Can Istanbul rival Dubai? Turkey looks to woo investors as Iran war reshapes region
With the war on Iran exposing global centres of capital in the Gulf to risk, the Turkish government is looking for ways to lure investors and firms based in the United Arab Emirates to Turkey.
A senior Turkish official recently told international investors that Ankara plans to extend tax incentives and other support to multinational companies, similar to those already offered at the Istanbul Financial Centre (IFC), according to sources who spoke to Middle East Eye.
The official said that the possibility of Iran targeting the UAE’s financial centres and international companies in Abu Dhabi and Dubai could encourage some firms to relocate to Turkey.
The Gulf hosts international banks and financial services firms, as well as tech startups, artificial intelligence companies, data centres and manufacturers.
The IFC, a financial district in Istanbul that hosts banks, multinational companies and others, already offers a range of tax breaks: income derived from exported financial services is fully deductible from corporate income tax, while related transactions are exempt from associated charges.
There are also payroll tax incentives for internationally experienced personnel, with 60 percent or 80 percent of real net monthly wages exempt from income tax, depending on the number of years of overseas experience.
Bloomberg has reported that the Turkish government is preparing to extend some of these tax incentives to multinational companies more broadly. Companies could be allowed to deduct 50 percent of income earned from selling or intermediating goods sourced abroad without bringing them into Turkey.
Erdogan and the World Economic Forum
There are some tentative signs that interest in Turkey from foreign corporations may be building.
Earlier this month, Turkish President Recep Tayyip Erdogan hosted 40 global CEOs in Istanbul at a meeting organised by the World Economic Forum (WEF), with participating companies representing billions of dollars in value.
The gathering was notable because Erdogan has not attended the WEF’s Davos summit since 2009, following a public clash with then-Israeli President Shimon Peres over Israel’s killing of Palestinians in Gaza.
Larry Fink, chair of the WEF's board of trustees and chief executive of BlackRock, the world’s largest asset manager, was among the organisers of the Istanbul meeting. Alois Zwinggi, interim president and chief executive of the WEF, said Turkey played an increasingly strategic role in trade, investment and production networks.
Ceren Kenar, an expert on Turkey, said the WEF was also seeking to break the ice between Erdogan and Davos by organising the meeting.
“This should be interpreted, in a sense, as a demonstration of confidence in the Turkish economy, despite its vulnerabilities,” Kenar said. “Beyond this, it is important to understand the significance of the rational and strategic role that Turkey, under the leadership of Erdogan, plays in the global arena.”
Turkey, Kenar said, has "strived to assume the role of an equitable mediator" in a succession of wars over the last 15 years, including in Syria, Ukraine, Nagorno-Karabakh, Palestine and Iran.
"Today, relations with the US are more stable than they have been in a long time, and relations with Europe are being redefined under Trump," she said. "It is impossible to construct an equation in the Middle East that excludes Turkey."
Istanbul Financial Centre chief executive Ahmet Ihsan Erdem, meanwhile, told Reuters earlier this month that the centre had held meetings with 40 companies from East Asia and the Gulf that were interested in partially relocating to the IFC or expanding in Turkey because of the Iran war.
'No one trusts the Turkish courts'
However, interviews with several analysts and investors, who asked not to be named in order to speak freely, suggest Ankara faces significant challenges in persuading UAE-based investors and businesses to move to Turkey.
There is Turkey’s sticky inflation, which is expected to reach 25 percent this year, and a widening trade deficit. But investors point to other concerns, including the government’s willingness to seize fintech firms and corporations with foreign investors, as it did with Papara, a startup valued at over $1bn, making it the country's first fintech unicorn firm.
A more fundamental issue is concern over the rule of law.
“No one trusts the Turkish courts,” one international banker told Middle East Eye.
'The tide can turn in favour of the IFC only if Turkey’s macroeconomic performance improves'
– Guney Yildiz, Anthesis Group
The Dubai International Financial Centre (DIFC), for example, operates under its own civil and commercial laws, distinct from the broader UAE legal system. Its framework is based on English common law and includes an independent judiciary known as the DIFC Courts.
Introducing a similar arrangement in Turkey could prove deeply controversial, given the republic’s founding aversion to dual legal systems, rooted in the Ottoman Empire’s painful experience with foreign economic privileges known as capitulations.
