Investment Incentives in Turkey

Introduction

 

The new investment incentives regime (“Incentives Program”) was announced by the Turkish government on April 6th, 2012 and it became effective on 15.06.2012 by the Council of Ministers decision numbered 2012/3305 (the “Decree”). However, the new regime is retroactively effective from January 1st, 2012. According to the incentives programme there are four different schemes:

General Investment Incentive Scheme
Regional Investment Incentive Scheme
Large Scale Investment Incentive Scheme
Strategic Investment Incentive Scheme

Below are the support measures to be provided to the concerned investors within the framework of the schemes:

General Investment Incentive Scheme

VAT Exemption
Customs Duty Exemption
Income Tax Exemption

Regional Investment Incentive Scheme

VAT Exemption
Customs Duty Exemption
Tax Reduction
Social Security Premium Support for the Employer’s Share
Income Tax Withholding Support
Social Security Premium Support for the Employee’s Share
Interest Support
Land Allocation

Large Scale Investment Incentive Scheme

VAT Exemption
Customs Duty Exemption
Tax Reduction
Social Security Premium Support for the Employer’s Share
Income Tax Withholding Support
Social Security Premium Support for the Employee’s Share
Land Allocation

Strategic Investment Incentive Scheme

VAT Exemption
Customs Duty Exemption
Tax Reduction
Social Security Premium Support for the Employer’s Share
Income Tax Withholding Support
Social Security Premium Support for the Employee’s Share
Interest Support
Land Allocation
VAT Refund

Investment projects can benefit from the above mentioned incentives programme, provided that the investment project is entitled to receive the incentives and granted an Investment Incentive Certificate. Real persons, ordinary partnerships, stock corporations, cooperatives, joint ventures, public institutions and agencies, public professional organizations, associations and foundations, Turkish branches of foreign based companies can benefit from supports if they meet the all requirements for the concerned scheme.

 

Investment Incentive Schemes

 

General Investment Incentive 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 program 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:

a) Exemption from customs duties:

Customs tax exemption for imported machinery and equipment for projects with an investment incentive certificate.

b) VAT exemption:

VAT exemption for domestically purchased or imported machinery, and equipment for projects with an investment incentive certificate.

 

Regional Investment Scheme

 

Investments which are made under “Regional Investment Scheme” can benefit from more incentives when compared with the general incentive scheme. Decree numbered 2012/3305 determines regions, sectors and minimum investment amount to get benefit from the incentive scheme. Decree supports the sectors for the purposes of increasing employment and economic level of the provinces.

The country is divided into 6 regions in terms of regional investment scheme. The regions can be seen as follows:


The terms and rates of supports provided within the Regional Investment Incentives Scheme are shown in the following table.

 


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

 

Large Scale Investment Incentive Scheme

 

Decree provides incentives for the large scale investments. Decree determines the investment categories and minimum investment amounts to have benefit from the investment scheme.
12 investment subjects are supported by the instruments of the Large-Scale Investment Incentives Scheme. These investment subjects are shown in the below table:

The requirements and rates of supported incentives provided within the Large Scale Investment Scheme are summarized in the following table.

 

Strategic Investment Incentive Scheme

According to the Decree, there are also strategic investment scheme under which there are the incentives provided without taking into account the regions and sectors.

The main objective of this Scheme is related to support to production of intermediate and final products with high import dependency within the concept of reducing current account deficit. Moreover, it also targets encouraging high-tech and high value added investments with a potential of strengthening Turkey’s international competitiveness.

Investments meeting the criteria below are supported within the framework of the Strategic Investment Incentives Scheme:

to be made for the production of intermediate and finished goods with high import dependency
to have a minimum investment amount of TRY 50 million
to be supplied by at least 50% per cent with imports
to create a minimum added-value of 40% (this condition is not applicable to refinery and petrochemicals investments)
to possess an import value of at least USD 50 million during the past one year, for goods to be produced (this condition is not applicable to goods with no domestic production)

The terms and rates of supports provided within the Strategic Investment Incentives Scheme are shown in the following table.