable property, income from movable property (e.g. interest and dividends) and capital gains in Türkiye.
Active income sourced from Türkiye usually precludes the application of the exemption. Receiving wages, business profits or self-employment income in Türkiye is in breach of the no tax liability requirement. For example, if a taxpayer is registered in Türkiye as an individual entrepreneur to manage rental activities, his/her income may qualify as active income.
4. The income should be foreign-sourced income
The exemption applies only to income derived outside Türkiye.
Income derived in Türkiye, if any, remains subject to the general income tax and declaration rules. Such income includes, for example, rental income derived from immovable property located in Türkiye, dividends received from a Türkiye-resident company and income derived from self-employment activities carried out in Türkiye.
In order to determine whether income is foreign-sourced, it is necessary to consider where the income arises, the nature of the income, the place where the economic activity is performed, and the residence of the payer. In determining where certain types of income are deemed to have been derived, an assessment under the applicable double tax treaty (“DTT”) may also be required.
5. Obtaining the Exemption Certificate
The application should be filed with the tax office where the individual is registered within the following time limits:
- by the end of the calendar year in which the individual becomes resident in Türkiye; or
- by the end of February of the following calendar year if the individual became a tax resident in November or December.
The tax office will examine the applicant’s tax registration data to verify whether the applicant has the status of a tax resident and whether the conditions for applying the exemption have been met. The certificate is issued just once and does not require further reissuance.
Conclusions for investors
Türkiye’s new tax regime follows the example of a number of European countries. With a relatively high tax burden and participation in the international exchange of information, Türkiye grants tax relief on foreign income to individuals who have not previously had close ties with the country.Foreign-sourced income is exempt from Turkish income tax for a period of 20 years.
Exempt income is not included in the annual tax return, which must be submitted by the end of March of the year following the reporting year.
However, tax withheld at source is not credited against Turkish income tax. It is therefore advisable to assess in advance the jurisdictions of issuers/foreign organisations and the applicable withholding tax rates, including any DTTs in force between those countries and Türkiye. In addition, expenses relating to exempt income do not reduce taxable income derived in Türkiye.
At the same time, it is important to note the risks associated with the described regime, which relate to:
- the interpretation and application of the new rules by the Turkish tax authorities in Türkiye, as well as the possible adoption of clarifying regulations at the level of subordinate legislation;
- how the new scheme will be received in the source countries of income for new tax residents of Türkiye. As we understand it, Turkish tax residents claiming the exemption from tax on foreign income are expected to be issued with a standard tax residency certificate upon request. Therefore, in certain cases, double non-taxation may occur. For example, under the DTT with Russia, income from the sale of shares in Russian organisations whose assets do not consist of immovable property is not taxed in Russia, and in Türkiye such income is also not taxed under the new regime. It cannot therefore be ruled out that source states may require additional confirmation that the individual is not benefiting from the Turkish regime, so as not to create an opportunity for non-taxation of the income received by such individual.
