Turkey: What The New Turkish Incentive System Has To Offer Foreign Investors?

Last Updated: 21 June 2017
Article by Şahin Ardiyok and Gediz Çınar

Rules and principles governing foreign investments in Turkey are regulated by Direct Foreign Investment Act no. 4875 (Act). The Act designates the manner in which foreign investment shall be treated. It echoes the fundamental principle of equal treatment. As per article 3, foreign investors and Turkish investors shall be subject to equal treatment unless otherwise stipulated by international conventions or special laws. The aforementioned principle provides that incentives offered for Turkish investors shall be offered equally to foreign investors. Therefore, the below explanations on the Turkish Incentive System (System) shall be considered concerning foreign investments.

1. Objectives of the Incentive System

Incentives have long been utilized in boosting internal initiatives as well as attracting direct foreign investment. Turkey had been offering incentives for a while, when an incentive system was adopted in 2012 with Decree no. 2012/3305 aiming to boost development in line with economic and social components of the country.1 In this regard, the main objectives of the incentive system are to:

  • increase production and employment
  • steer investments to large scale, high tech, R&D projects that will establish international competing power
  • minimize regional development discrepancies
  • reduce dependency on import of intermediate goods that are vital for certain strategic sectors.

The incentive system was organized with a sector specific approach and special attention to export-oriented investments. Ministry of Economy (Ministry) is responsible for the execution of the System.

2. Available incentives

The following incentives are available within the context of the System; VAT exemption, customs duty exemption, tax reduction, social security premium support (for employer's share and employee's share), interest support, land allocation, VAT refund and income tax withholding support. Incentives granted to investors are designated in the Investment Incentive Certificate (IIC), holder of IIC benefits from incentives defined below.

Investors holding the IIC are exempt from VAT for imported or domestically supplied machinery and equipment. Imported machinery and equipment are also exempt from any customs duties. Investments made within the scope of IIC are subject to deducted corporate income tax. Income tax is reduced up to the point where reduced tax amount reaches the amount of contribution to the investment.2 IIC holders are also provided with social security premium support for both the employer's and employee's share. Employer's share of the social security premium corresponding to legal minimum wage is covered by the Ministry for additional employment created by the employer. Similarly, for additional employment created by the employer, employee's share of social security premium corresponding to legal minimum wage is covered by the Ministry.

Another incentive granted within the scope of the System is interest support. It is a financial support provided for loans with a term of at least one year obtained within the scope of IIC. This support can also be reimbursed for a maximum of five years if justified by the Ministry. Investors holding IIC may also be allocated land for the execution of investments. Such allocation, depending on the availability of the land, is made by the Ministry of Finance. Within the context of the System, VAT collected on building and construction for strategic investments with fixed investment amount of TRY 500 million (approximately US$140 million) is refunded. Completion of the entire investment is not a requisite for the refund. Lastly, income tax for additional employment created by the investment will not be subject to withholding taxes under IIC.

At this point it should be reminded that under each system only certain incentives are offered. The table shows incentives that are available under each incentive system.3

3. Incentive systems

The System stipulates four different systems to which it offers different incentives. Investors can apply for one of the systems provided within the System:

  • General Investment Incentives System
  • Large-Scale Investment Incentives System
  • Regional Investment Incentives System
  • Strategic Investment Incentives System.

Turkey is divided into six regions in order to determine region specific incentives.4 The minimum investment amount required for benefiting a certain system is also different in each region.

General Investment Incentives System: All projects meeting the capacity conditions and minimum fixed investment amount requirement, regardless of execution region of the investment, benefit from incentives provided under this system.

Large-Scale Investment Incentives System: 12 specific investment categories determined by the Decree benefit from incentives provided under this system. The objective of designating these categories is to define large-scale investments which will ultimately boost technology and R&D capacity as well as the international competing force of the country. Below are some of the investment categories benefiting from this system:

  • Production of refined petroleum and chemical products
  • Production of railway and tram locomotives and/or tram cars
  • Transit pipeline transportation services.

Incentives provided for these categories are designated to be more advantageous compared to the Regional Investment Incentives System given the scale of these projects.

Regional Investment Incentives System: System is established with a sector specific approach. In doing so, sectors to be supported in each region are determined considering regional potential and economic conditions. Under this system projects according to their region, are required to meet a different amount of minimum investment and benefit from different incentives.

System defines certain investment areas as "priority" and grants these projects incentives provided for Region 5 - regardless of the region of the investment. Investments made for the manufacture of products or parts developed by an R&D project, pharmaceutical investments and defense industry investments with a certain minimum investment amount, and investments made for production of items in high-tech industry segment are some of the priority areas benefiting Region 5 incentives.

Strategic Investment Incentives System: Incentives under this system aims at encouraging production of intermediate goods for which dependency on import is high. Incentives offered under this system are more advantageous compared to those offered under Large-Scale and Regional Investment Incentive Systems in order to stimulate domestic manufacture. Although goods of this nature are not listed, all investments meeting conditions such as minimum investment amount and import dependency rate are supported under this system.

Project Based State Aids in Investments: Apart from the systems mentioned above, project based incentives were introduced in 2016 with Decree no. 2016/9495.5 The decree aims at supporting investments on a project basis. Incentives provided hereunder are broader than incentives offered by the System. Some of the additional incentives offered on a project basis are as follows:

  • personnel
  • capital and energy contribution
  • purchase guarantee
  • infrastructure support.

4. Eligibility and application

Investors should apply for the IIC in order to benefit incentives under a certain system. Application should be made to the Ministry (Directorate General of Implementation of Incentive and Foreign Capital) or local authorities (Chambers of Industry or Development Agents).

Real persons, partnerships, capital stock companies, cooperatives, unions, joint ventures, public institutions and organizations, professional organizations with public institution status, associations and foundations and branches of foreign companies meeting conditions stipulated under each system are eligible for applying. As provided by the Act, foreigners and legal entities established per foreign laws also benefit from incentives granted by the System under the principle of equal treatment.

Footnotes

1. Decree on State Aid in Investments, Official Gazette No. 28328, 19.06.2012.

2. Contribution amount to investment is the amount of tax which is not collected by the Tax Authority from the investor holding IIC.

3. The table can be found on the website of the Investment Support and Promotion Agency of Turkey.

4. The map can be found on the website of Investment Support and Promotion Agency of Turkey.

5. Decree on Granting Project Based State Aids, Official Gazette No.29900, 26.11.2016.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Şahin Ardiyok
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions