Turkey: Regional Investment Incentives For Energy Sector In Turkey

Last Updated: 6 November 2014
Article by Eren Güler

From residential neighborhoods to commercial enterprises, energy is hugely essential for the completion of day-to-day activities, and is thus a vital component of any economy. In Turkey in particular, the energy sector attracts investment due to its vitality and profitability. The Turkish government expects a 7 percent growth rate in energy demand for each year until 2023.

To increase such demand, the Turkey Ministry of Economy is putting various incentives in place. These incentives are applied according to subsector or place of investment. The Ministry of Economy is focusing on the following subsectors:

  • Electric power production;
  • Natural gas distribution;
  • Procurement of geothermic hot water;
  • House heating by geothermic energy;
  • Steam production; and
  • Transportation by transit natural gas pipeline.

Depending on the subsector, investments in the energy sector are stimulated through a general incentive system, a regional incentive system or privileged investment incentives.

With the regional incentive system, the provinces that comprise Turkey are categorized into six regions, each of which has a distinct incentive provision. Regions are ranked based on the level of economic development of the provinces, with Region 1 being the most advanced and Region 6 being the least developed.

There are three fields of energy investment that can benefit from regional investment incentives:

  • Coal gas (synthesis gas) production: Investment amount should be at least TRY500 for the incentives of Region 6 and TRY50,000 for the incentives of the other regions.
  • Investment in house heating and cooling by geothermic energy or power plant waste heat: No minimum amount is regulated for any Region.
  • Investment in drilling: Investments at the amount of at least TRY5,000 are subject to incentives of Region 2.

Applied Incentives

1. Value Added Tax (VAT)

Machines and equipment that are supplied domestically or from abroad and their accompanying importations and deliveries are excluded from VAT.

2. Customs Tariff

Machines and equipment supplied from abroad are excluded from customs tariff, which must be paid under Importation Regime Decision.

3. Tax Reduction

Energy investors benefit from a reduction of their income and corporate taxes. The incentive is provided until the total reduced tax amount reaches the contribution amount of the total investment amount. The following table provides the numbers according to Region.

Regions

Tax Reduction

Contribution Amount

Region 1

30%

10%

Region 2

40%

15%

Region 3

50%

20%

Region 4

60%

25%

Region 5

70%

30%

Region 6

90%

35%

For instance, a company investing in Region 3 with an total investment amount of TRY10,000 would have a tax reduction of 50 percent. However, the aforementioned reduction would end when total reduced tax amount reaches TRY2,000, which is 20 percent of TRY10,000.

4. Insurance Premium Employer's Share

The amount of insurance premium employer's share would be paid for the employment in addition to the overall employee number stated in Premium and Service Certificate that is submitted to Provincial Directorate of Social Security Institution on a monthly basis. Related to the country's minimum wage, the amount is paid by the Treasury for the term stated below:

Regions

Term (Years)

Region 1

-

Region 2

-

Region 3

3

Region 4

5

Region 5

6

Region 6

7

5. Interest Support

The government provides support for the interest or profit share of the loans, which are used within the scope of the incentive certificate. The value, at the very least, is measured at 70 percent of the investment amount with a one-year term. The numbers are in the following table:

Regions

Domestic Loans

Foreign Currency Loans

Maximum Amount of Incentives

Region 1

-

-

-

Region 2

-

-

-

Region 3

3%

1%

TRY500

Region 4

4%

1%

TRY600

Region 5

5%

2%

TRY700

Region 6

7%

2%

TRY900

6. Assignment of Investment Place

The Turkish government may assign a place to the investors regarding the investments that have incentive certificates. The Turkey Ministry of Finance determines the terms and conditions that govern the assignment of an investment place.

7. Income Tax Withholding

The amount of income tax withholding—which is paid for the employment within the scope of the investment incentive certificate, in correspondence with the minimum wage—is reduced from the tax payments related to the investment. This incentive is effective for 10 years following the start of investment. Only investors in Region 6 can benefit from this incentive.

8. Insurance Premium

The amount of insurance premium employee's share—which is to be paid for the additional employment made within the scope of incented investment, in correspondence with minimum wage—is fulfilled by the government. Only investors in Region 6 can benefit from this incentive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Eren Güler
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