The Investment Incentive System in Turkey

The investment incentive scheme is continuously being amended to encourage investments in manufacturing and services, the energy sector and exports. Local and foreign investors have equal access to:

A. The general investment incentive regime
B. Incentives for large-scale investments
C. Region and sector-based incentives
D. R&D support
E. Support for SMEs
F. Industrial Thesis (SANTEZ) program
G. Loans for technology development projects
H. Training support
I. State aid for exports

A. General investment incentive regime

The general investment incentive regime is mainly a tax benefit program, in some cases with credit possibilities. The implementation of the Turkish incentive regime varies depending on the location, scale and subject of investments.

The major incentive instruments are:

1) Exemption from customs duties: Customs tax exemption for imported machinery and equipment for projects with an incentive certificate
2) VAT exemption: VAT exemption for locally purchased or imported machinery and equipment for projects with an incentive certificate

B. Incentives for large-scale investments

1) Corporate tax rates between 2-10 percent for investments started before 31.12.2011
2) Social security premium contribution for employers for up to 7 years for investments started before 31.12.2011
3) Allocation of state land

Chemicals:
•    Investments totaling a minimum of TRY 1 billion in raw chemical materials production.
•    Investments totaling a minimum of TRY 300 million in other chemical production.
Oil industry:
•    Investments totaling a minimum of TRY 1 billion.
Transit pipeline services:
•    Investments totaling a minimum of TRY 50 million.
Automotive:
•    Investments totaling a minimum of TRY 250 million.
Railways:
•    Investments totaling a minimum of TRY 50 million.
Ports:
•    Investments totaling a minimum of TRY 250 million.
Electronics:
•    Investments in LCD/plasma screen manufacturing totaling a minimum of TRY 1 billion.
•    Investments in modular panel manufacturing totaling a minimum of TRY 150 million.
•    Investments in Laser TV, 3D TV and OLED TV and other electronics sector investments, including information and communication technologies, totaling a minimum of TRY 50 million.
Medical and optical devices:
•    Investments totaling a minimum of TRY 50 million.
Pharmaceuticals:
•    Investments totaling a minimum of TRY 100 million.
Aviation industry:
•    Investments totaling a minimum of TRY 50 million.
Machinery:
•    Investments totaling a minimum of TRY 50 million.
Mining:
•    Investments in ore processing facilities and integrated metal (only IV/c group metals defined in Mining Law No. 3213) production mills totaling a minimum of TRY 50 million.

REDUCED CORPORATE TAX (%)

*Reduced corporate tax shall be applied until the reduced tax amount reaches contribution-to-investment rates.

SOCIAL SECURITY PREMIUM CONTRIBUTION FOR EMPLOYERS*



However the social security contribution on the employees' share offered by the government cannot exceed:

C. Region and sector-based incentives

1) Corporate tax rates between 2-10 percent for investments started before 31.12.2011
2) Social security premium contribution for employers paid for up to 7 years for investments started before 31.12.2011
3) Allocation of state land
4) Interest support (Zones 3 and 4)

Zone 1: Investments that generally require the use of advanced technology, such as the automotive and supply industry, electronics, pharmaceuticals, machinery, medical and optical devices will be covered by incentives.

Zone 2: Technology-intensive sectors will be generally supported. In this framework, machinery, smart multi-functional textiles, non-metal mineral products, paper, and food & beverage investments will be incentivized.

Zone 3 and Zone 4: Investments in agriculture, agriculture-based manufacturing industry, ready-to-wear clothing, plastics, rubber, metal goods, tourism, health and education will be covered by incentives.

Some additional sectors will be incentivized regardless of location:

1. The investment types, which are covered by Specialized Organized Industrial Zones established by the Ministry of Industry and Commerce may benefit from regional incentives (except for the zones in Istanbul) even if they are not among the selected sectors operating in the region.

2. Investments related to the transportation of cargo and/or passengers by sea may benefit from the incentives applied in Zone 2, whereas investments related to cargo and/or passenger transportation by air can benefit from the incentives available in Zone 1. Meanwhile, no incentive is provided to air taxi operations.

3. Railway investments by the private sector for inter-city cargo and/or passenger transportation, as well as railway investments for local cargo transportation are subject to incentives in all regions. In cases where transportation activities are available in more than one region, the expenditure related to the procurement of carriers is covered within the scope of the incentives granted to the region with the lowest development level.

4. Housing heating/cooling investments, achieved through geothermal energy and/or power plant waste energy, may benefit from regional incentives.

REDUCED CORPORATE TAX (%)

*Reduced corporate tax shall be applied until the reduced tax amount reaches contribution-to-investment rates.