“It would be a tough sell for the government,” said Guven Sak, a prominent economist associated with the Ankara-based Tepav think tank. “But Ankara can still try to reassure financial companies within the existing legal structure.”
A senior Turkish official, speaking anonymously, said Ankara could still find legal ways to address some of these concerns without creating a free zone with independent courts, particularly if it wants to attract data centres and AI companies.
Sak argued that such zones might be more suitable in Northern Cyprus, where there is a legacy of English common law due to Britain’s past control of the island.
Tax in Turkey and Dubai
Guney Yildiz, senior adviser on geopolitics and strategic insights at Anthesis Group, who recently worked at the Abu Dhabi International Financial Centre (ADGM), said the financial incentives Ankara is offering in Istanbul are real and substantial.
“Banks operating from the IFC campus pay effectively zero corporate tax on financial services exports through 2031,” he said. “On paper, that’s actually better than Dubai, because DIFC and ADGM offer zero tax on most activities but carve out banks and insurers, which pay the standard nine percent.”
Still, Yildiz does not believe Gulf banks are focused primarily on the tax comparison between Istanbul and Dubai or Abu Dhabi.
'Dubai filled the void left by Beirut, which was unable to realise its potential because of civil war'
– Guven Sak, economist
“They are more worried about lira depreciation, inflation risk and Turkey’s relatively low sovereign rating,” he said, adding that the current Turkish economic management team is running a credible programme. “The tide can turn in favour of the IFC only if Turkey’s macroeconomic performance improves.”
Turkish Finance Minister Mehmet Simsek has pursued a more orthodox economic and fiscal programme since 2023, but it has been criticised for failing to bring down inflation to single digits.
Another analyst, also speaking anonymously, said the UAE and Saudi Arabia have deployed massive public spending to build AI and technology infrastructure, while also offering reliable energy supplies as major oil and gas producers, along with strong logistical advantages. Turkey does not offer the same conditions, the analyst said.
“Turkey could be an alternative for some multinationals, but most of them already have operations or subsidiaries there anyway,” he said. “And in areas like energy, AI, and business linked to India and China, there isn’t much overlap.”
Turkish manufacturing
Sak, the Turkish economist, said one area where Ankara has a clear advantage is manufacturing, in which Turkey remains one of the region’s strongest players.
“Dubai filled the void left by Beirut, which was unable to realise its potential because of civil war,” he said. “With the right incentives, we can attract Chinese businesses that are heavily invested in the UAE’s Jebel Ali Free Zone, which sits across from Iran.”
The zone hosts 507 Chinese companies, nearly double the 2021 figure, including 11 Fortune 500 firms operating in sectors such as automotive, logistics and technology. Turkish attempts to extend tax incentives to multinationals could appeal to some of these firms.
But Yildiz, who has provided consultancy services to Gulf investors over the past three months, argued that spreading the same incentive packages across Turkish cities other than Istanbul, with its financial centre, could send the wrong signal to foreign investors and undermine the legal and logistical coherence that financial centres are meant to provide.
“That said, there’s a smarter version of the idea,” he said. “If Turkey positioned secondary cities as specialised back-office or fintech hubs with their own separate incentive schemes, while keeping regulated activity at the IFC, that could actually work.”
Yildiz added that what Turkey can offer, and Dubai cannot, is access to an economy of 85 million people where insurance remains underdeveloped, pension coverage is limited, and wealth management is largely absent outside the top income brackets.
“The non-bank financial sector, everything from insurance to asset management to leasing, accounts for about a tenth of total financial assets,” he said. “In a normal developed economy, that figure is four or five times higher. Turkey’s conversation with the Gulf should be about access to that market, rather than trying to match Dubai on tax rates, which it probably can’t.”
A second European investment consultant said there may be an opportunity to draw some investors away from the Gulf, but only with a clear strategy and strong execution.
“And by putting the house in order in Turkey,” he added, referring to the Turkish government’s campaign to unseat opposition mayors throughout the country, including the arrest of Istanbul mayor Ekrem Imamoglu. “That is unlikely to materialise as long as Erdogan’s personal agenda comes first.”
This article was sourced from Middle East Eye.
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