The new investment incentives scheme is specifically designed to encourage investments with the potential to reduce dependency on the importation of intermediate goods vital to the country’s strategic sectors.
Amongst the primary objectives of the new investment incentives scheme are to; reduce the current account deficit; boost investment support to lesser developed regions; increase the level of support instruments; promote clustering activities, and to support investments that will create the transfer of technology.
In order to further accelerate investment decisions, the new investment incentives system grants more advantageous supports for investments to be initiated by the end of 2013. Spending at least 10 percent of the investment amount will suffice for the investment to be considered as started.
Effective as of January 1, 2012, the new investment incentives system is comprised of four different schemes. Local and foreign investors have equal access to:
1- General Investment Incentives Scheme
2- Regional Investment Incentives Scheme
3- Large-Scale Investment Incentives Scheme
4- Strategic Investment Incentives Scheme
The support instruments to be provided within the framework of various investment incentives schemes are shown in the following table:
*Provided that the investment is made in Region 6.
**Provided that the investment is made in Region 3, 4, 5 or 6 within the framework of the Regional Investment Incentives Scheme.
***For strategic investments with a minimum fixed investment amount of TRY 500 million.
1- General Investment Incentives Scheme
Regardless of the region where investment takes place, all projects meeting both the specific capacity conditions and the minimum fixed investment amount are supported within the framework of the General Investment Incentives Scheme. Some types of investments are excluded from the investment incentives system and would not benefit from this scheme.
The minimum fixed investment amount is TRY 1 million in Region 1 and 2, and TRY 500,000 in Region 3, 4, 5 and 6.
Major investment incentive instruments are:
1) Exemption from customs duties:
Customs tax exemption for imported machinery and equipment for projects with an investment incentive certificate.
2) VAT exemption:
VAT exemption for domestically purchased or imported machinery, and equipment for projects with an investment incentive certificate.
2- Regional Investment Incentives Scheme
The sectors to be supported in each region are determined in accordance with regional potential and the scale of the local economy, while the intensity of supports varies depending on the level of development in the regions.
The minimum fixed investment amount is defined separately for each sector and region with the lowest amount being TRY 1 million in Region 1 and 2, and TRY 500,000 in the remaining regions.
The terms and rates of supports provided within the Regional Investment Incentives Scheme are shown in the following table.
*OIZ: Organized Industrial Zones
The new investment incentives system defines certain investment areas as “priority” and offers them the regional supports extended to Region 5 by the Regional Investment Incentives Scheme regardless of the region of the investment. If priority investments are made in Region 6, the regional incentives available for this particular region shall apply.
Investment areas with specific priorities to be supported by means of Region 5 instruments regardless of the investment’s region are:
- Tourism accommodation investments to be made in the Culture and Tourism Conservation and Development Regions determined by the Council of Ministers
- Mine extraction and/or processing investments
- Railroad and maritime freight or passenger transportation investments
- Specific pharmaceutical, defense, and aerospace industry investments with a minimum fixed investment amount of TRY 20 million
- Test facilities, wind tunnel, and similar investments made for the automotive, aerospace or defense industries
- Preschool, primary, secondary, and high school investments made by the private sector
- International trade fair investments with a minimum indoor area of 50,000 square meters
- Investments made in order to produce products developed by an R&D project that is supported by the Ministry of Science, Industry and Technology, TUBITAK and KOSGEB
- Investments in the motor vehicles main industry amounting to TRY 300 million, engine investments worth a minimum amount of TRY 75 million, and investments for motor engine parts, transmission components/parts and automotive electronics worth a minimum amount of TRY 20 million
- Investments for power generation where metals stated in the 4-b group of the Article 2 of the current Mining Law No. 3213 in scope of a valid mining license and permit issued by the Ministry of Energy and Natural Resources are used as inputs
3- Large-Scale Investment Incentives Scheme
12 investment subjects, which will potentially foster Turkey’s technology, R&D capacity and competitiveness, are supported by the instruments of the Large-Scale Investment Incentives Scheme.
The terms and rates of supports provided within the Large-Scale Investment Incentives Scheme are shown in the following table.
*OIZ: Organized Industrial Zones
The following categories of investment within the Regional and Large-Scale Investment Incentives Schemes can benefit from supports granted to a region rated one grade higher, in terms of tax reduction and social security premium support (employer’s share).
- Investments in Organized Industrial Zones (OIZ)
- Joint investments to be made by at least five companies operating in the same sector with the purpose of greater integration
E.g.: A Region 3-level investment in an OIZ can take advantage of the tax reduction level in Region 4. Similarly, a Region 6-level investment may benefit from an additional 5% contribution to the investment.
4- Strategic Investment Incentives Scheme
Investments meeting the criteria below are supported within the framework of the Strategic Investment Incentives Scheme:
- The domestic production capacity for the product to be manufactured with the investment shall be less than the import of the product
- to have a minimum investment amount of TRY 50 million
- to create a minimum added-value of 40% (this condition is not applicable to refinery and petrochemicals investments)
- The total import value of the product to be manufactured with investment shall be minimum USD 50 million as of the past one year (excluding the products that are not locally produced)
The terms and rates of supports provided within the Strategic Investment Incentives Scheme are shown in the following table.
*5% of the investment amount and maximum TRY 50 million.
Support Instruments
VAT Exemption:
VAT is exempt for imported and/or domestically delivered machinery and equipment within the scope of the investment incentive certificate.
Customs Duty Exemption:
Customs duty is exempt for imported machinery and equipment within the scope of the investment incentive certificate.
Tax Reduction:
The income or corporate tax is calculated on basis of reduced rates until the total amount of reduced tax reaches the amount of contribution to the investment.
The contribution rate to investment refers to the rate of the fixed investment subject to tax reduction.
Social Security Premium Support (Employee’s Share):
For additional employment created by the investment, the employee’s share of the social security premium calculated on basis of the legal minimum wage will be covered by the government. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for Social Security Premium Support and it is applicable for 10 years.
Social Security Premium Support (Employer’s Share):
For additional employment created by the investment, the employer’s share of the social security premium calculated on basis of the legal minimum wage will be covered by the government. A certain portion of total investment amounts are set as upper limits for this support. For Regional Investment Incentives Scheme, ceilings are 10 % for Region 1; 15 % for Region 2; 20 % for Region 3; 25 % for Region 4 and 35 % for Region 5. For Large-Scale Investment Incentives Scheme, ceilings are 3 % for Region 1; 5 % for Region 2; 8 % for Region 3; 10 % for Region 4 and 11 % for Region 5. For Strategic Investment Incentives Scheme, ceilings are 15 % for all regions. There is no upper limit for Region 6.
Income Tax Withholding Allowance:
The income tax in regards to additional employment created by the investment, within the scope of the investment incentive certificate, will not be liable to withholding taxes. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for income tax withholding allowance and it is applicable for 10 years.
Interest Rate Support:
Interest rate support is a financial support instrument provided for investment loans with a term of at least one year obtained within the scope of an investment incentive certificate. A portion of the interest/profit share regarding the loan equivalent, at most 70 percent of the fixed investment amount registered in the investment incentive certificate, will be covered by the government.
Land Allocation:
Land may be allocated for investments, with an investment incentive certificate, in accordance with the rules and principles determined by the Ministry of Finance, depending on the availability of such land.
VAT Refund:
VAT collected on construction expenses, made within the scope of strategic investments with a minimum fixed investment amount of TRY 500 million, will be rebated.
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
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.
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
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
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 20/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.
State aid for exports
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.