Turkey: Recent Changes In State Aid Regulations

In light of its recently revised state aid regulations, it seems that Turkey is aiming to increase the appetite of foreign investors, who have become more cautious about investing in the country on account of the lacklustre global economy. The Turkish Prime Minister announced the new state aid package on 2 April 2015; the regulations entered into force on 8 April 2015. These new measures increase the support provided for investments, in particular to those that are made during the course of the current year (2015).

The basic tools for this increased support consist of (i) governmental support for Social Security Premium payments for an extended term; (ii) increased support for corporate and income tax reductions to be applied on investment expenses, and (iii) exemption from having to make payments to the Resource Utilization Support Fund (i.e. the KKDF tax – Kaynak Kullanımı Destekleme Fonu), which is a de facto 6% tax applied on the import of certain investment goods and intermediate goods.

The Turkish government continues to underline that the country will keep on providing new ways to support both local and foreign investors as a means of boosting the market and decreasing the Turkey's dependence on imported goods.

Overview of Turkish state aid

Following changes in the monitoring of its state incentives in 2010, Turkey changed its state aid system in 2012 as a part of its adaptation process to the EU acquis and with the aim of bringing more transparency to the state aid process.

As per the current system, Turkey is divided into six investment regions, which ranked according to the provinces' socio-economic development. A map depicting the investment regions is available here. There are four types of state aid schemes made available for both domestic and foreign investors; namely -- and in an increasing order -- (i) general, (ii) regional, (iii) large-scale, and (iv) strategic investment schemes.

  • The general investment scheme is based on simple investment threshold criteria; ie. Investments must exceed TL 1 million (ca. EUR 341,000) for Regions 1 and 2, while and TL 500,000 (ca. EUR 170,000) suffices to benefit from this scheme in the other regions.
  • The regional investment scheme is essentially based on the regional classification (see link above). The minimum fixed investment amount is defined separately for each sector and city.
  • The large-scale investment scheme encompasses investments ranging from TL 50 million (ca. EUR 17 million) to TL 1 billion (ca. EUR 341 million) in certain sectors, including the automotive and refined petroleum sectors.
  • The strategic investment scheme supports those investments that are envisaged to reduce Turkey's dependency on imported products (e.g products for which the overall import volume exceeded USD 50 million in the preceding year).

Investment support instruments

Depending on which investment scheme the investor qualifies for, the system supports the investors mainly through the following instruments:

VAT Exemption is available for imported and/or domestically-delivered machinery and equipment within the scope of the investment incentive certificate.

Customs Duty Exemption is available for imported machinery and equipment within the scope of the investment incentive certificate.

Tax Reduction is available on income or corporate tax (20%), which are calculated over the reduced rates (e.g from 14% for Region 1 to 2% for Region 6) subject to the criteria listed in the respective legislation. The support is provided both during the investment and operation periods.

Social Security Premium Support is made available for additional jobs created by the investment. Essentially, the government covers part of the employer's or the employee's (the latter only available for investments made within Region 6) social security premium share liabilities. The liability taken over by the government is calculated through the legal minimum wage up to a ceiling amount. (e.g the term of Employer's social security premium support for Region 6 is 10 years for the investments initiated by 31 December 2015)

Income Tax Withholding Allowance provides that the income tax with regard to additional jobs created by the investment, within the scope of the investment incentive certificate, is not subject to withholding taxes.

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.

Land Allocation provided for investments with an investment incentive certificate in accordance with the rules and principles set by the Ministry of Finance, depending on the availability of such land.

VAT Refund is made available on the VAT collected on construction expenses made within the scope of strategic investments with a minimum fixed investment amount of TL 500 million  (ca EUR 170 million).

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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