Has Turkey suddenly become an island of stability?

As a result of the war in Iran, planning uncertainty reigns worldwide. Many countries fear prolonged inflation and resource shortages. While the Gulf countries are fighting for their image as “safe havens,” Turkey is going on the offensive: with major tax cuts and economic incentives, Ankara wants to attract foreign investors and capital to the country.

The corresponding package of laws was announced by President Recep Tayyip Erdogan at the end of April. It was sent to parliament in early May and adopted by the relevant committee. The goal is to make Turkey more internationally competitive and position itself as an attractive location for foreign capital and qualified labor.

The law is aimed at individuals and companies that have not been registered as taxpayers in Turkey in the last three years, and it provides them with significant benefits. Anyone who registers their assets from abroad – foreign currency, gold or securities – in Turkey by July 31, 2027, will receive a twenty-year exemption from income tax on income earned abroad.

In addition, for this group, the tax rate on inheritances and gifts drops to just one percent. Currently, these rates for inheritances – depending on the amount – range between one and ten percent, and for gifts between ten and 30 percent.

Previously undeclared domestic assets can also be declared without penalty under certain conditions, for example if they are invested in domestic government bonds or similar instruments for a certain period.

Radical reduction of corporate tax for exporters

The foreign trade sector should also receive a boost. It recorded a 6,4 percent decline in March. That's why the government now wants to reduce corporate income tax for domestic companies. For exporters of goods, the tax rate is dropping from 25 to nine percent, and for other exporters to 14 percent.

In addition, the government wants to develop Istanbul's financial center into an internationally competitive hub along the lines of Singapore or Hong Kong. Companies headquartered in the Turkish metropolis will receive a complete tax exemption on profits made from international trade. Global corporations that move their regional headquarters there should also be tax-free for the next 20 years.

Reducing bureaucracy for investors

To make investment more attractive, the government wants to significantly reduce bureaucracy. Coordination will be directly taken over by the presidential office. A single digital site is planned that will handle all processes in a unified and accelerated manner – from company formation, through work and residence permits, to environmental checks.

Presenting the package of laws, Erdogan said that Turkey is no longer just a bridge between East and West or North and South. The country, he said, is an indispensable hub for energy and trade corridors in the region. Ankara has successfully weathered the crises of recent years, making Turkey today an “island of stability.” “Turkey is well on its way to becoming one of the new centers of power in a changing, multipolar world,” Erdogan added.

Despite the ambitious plans, tax experts like Emre Şirin are skeptical. “It’s just an attempt to get fresh money. There’s no more money or resources to exhaust,” says the independent Istanbul-based economist and real estate expert. In his view, the government is using every means at its disposal to attract capital.

Tax exemptions for foreign companies and long-term exemptions from taxes on imported capital are the last desperate measures. "So that the ship doesn't run aground," says Širin. According to him, foreign direct investment is almost non-existent in the country, while domestic companies are either going bankrupt or leaving the country.

Another complaint from observers is that the measures, both for domestic and foreign assets, only provide limited checks on the origin of capital. Critics say this opens the door to criminal money flows. Finance Minister Mehmet Simsek rejects these claims and points to previous successes of similar programs.

The AKP government has already introduced similar measures seven times. The first such program was implemented in 2008, and then, according to the authorities, assets worth $31 billion were re-declared. This brought Turkish citizens' capital back from abroad and strengthened the market, Finance Minister Simsek claims.

Can Istanbul become an alternative to the Gulf?

Uncertainty in the region caused by the war in Iran has raised hopes in Turkey for additional investment, especially as a possible alternative to the Persian Gulf. However, economist Sinan Alçin, founder of 4ware Research and president of the Ekonomi Istanbul platform, believes this is unlikely.

To attract large foreign direct investment, Turkey must strengthen trust in the rule of law and make progress in areas such as media freedom, he told DW in an April interview. Many analysts share this view and do not see the planned measures as a sustainable solution, but believe that deeper structural reforms are needed.

Turkey has been in economic crisis for six years. Erdogan's low-interest-rate policies plunged the country into recession in 2019, and it has been experiencing double-digit inflation rates ever since. Last month, inflation was 32,4 percent, while in May 2024 it temporarily exceeded 75 percent.

Meanwhile, independent economists are skeptical of these official figures from the Turkish Statistical Institute. The research group ENAG estimates that the inflation rate recently exceeded 55 percent. Over the weekend, the Turkish president issued a decree dismissing the head of the national statistical institute. The independence of the Turkish central bank has also been the subject of international debate for years.