President Recep Tayyip Erdoğan’s April pledge to cut corporate tax for manufacturing exporters to 9 percent signalled an aggressive attempt to restore Türkiye’s industrial competitiveness and attract export-oriented foreign investment. Yet the legislation ultimately enacted in June took a different form: qualifying manufacturing and agricultural profits will be taxed at 12.5 percent from 2027, regardless of whether the output is exported. The result is still a substantial reduction from Türkiye’s 25 percent standard corporate tax rate, but international investors must distinguish the initial announcement from the law now in force.
From a 9 Percent Pledge to a 12.5 Percent Law
Speaking on April 24 at the “Türkiye Century: Strong Centre for Investment” programme, Erdoğan said the corporate tax rate would fall to 9 percent for manufacturer-exporters and 14 percent for other exporters. He presented the measure as part of a wider effort to turn Türkiye into a regional base for production, trade, finance and multinational management functions, according to Bloomberg HT.
The original parliamentary proposal reflected those figures. It envisaged a 9 percent rate for profits earned by companies directly exporting goods they manufactured and a 14 percent rate for other export income. It would also have covered certain indirect exports conducted through foreign-trade capital companies or sectoral foreign-trade companies.
The final legislation, however, was broader in sectoral reach and less generous in its headline rate. Law No. 7582, published in the Official Gazette on June 4, introduced a 12.5 percent corporate tax rate for profits derived exclusively from qualifying manufacturing activities by companies holding an Industrial Registry Certificate and actively engaged in production. Qualifying agricultural production receives the same treatment. The new rate applies to income earned in 2027 and subsequent tax periods, according to analyses of the enacted law by KPMG and Dentons.
The distinction matters. As of 2026, the ordinary corporate income tax rate is 25 percent. Export profits can generally receive a five-percentage-point reduction, producing a 20 percent rate, while qualifying manufacturing income has benefited from a more limited reduction. From 2027, eligible manufacturing profits can instead be taxed at 12.5 percent, but the export reduction cannot be added on top. Thus, the effective legislated rate for a qualifying manufacturer-exporter is 12.5 percent, not the 9 percent originally announced.
For investors, this is not merely a correction to a headline. The final design removes the requirement that production be exported to obtain the principal manufacturing benefit. A foreign producer serving both Türkiye’s domestic market and overseas customers may therefore qualify on its manufacturing income, provided its activities and documentation satisfy the statutory conditions.
Why Ankara Is Cutting the Cost of Production
The reform responds to a persistent tension in Türkiye’s economic model. The country possesses a diversified industrial base, extensive supplier networks, a customs union with the European Union and short delivery times to European, Middle Eastern and North African markets. At the same time, high inflation, financing costs and rapidly rising operating expenses have weakened the price advantage that Turkish factories historically offered.
The Türkiye Exporters Assembly, or TİM, reported that merchandise exports reached a record $273.4 billion in 2025, up 4.5 percent. Automotive exports led at $41.5 billion, followed by chemicals at $31.9 billion and electrical and electronics products at $17.7 billion. However, TİM Chairman Mustafa Gültepe said the growth was concentrated in a limited number of industries and that many labour-intensive sectors were losing competitiveness because of high production costs. He warned that customers might tolerate Turkish suppliers being 10 to 15 percent more expensive because of their proximity and flexibility, but not a substantially wider gap, according to TİM’s annual assessment.
Cost pressures remained significant after the tax package was enacted. The Turkish Statistical Institute reported that domestic producer prices were 27.38 percent higher year on year in September 2026, while manufacturing producer prices rose 29.09 percent. Consumer inflation was 29.73 percent in the same month, down from 33.29 percent a year earlier but still high enough to complicate wage negotiations, working-capital planning and long-term supplier contracts.
A lower tax rate cannot eliminate those pressures because corporate tax is charged on profit, not revenue or operating expenditure. A factory struggling with compressed margins, expensive credit or weak capacity utilisation receives less immediate benefit than a profitable producer. Nevertheless, reducing the tax on retained earnings can improve the internal financing available for new machinery, automation, energy efficiency and production expansion. That is particularly relevant in an economy where exporters have repeatedly called for longer-term, lower-cost credit.
A Stronger FDI Proposition, With Important Qualifications
Türkiye attracted $13.1 billion in foreign direct investment in 2025, a 12.2 percent annual increase, according to Central Bank data cited by the Presidential Investment and Finance Office. Manufacturing received approximately $3.02 billion, representing 31 percent of inflows and placing it just behind wholesale and retail trade.
Treasury and Finance Minister Mehmet Şimşek said FDI excluding real estate reached $10.7 billion, its highest level in a decade. The figures suggest that Türkiye was already attracting more productive capital before the lower manufacturing rate became effective. The 2027 tax change strengthens that proposition for greenfield factories, brownfield expansions and acquisitions of existing producers.
The commercial attraction is clearest where Türkiye offers more than a tax saving. Automotive components, machinery, electrical equipment, chemicals, food processing, defence-related supply chains and selected consumer goods can combine domestic demand with access to export markets. Türkiye’s trade with the European Union reached $232.7 billion in 2025, while Turkish exports to the bloc rose to $117 billion, according to the Ministry of Trade.
