Can Istanbul rival Dubai? Turkey looks to woo investors as Iran war reshapes region

Turkey is actively pitching Istanbul as an alternative to Gulf financial hubs after the war involving Iran raised fresh concerns about the security of international capital in the United Arab Emirates. A senior Turkish official told international investors Ankara plans to extend tax incentives and other support to multinational companies similar to those already available at the Istanbul Financial Centre (IFC), and warned 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.”

“This should be interpreted, in a sense, as a demonstration of confidence in the Turkish economy, despite its vulnerabilities,” said Ceren Kenar, an expert on Turkey, after a World Economic Forum meeting in Istanbul that drew 40 global CEOs and was hosted by President Recep Tayyip Erdogan.

Context and incentives on offer

The IFC already offers a range of tax breaks intended to attract banks, multinational companies and financial service providers. Key measures include:

• Income derived from exported financial services is fully deductible from corporate income tax, while related transactions are exempt from associated charges.
• Payroll tax incentives for internationally experienced personnel: 60% or 80% of real net monthly wages are exempt from income tax, depending on years of overseas experience.
• Bloomberg has reported the government is preparing to extend some of these tax incentives more broadly to multinational companies, including proposals to allow companies to deduct 50% of income earned from selling or intermediating goods sourced abroad without bringing them into Turkey.

Turkey has been actively courting international investors. Earlier this month Erdogan hosted 40 global CEOs in Istanbul at a meeting organised by the World Economic Forum. Larry Fink, chair of the WEF’s board of trustees and chief executive of BlackRock, was among the organisers. Alois Zwinggi, interim president and chief executive of the WEF, said Turkey “played an increasingly strategic role in trade, investment and production networks.”

Ahmet Ihsan Erdem, chief executive of the Istanbul Financial Centre, told Reuters that the IFC had held meetings with 40 companies from East Asia and the Gulf interested in partially relocating to the IFC or expanding in Turkey because of the Iran war.

Outlook and obstacles

Despite the outreach, analysts and investors caution that Turkey faces hurdles in converting interest into relocations. Inflation is a pressing concern: the article cites expectations that inflation will reach 25% this year, and Turkey is running a widening trade deficit. Investors also point to political and legal risks. One international banker told Middle East Eye bluntly: “No one trusts the Turkish courts.”

Concerns about state intervention were underscored by references to the government’s seizure of Papara, a fintech startup valued at over $1bn, once considered Turkey’s first fintech unicorn. The example fuels unease among foreign investors about the stability of ownership and regulatory treatment.

Introducing a legal framework equivalent to the Dubai International Financial Centre (DIFC) would be controversial. The DIFC operates under its own civil and commercial laws—based on English common law—and includes the independent DIFC Courts. Guven Sak of the Tepav think tank said: “It would be a tough sell for the government. But Ankara can still try to reassure financial companies within the existing legal structure.”