US citizens and green card holders: what Turkey's 20-year tax regime does and doesn't do for you

The United States taxes its citizens and green card holders on worldwide income, wherever they live. Turkey's Law No. 7582 exempts foreign income from Turkish tax — but it cannot exempt anything from US tax. For an American, the regime changes the Turkish side of the equation only. Here is what that means in practice and where a US tax advisor is essential.

Citizenship-based taxation

Almost every country taxes by residence. The US taxes by citizenship (and lawful permanent residence). A US citizen living in Istanbul files a US return every year and reports worldwide income, just as if they lived in Ohio. Moving to Turkey and obtaining the 20-year exemption does not end that obligation.

Reporting continues too: FBAR for foreign financial accounts above an aggregate $10,000, FATCA Form 8938 above its thresholds, and information returns for interests in foreign companies and funds. Non-US mutual funds and ETFs are usually PFICs, with punitive US treatment; a foreign company you control may be a CFC whose income is taxed in the US.

Why the Turkish exemption can even work against you

Americans abroad normally avoid double tax through credits for foreign tax paid. If Turkey charges no tax on your foreign income, there is no Turkish tax to credit, and the US tax on that income is simply paid in full. In other words, for foreign-source investment income the Turkish exemption usually saves an American nothing compared with, say, living in a no-tax country — the US tax remains.

Where Turkey still taxes you — on Turkish-source income at 15–40% — that Turkish tax can generally be credited against US tax on the same income.

The tools that reduce US tax for Americans abroad

Foreign earned income exclusion (FEIE)

For tax year 2026, the maximum exclusion is $132,900 per qualifying person (up from $130,000 in 2025), under IRS Revenue Procedure 2025-32. A couple who both qualify can exclude up to $265,800. There is also a foreign housing exclusion or deduction above a base amount (16% of the FEIE, $21,264 for 2026), capped at 30% of the FEIE in most locations, with higher caps for listed high-cost cities.

• It covers earned income only — salary, self-employment income. Not dividends, interest, capital gains, rent or pensions.
• You need a foreign tax home and either the bona fide residence test or the physical presence test (330 full days abroad in any 12-month period).
• Claimed on Form 2555. It reduces income tax but not US self-employment tax (that depends on the social security agreement position).

Foreign tax credit (FTC)

Foreign income tax paid can be credited against US tax on the same foreign income (Form 1116), within limits by category of income. In a high-tax country the FTC often wipes out US tax. In Turkey, under the 20-year regime, it only helps for income Turkey actually taxes.

The US–Turkey tax treaty

There is an income tax treaty between the US and Turkey, signed in Washington on 28 March 1996 together with a protocol and listed by the IRS among current treaties. It sets maximum withholding rates between the two countries (for example, dividends generally up to 20%, or 15% for corporate holdings of at least 10%; interest generally 15%, 10% for loans from financial institutions) and contains a residence tie-breaker. Like all US treaties it has a saving clause: the US keeps the right to tax its own citizens as if the treaty did not exist, with limited exceptions. The treaty does not make a US citizen's income US-tax-free.

Where Turkey can still help an American

• Earned income covered by the FEIE and not taxed in Turkey (because it is foreign-source) can end up lightly taxed overall.
• Inheritance and gift tax at 1% on the Turkish side, instead of the progressive scale — but US estate and gift tax still applies to US citizens worldwide.
• Quality of life and cost: the decision may simply be about where to live.
• Turkish citizenship as a second passport, for those eligible ($400,000 route). Turkey allows dual citizenship; becoming Turkish does not by itself affect US citizenship or US tax.

Green card holders

A green card holder is taxed like a citizen while the status lasts, even when living abroad. Living in Turkey for long periods can put the green card at risk on immigration grounds. Under some treaties a green card holder resident abroad can elect treaty residence in the other country, but that election can have consequences under the expatriation rules below. Get advice before filing that position.

Expatriation and the exit tax

The only way to end US worldwide taxation is to renounce citizenship or formally abandon long-term green card status (held in at least 8 of the last 15 years). Doing so can trigger the expatriation tax under section 877A if you are a covered expatriate, which broadly means any one of:

• net worth of $2 million or more on the expatriation date;
• average annual net US income tax over the previous five years above an inflation-adjusted threshold (around $200,000 in recent years); or
• failure to certify five years of US tax compliance on Form 8854.

A covered expatriate is treated as having sold worldwide assets the day before expatriation, with gains above an inflation-adjusted exclusion taxed; deferred compensation and some trusts have their own rules, and US recipients of later gifts or bequests from a covered expatriate can be taxed. Renunciation is irreversible and has non-tax consequences. It is a decision for a specialist US advisor, not something to plan around a Turkish tax regime.

Still comparing locations? See Turkey vs UAE vs Italy vs Greece and how Turkish tax residency works.

Frequently asked questions

Does Turkey's 20-year exemption stop US tax?

No. The US taxes citizens and green card holders on worldwide income. The exemption removes Turkish tax only, and with no Turkish tax there is nothing to credit against US tax.

What is the FEIE for 2026?

$132,900 per qualifying person (Revenue Procedure 2025-32). It applies to earned income only.

Is there a US–Turkey tax treaty?

Yes, an income tax treaty signed in 1996. It limits withholding between the countries, but its saving clause preserves US taxation of US citizens.

Who is a covered expatriate?

Broadly, someone renouncing US citizenship or long-term green card status who has net worth of $2 million or more, average annual US income tax above an inflation-adjusted threshold, or who cannot certify five years of tax compliance.

This article is general information, not tax, legal or investment advice. Tax consequences depend on your individual circumstances and on the rules of the country where you are currently tax resident. Laws, rates and government programme terms change; figures are current as of the publication date. Take advice from qualified professionals before acting.