Investors should nevertheless model the benefit at group level. Türkiye has had a 10 percent domestic minimum corporate tax regime since 2025, calculated before certain exemptions and deductions. It has also implemented the OECD’s Pillar Two framework, including a 15 percent qualified domestic minimum top-up tax for multinational groups with consolidated annual revenue of at least €750 million. PwC’s Türkiye tax summary notes that the global minimum-tax rules can require additional tax where the jurisdictional effective rate falls below 15 percent.
Consequently, a large multinational may not retain the full difference between 12.5 and 15 percent. The Turkish liability could be supplemented by a domestic top-up tax, or the benefit could interact with calculations elsewhere in the group. Smaller international investors below the Pillar Two threshold may experience the headline reduction more directly.
Qualification Depends on Substance and Accounting
The new rate applies to income derived exclusively from manufacturing activities, rather than automatically applying to every profit earned by a company that owns a factory. A business combining production, distribution, imported-product resale, licensing, property income and after-sales services will need to identify the portion of profit attributable to each activity.
Eligibility also depends on holding an Industrial Registry Certificate and actually conducting manufacturing. Contract manufacturing, toll production, partially outsourced operations and mixed production-distribution structures therefore require careful analysis. A company cannot assume that incorporation with a manufacturing activity code is sufficient.
This creates practical questions for foreign investors at the market-entry and company-incorporation stages. A group must decide whether to establish a wholly owned Turkish subsidiary, acquire an existing licensed producer, operate through a branch, form a joint venture or separate manufacturing from distribution. The answer can affect tax residency, permanent-establishment exposure, transfer pricing, customs treatment and access to incentives.
Legal and tax compliance will require reliable segmental accounting, supportable allocation of common expenses and documentation connecting revenue to qualifying production. Related-party purchases and sales must also follow arm’s-length principles. For an export platform, customs declarations, invoices, certificates of origin and foreign-exchange records must align with the tax treatment.
The reduction should also be assessed alongside Türkiye’s investment-incentive system. The Presidential Investment and Finance Office reported that 432 incentive certificates were issued to international investors in 2025, covering TRY109.5 billion of investment and an expected 16,700 jobs. Available instruments can include VAT and customs-duty exemptions for machinery, social-security support, land allocation, financing support and project-specific packages. Tax reductions under an Investment Incentive Certificate, however, have their own limits and calculation rules, so investors should not add nominal benefits together without modelling their interaction.
Export Tax Relief Meets the Carbon Border
The profitability of manufacturing in Türkiye will increasingly depend on market access and carbon performance as well as tax. The European Union’s Carbon Border Adjustment Mechanism entered its definitive phase on January 1, 2026, initially covering cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.
The Central Bank’s February 2026 Inflation Report calculated that covered products accounted for 10.1 percent of Türkiye’s exports to the EU in the first 11 months of 2025. Its consultations found that some scrap-based steel producers expected to gain an advantage over more carbon-intensive competitors, while manufacturers using non-compliant inputs faced investment costs and possible supplier displacement. Automotive, white-goods, machinery and textile companies could also be affected indirectly through their supply chains.
A lower corporate tax rate may help finance decarbonisation, but it does not replace emissions measurement, verification or capital expenditure. Export-oriented projects must evaluate energy sourcing, embedded emissions and customer reporting requirements before selecting a site or production process. Import-export facilitation increasingly includes carbon and traceability data alongside conventional customs procedures.
Government relations and regulatory liaison also matter because Türkiye is developing its own climate-policy architecture while updating industrial incentives. Investors need to monitor whether future carbon pricing, green-finance programmes or localisation requirements alter the economics of a project after the initial investment decision.
What This Means for Foreign Investors
Türkiye’s enacted reform materially improves the after-tax case for qualifying manufacturing, but investors should base decisions on the 12.5 percent rate written into law, not the earlier 9 percent political announcement. The benefit starts with 2027 income, applies only to properly identified manufacturing or agricultural production profits and may be limited at group level by domestic and global minimum-tax rules.
A sound entry process therefore begins with market-entry analysis covering customers, export destinations, input costs and logistics. Company incorporation and corporate structuring should preserve operational substance while separating qualifying production from non-manufacturing activities where commercially justified. Investment-incentive work should compare regional, sectoral, free-zone and project-based support rather than treating the lower tax rate as a standalone subsidy.
Legal and tax compliance must address the Industrial Registry Certificate, activity-level accounting, transfer pricing and minimum-tax calculations. Government relations can help clarify permits, incentive administration and evolving industrial policy. Expo representation and buyer development may be important where the project depends on building an export pipeline, while import-export support must integrate customs, origin and CBAM requirements. Finally, project management is needed to coordinate the factory site, machinery imports, licences, workforce, suppliers and production launch.
The reform lowers one important cost of investing in Türkiye. Whether it creates a durable competitive advantage will depend on how effectively each investor combines the tax benefit with operational efficiency, regulatory compliance, export access and disciplined on-the-ground execution.