Corporate Law Series 4/5: Tax Structures in Textiles — Choosing the Right Structure

Corporate Law Series · 4 of 5

A textile business’s tax position depends on what it does, where and when it invests, its legal form and the conditions of any relief. Manufacturing, exporting and retailing can coexist in one business, but their tax treatment and supporting records may differ.

1. Main tax obligations

Income or corporate tax

A sole proprietor’s business profits generally fall within personal income tax. Companies are generally subject to corporate tax. The Revenue Administration’s 2026 guide states a general corporate tax rate of 25 per cent for taxpayers outside the specified higher-rate categories.

Under the applicable conditions, qualifying export profits benefit from a five-percentage-point reduction in the corporate tax rate; qualifying manufacturing profits have a separate one-point rule. This is not a deduction of five per cent of export revenue or profit from the tax base. The scope, allocation of profits, interaction with other reliefs and any minimum-tax provisions must be considered.

VAT

There is no single rate for everything sold by a textile business. The general rate is 20 per cent, while supplies within List II of the applicable rate decision are subject to 10 per cent. That list includes specified fabrics, clothing, household textiles and textile subcontracting activities. Reduced treatment is not confined to children’s clothing.

Classify the actual product or service and check the current list, exclusions and transaction date. Machinery, accessories, mixed supplies and distinct services should not automatically inherit the rate used for a garment.

Withholding

Payroll, certain rent payments, dividends and other payments may create withholding obligations depending on the parties and the transaction. Foreign ownership does not itself determine one universal withholding rate. Check domestic law, any treaty conditions and the rules applicable when payment is made.

Stamp duty

Stamp duty concerns documents falling within the statutory schedule, subject to its conditions and exemptions. It should not be described as a tax automatically imposed on every invoice or every official document. An export-related exemption also requires checking the relevant document and statutory scope rather than relying on an export label alone.

2. Manufacturing businesses

A manufacturer should assess the planned investment before committing to machinery, premises or financing. Eligibility can depend on activity, investment size, location, the relevant support programme and the application or certificate date.

Investment incentives

The investment-incentive framework was restructured under Decision No. 9903 in 2025 and its implementing rules. A simple comparison of six regions under an older scheme is not a complete current eligibility analysis. New programmes, supported investment topics, exclusions and transitional provisions must be examined.

Depending on the approved project, support can include VAT exemption, customs relief, tax reduction, financing support or social security contribution support. These are conditional benefits, not an automatic package available to every textile factory.

Machinery and VAT

Qualifying machinery and equipment within a valid investment incentive certificate may benefit from the relevant VAT exemption. The equipment list, acquisition date, certificate scope and supplier documentation matter.

Purchasing before obtaining the required certificate can prevent use of that particular exemption. It does not follow that VAT paid on every such purchase can never be deducted or recovered under any other rule. Ordinary input VAT, export refunds and other statutory routes require separate assessment.

Research, development and design

Eligible R&D or design expenditure may qualify for relief under the relevant legislation and programme. Routine seasonal collection development is not automatically eligible merely because the business calls it research. The activity, personnel, documentation and any centre or project approval requirements must be checked.

Employment-related support

Social security support may depend on the certificate, qualifying employment, additional-headcount rules, timely compliance and the period of support. The cost plan should distinguish a potential incentive from a confirmed entitlement.

3. Export businesses

Export VAT exemption and refunds

Qualifying export deliveries can be exempt from VAT with a right to deduct or, where the conditions are met, recover related input VAT. Describing exports as “zero-rated” can explain the commercial effect, but the statutory exemption and refund conditions remain decisive.

Customs exit, invoices, the identity of the customer, relevant input VAT and the refund procedure must be documented. The amount is not automatically every lira of VAT ever paid by the business. Refund limits, time requirements, offsets, security or certification procedures may affect the claim.

Export profits

Keep records that allow the qualifying export profit and associated costs to be identified. The five-point corporate tax reduction applies within its statutory scope and calculation rules. It does not automatically extend to all domestic profits because the company also exports, and different benefits should not be added together without checking their interaction.

Inward processing

The inward-processing framework can permit qualifying imports for production of goods to be exported under a conditional relief mechanism. Authorisation, input-output quantities, export commitments, time limits and discharge of the procedure require close control.

Non-compliance may result in collection of duties and other liabilities under the applicable rules. Temporary admission and inward processing are distinct customs procedures; they should not be treated as interchangeable labels for any raw-material import.

Other export-related relief

Stamp duty or other foreign-exchange-earning-activity relief can be relevant where its conditions are satisfied. Identify the particular document, activity and any required certificate before assuming an exemption.

4. Retail and online sales

A retailer should classify its actual products for VAT rather than applying a blanket 20 per cent rate to adult clothing and ten per cent only to children’s clothing. Selling through a website does not by itself change the underlying product’s domestic VAT classification.

Commercial rent and other business expenses can reduce taxable profit where the legal deductibility and documentation requirements are met. A deduction is not reimbursement of the entire expense and should not be evaluated without the corresponding cash cost.

Cross-border e-commerce can fall within export treatment where the relevant delivery and documentation conditions are met. An overseas delivery address alone is not a substitute for the required customs and tax records.

KOSGEB or other support programmes may be available to eligible businesses. Check the current call, supported activities, applicant status and expenditure rules before including an expected grant in the budget. A retail textile activity does not automatically qualify for every digitalisation or brand programme.

5. Common planning errors

• Confusing a tax-rate reduction with a deduction from revenue or profit.
• Using one VAT rate for all products without checking the statutory lists.
• Failing to keep export, domestic and manufacturing records sufficient for the relevant calculation.
• Assuming that an incentive certificate covers purchases made before approval or equipment outside its scope.
• Treating an export VAT refund as automatic or missing its procedural requirements.
• Choosing a location using an obsolete incentive comparison.
• Using inward processing without monitoring commitments and discharge.
• Assuming that every invoice is subject to stamp duty or every export contract is exempt.

Tax planning must be reviewed as the business changes. A structure suited to domestic retail may require different records and processes when manufacturing, licensing or export activities are added.

6. A practical review sequence

1. Map the actual revenue streams, legal entities, customers and supply chains.
2. Confirm current product and service VAT classifications and withholding obligations.
3. Assess incentives and approval requirements before committing to expenditure.
4. Separate the records needed for export and manufacturing profit calculations.
5. Assign responsibility for VAT refunds, customs commitments and compliance dates.
6. Review the overall position with the accountant, tax adviser and legal adviser before a significant transaction.

Official sources and series navigation

• Revenue Administration: 2026 Corporate Tax Return Guide.
• Revenue Administration: current VAT rate decision and lists.
• Official investment-support legislation portal: Decision No. 9903 and implementing rules.

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General information: This article concerns Turkish law and tax structuring. Rates, eligibility and procedures must be checked for the relevant period and transaction. It does not replace an individual legal and tax review.