Turkey: New Tools To Support Local Production: Project-Based Super Incentives In Turkey

Last Updated: 22 May 2018
Article by Şahin Ardiyok and İlker Kıl

Incentives can be defined as non-market benefits used to influence the behavior of the investors.1 There is a wide variety of incentives ranging from tax exemptions to the freedom from having to comply with related laws and regulations.2 In general  incentives can be categorized into three types:

  • Financial incentives
  • Fiscal incentives
  • Other incentives (such as regulatory incentives, subsidiezed services, market privileges, etc.)3

The incentives are in place when private enterprises would not invest without government support. In other words, the government is not willing to let the market constraints of financial feasibility determine the final decision regarding whether or not to invest in a project.

Financial Incentives

In order to clarify the matter, we present a few financial incentives below:4

  • Investment grants: "Direct subsidies" to cover (part of) capital, production or marketing costs in relation to an investment project
  • Subsidized credits and credit guarantees: Subsidized loans, loan guarantees or guaranteed export credits
  • Government insurance at preferential rates, publicly funded venture capital participating in investments involving high commercial risks. Government insurance at preferential rates, usually available to cover certain types of risks such as exchange rate volatility, currency devaluation, or non-commercial risks such as expropriation and political turmoil (often provided through an international agency)

Fiscal Incentives

In order to clarify the matter, we present a few fiscal incentives below:5

  • Tax exemptions
  • Accelerated depreciation
  • Deduction in the employee premium
  • Customs duty exemptions

Other Incentives

Apart from the aforementioned incentives, there are also other incentives such as regulatory incentives, subsidized services, market priviliges, foreign exchange priviliges etc.6

New Super Incentive Scheme from Turkey

In order to create a national industry and trigger the economy, a very important step regarding the investment incentive system was taken in 2016, by means of "Law No. 6745, Supporting of Investments on a Project Basis and Administering Changes in some Laws and Decree Laws," also known as Super Incentive Act (SIA). By this legislation, Turkey aimed to attract investors, and the Council of Ministers has the authority to decide the scope of a project basis. Article 80 of SIA defines the framework of the super incentive scheme. Accordingly, in order to meet the needs of the country, provide security of supply, decrease foreign dependency and, enabling the technology transformation, the council of the ministers may decide to support the projects via a wide range of incentives.7 Moreover, by means of the Cabinet Decree No. 2016/9495 "Regarding the State Assistance to be Extended to Investments on the Basis of Projects", the type of investments to benefit from super incentive system and the procedure to be used have been clarified.

The incentives defined in Article 80 of SIA as follows:

  • The corporate tax rate applied at a discount of up to 100% and determine the rate of contribution in the investment up to a rate of 200% or Grant exemption from corporate tax, limited to the earnings obtained from the investment, for a period that extends up to 10 fiscal periods starting from the commissioning of the investment
  • Benefiting from income tax withholding
  • Exemption from customs duties
  • Grant free of charge easement or utilization rights for a period of 49 years in relation to the immovable property belonging to the Treasury and have the immovable property of Treasury transferred free of charge if requested with the condition that the investment is completed and the predicted employment rate is achieved for a period of five years
  • Coverage of the employer's insurance contribution for the employees of the investor for a period of up to ten years
  • Coverage of up to 50 percent of the energy usage expenses incurred during the operating periodrovide interest or profit share support or extending a grant for a period up to 10 years for the investment credit used in the financing of the fixed investment amount
  • Provide salary assistance up to 20 times the minimum gross wage for a period of up to five years for a designated number of qualified personnel that are essential for the realization of the investment
  • State's partnership for 49% of the total shares of the investment company, with the condition that the mentioned shares are to be offered to the public within 10 years

On April 9, 2018, Turkey announced the 23 firms operating in the health, defence, metallurgy, electronics, automotive and agriculture sectors which are awarded with the super incentive certificates. In other words, super incentives distributed to 23 different projects which are suppposed to decrease the current deficit. The total investment amount of these projects is approx 33 billion USD.

The supported firms are as follows:

Company Name Investment Location Industry Direct Employment Indirect Employment
Sasa Adana and Hatay Polyester Producer 6.207 24.828
Vestel - Appliance Manufacturer 6.240 24.960
Tosyali Osmaniye Mining Company
Metcap Edirne Energy Company 1.150 4.600
Tusas Ankara Aviation Company 3.200 11.200
Yildiz Kırıkkale Metallurgical Firm 1.480 6.660
Cfs Adana Petrochemical Supplier 1.000 4.000
Ersan Kahramanmaraş Petroleum Refinery 600 2.700
Assan Sakarya Aluminum Supplier 640 2.560
Ekore Niğde Renewable Energy Company 1.250 4.375
Siirt Bakir Siirt Metal Producer 1.000 4.500
Bmc Sakarya Armored Car Manufacturer 1.150 4.600
Dow Aksa Yalova Composite Firm 434 1.736
Most İzmir Machine Manufacturer 800 3.200
Alvi Medica İstanbul Medical Technologies Company 4.000 14.000
Atayurt Malatya Renewable Energy Company 1.590 5.565
Ipek Kayseri Furniture Company 1.020 4.590
Sütaş Bingöl Dairy Producer 1.090 4.905
Oyak Renault Bursa Vehicle Producer 110 440

Besides the other benefits of the super incentives, it is also expected that nearly 170,000 jobs will be added to the economy with the support of aforementioned companies's 23 investment projects and moreover, the projects will decrease the current account deficit by US$19 billion. On the other hand, injunction of the capital to the markets might be deemed as a wisely way of struggling with a potential economic recession. Furthermore, considering Turkey's demographic structure and its potential to develop, we may assert that there are still plenty of opportunities in the country for investors.

As it can be seen, high-scale technology-intensive investment projects are at stake; therefore, the undertakers inevitably search for strategic partners with proper technology or knowhow. So, it will be expected that the super incentives indirectly cause the promotion of foreign investments. However, given that all the incentives are directly presented to Turkish firms, it is clear that the super incentives schemes has a crucial role in the Government's national industrialization thrust. Even though it seems to be paradoxical, on the contrary, it is a natural result of globalization.

Footnotes

1. Background Paper for the 8th Columbia International Investment Conference on Investment Incentives, p. 10, Colombia University, New York, 2013

2. Ibid.

3. UNCTAD Series on Issues in International Investment Agreements, Incentives, p7, New York ad Geneva, 2004.

4. Ibid.p.6

5. Ibid.

6. Ibid.

7. Ardıyok Şahin, Yıldız Can: New Wave of Investment Incentives In Turkey, http://www.mondaq.com/turkey/x/530358/Government+Contracts+Procurement+PPP/New+Wave+Of+Investment+Incentives+In+Turkey

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Şahin Ardiyok
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