SOCIAL SECURITY PREMIUM CONTRIBUTION FOR EMPLOYERS*

However the social security contribution on the employees' share offered by the government cannot exceed:

INTEREST SUPPORT* (POINTS)

D.R&D support

1) R&D Law

The R&D Law provides special incentives for R&D investment projects in Turkey if a minimum of 50 personnel are employed in an R&D center. The incentives within the new law will remain in effect until 2024 and include:

•    100 percent deduction of R&D expenditure from the tax base if the number of researchers exceeds 500, then in addition to the 100 percent deduction, half of the R&D expenditure increase incurred in the operational year compared to the previous year will also be deducted.
•    Income withholding tax exemption for employees (this item will be effective until December 31, 2023.)
•    50 percent of social security premium exemption for employers for a period of 5 years
•    Stamp duty exemption for applicable documents
•    Techno-initiative capital for new scientists up to TRY 100,000
•    Deduction from the tax base of certain funds granted by public bodies and international organizations

2) Support for Technology Development Zones

The advantages in Technology Development Zones are:

•    Offices ready to rent, and infrastructure facilities provided.
•    Profits derived from software development and R&D activities are exempt from income and corporate taxes until 31.12.2023.
•    Deliveries of application software produced exclusively in TDZs are exempt from VAT until 31.12.2023.
•    Wages of researchers along with software and R&D personnel employed in the zone are exempt from personal income tax until 31.12.2023.
•    50 percent of the employer’s share of the social security premium will be paid by the government for 5 years until 31.12.2024.

3) TUBITAK (Scientific and Technological Research Council of Turkey) and TTGV (Turkish Technology Development Foundation) both compensate or grant R&D related expenses and capital loans for R&D projects.

Projects eligible for TUBITAK incentives:

•    Concept development
•    Technological research & technical feasibility research
•    Laboratory studies in the translation of a concept into a design
•    Design and sketching studies
•    Prototype production
•    Construction of pilot facilities
•    Test production
•    Patent and license studies
•    Activities concerning the removal of post-sale problems arising from product design

E. Support for SMEs

SMEs are defined as companies employing less than 250 employees and earning less than TRY 25 million in revenue or turnover per year.

Incentives granted to SMEs include:

1. Exemption from customs duties
2. VAT exemption for imported and domestically purchased machinery and equipment
3. Credit allocation from the budget
4. Credit guarantee support

In order to meet financial needs of SMEs, a TRY 1 billion fund was transferred to the Credit Guarantee Fund (KGF) by the Treasury to create credit capacity worth TRY 10 billion.  The guarantee limit is TRY 1,000,000 per SME and TRY 1,500,000 for the risk group that the SME related to. KGF covers up to 80 percent of the loan.

5. KOSGEB support to SMEs (www.kosgeb.gov.tr)

The Small and Medium Sized Industry Development Organization (KOSGEB) makes significant contributions to strengthening SMEs by various support instruments in financing, R&D, common facilities, market research, investment site, marketing, export and training.

F. Industrial Thesis (SANTEZ) program

Direct financial support for new technology adaptation, process development, quality improvement and environmental modification projects to be achieved via university partnerships:

•    Up to 75 percent of the project budget could be supported by direct grants
•    Project term is 3 years, with a possible extension of 6 months
•    Laboratory analysis and test materials and equipment are supported
•    The application file could be approved within 4 months, and the project supervision committee is independent

G. Loans for technology development projects

The Technology Development Foundation of Turkey (TTGV) offers long term interest-free loans for technology development, renewable energy production, energy efficiency improvement and environmental impact-reduction projects.

Exemplary support for environmental projects:

•    The maximum contribution rate is 50 percent per project
•    Maximum budget of USD 1 million per project
•    The pay-back term is 4 years in total after project execution, including a one-year grace period

H.Training support

ISKUR, the National Recruitment Agency, may support vocational training projects for a maximum period of 6 months.

•    Direct salary support for interns, and unemployed candidates that are registered at ISKUR, (partial wage=TRY 15/day) during the pre-employment training session
•    Social security premium expenses (Occupational accidents and occupational diseases) are covered by ISKUR.
•    Program expenses such as the trainer's fee, energy and water bills are partially paid to the employer by ISKUR. The total amount is calculated by the cost per trainee and the employer must bill ISKUR for the services given.
•    ISKUR considers the employer (company) the legal party in this training program.
•    A certain number (percentage) of trainees must be employed after the program.

The Ministry of National Education cooperates for:

•    Vocational schools with the desired programs could be opened according to the decision of the Ministry.
•    The general cost of a trainee team for the adaptation of every requested program on a present vocational high school could be supported by the Ministry.

I. State aid for export

The main aims of this scheme are to encourage exports and to increase the competitiveness of companies in international markets. This specific package mainly covers R&D activities, market research, participation in exhibitions and international fairs, and expenditure for patents, trademarks and industrial design.

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