1. Introduction

With the Regulation on the Amendment to the Regulation on Technology Development Zones Implementation ("Regulation") published on February 10, 2022 in the Official Gazette, the enterprises operating in Technology Development Zones are given the investment obligation in early stage entrepreneurs in the incubator within the Zone to be able to benefit from the tax exemption within the scope of the Law.

This article primarily deals with the concepts such as technology development zone, entrepreneur, incubator and early-stage entrepreneur, which have come into our lives with the Technology Development Zones Law No. 4691 ("Law") published in the Official Gazette on July 6, 2001. Subsequently, it analyzes the current situation of the Technology Development Zones in Turkey, the share of the start-ups within the Zone as well as the share of the companies in the gaming industry among the start-ups and it further elaborates the investment obligation in the entrepreneurs that is imposed by the Regulation.

2. What is a Technology Development Zone?

As described in the Law, a Technology Development Zone ("Zone") refersto a site where academic, economic and social structures become integrated or a technopark, which has these characteristics; where by benefiting from the opportunities of a particular university or higher technology institute or R&D center or institute, companies using high/advanced technology or companies that aim at new technologies produce/develop technology or software, where the companies work to transform a technological invention into a commercial product, method or service, thus contributing to the development of the zone, which is in the premises or close to the same university, higher technological institute or the R&D center or institute.

In other words, it refers to a site where academic, economic, and social structures become integrated; technology and industrial companies, R&D centers and universities gather together; technological product and service, software, innovation and R&D practices are conducted; cooperation and information sharing between institutions and businesses within the Zone are facilitated.

As from July 2022, 94 Technology Development Zones have been established within the scope of the Law, and 80 of them have gone into operation whereas 14 of them have not become operational yet on the ground that their infrastructure work has not been completed yet.

3. What is aimed with Technology Development Zones?

With establishing Technology Development Zones at our present time where technology has penetrated almost every part of our lives, the market share of technology companies is increasing each passing day, and economic as well as social developments and changes are happening continuously, it is aimed to encourage entrepreneurship and technological creativity within the scope of the incentives and the tax exemptions by the government; to increase the number of technological and industrial companies; to ensure information exchange and the cooperation between those institutions by putting technological companies and academical life together within the Zone; to produce technological information and develop those information; to increase the productivity of products and services produced; to commercialize the information produced as well as to consolidate the Turkish companies in the international market in the new world order by developing the export of the technology and industry in Turkey. 2

4. Who can take part in Technology Development Zones?

Universities, high/advanced technology institutes, local and foreign companies using high/advanced technology, companies and SMEs producing/developing technology or software by benefiting from the opportunities of universities or higher technology institutes or R&D centers or institutes, companies growing in the Technology Development Centers and all kinds of entrepreneurs may take part.

5. What is an entrepreneur?

As described in the Law, an entrepreneur refers to the real persons or legal entities that would like to benefit or are benefiting from the services and opportunities in the Zone. As it is understood from the description in the Law, any person or company that would like to develop or produce ideas in the fields of IT, technology, software, and innovation and operates in the Zone would be included in the description.

6. What is an incubator?

An incubator refers to the structure where office services, equipment support, management support, access to financial resources, critical business and technical support services are provided together under the same roof to develop young and new businesses in particular.

Incubators may be situated in the Zone while they may also be opened by the Zone Managing Company if the Ministry of Technology and Industry gives permission. In those incubators, there can be early-stage entrepreneurs only. The support, incentive, exemption, and exceptions provided within the scope of the Law are applied in those centers outside of the Zones in the same way.

It is recommended to have early-stage entrepreneurs all together in the same setting within the incubators, but it is not a necessity.

7. Who is an early-stage entrepreneur and an incubation company?

An early-stage entrepreneur refers to a nascent entrepreneur, usually a start-up company having a real or legal personality and operates in R&D, technological innovation, software as well as design practices.

Within the scope of the Law and the Regulation, it is stipulated that the personnel number of an early-stage entrepreneur in an incubator outside of the Zones should be less than 10 and it should be a technology-based business established in the last 3 years.

An incubation company refers to an entrepreneur that has become incorporated by participating in the entrepreneurship programs conducted by Technology Development Zone managing companies or have been operating in R&D, technological innovation, software, and design as a project owner business for three years at most in the incubator.

8. What is the number of companies and their industry-specific distribution ratio in Technology Development Zones?

As from July 2022, the total number of the companies in the Zones is 8.020 whereas 1.957 of them are operating as incubation companies. 335 of those are either foreign companies or companies with foreign partners, showing that foreign investors are also interested in the Zone.

When examining the industry-specific distribution of the companies in the Zones, it is observed that the companies operating in computer programming (coding customer specific software using system, database, network etc.) are at the fore with the ratio of 48.08% whereas the companies operating in research and experimental development activities about natural sciences and 3 engineering follow them. Apart from this, there are numerous companies operating in sectors such as engineering, industry, technology, and their production.

9. What is the share of the gaming industry in the incubation and start-up companies?

Start-up companies that usually consist of incubation companies have recently been operating in gaming industry intensely and attracting attention from local as well as foreign investors. In the Turkey Startup Ecosystem Investment Report published in the first half year, investment of 1.4 million USD has been made to the start-up companies incorporated in Turkey while it is seen that the biggest share of those investments has been made to the companies operating in the food/market delivery sector with 771 million USD, and the companies operating in gaming industry come as the second with the investment share of 336 million USD. In the respective Report, it is also stated that 12 entrepreneurs in gaming industry got investment in the first half year of 2022, and the amount of investment in the first half year have already surpassed the total amount of 2021. As it is seen, the gaming industry has been recently developing in our country while getting support by many local and foreign investors.

10. What are the incentives, supports and exemptions provided in the Technology Development Zones?

Certain incentives and exemptions such as exempting from some taxes have been provided by the Law to the entrepreneurs operating in the Zone. To summarize some incentives and exemptions provided within the scope of the Law;

  • The revenues of the income and corporate taxpayers residing in the Zone that are generated by their software, design, and R&D practices exclusively in the Zone are exempt from Income and Corporate Tax until 31.12.2028.
  • Wages and earnings of R&D, design and (at the number not exceeding %10 of the R&D and design personnel) support personnel are exempt from all taxes until 31.12.2013.
  • Delivery and services in the form of system control, data management, business applications, sectoral, Internet, mobile and military command control software applications that are produced and generated exclusively in the Zone, by the entrepreneurs residing in the Zone are free from Value Added Tax until 31.12.2013.
  • Exported wares to be used for the research about software, R&D, innovation, and design projects within the scope of the Law are free from customs duty while all funds, papers and transactions are exempt from stamp tax and fees.
  • As per the Provisional Article 2 of the Technology Development Zones Law No. 4691, %50 of the employer's national insurance contribution of the (R&D, design and support) personnel whose wages and earnings are exempt from Income Tax is supported by the Ministry of Finance within the scope of the Law No. 5746.
  • Applying until 31/12/2023, with the intent to be used in financing the projects in the applicable fields, the entrepreneurs operating in the Zone are granted a reduction by the Ministry in the business income declaration as per Article 89 of the Income Tax Law No. 193 dated 31/12/1960 and in the corporate profit declaration as per Article 10 of the Corporate Tax Law No. 5520 dated 13/6/200 on condition that the capital support provided by the income and corporate taxpayers would not exceed 10% of the declared revenue or corporate profit as well as 20% of the shareholder's equity. The amount subject to reduction cannot exceed 500,000 Turkish Liras per year.

11. Investment obligation in incubation companies has been imposed

With the Additional Article 3 to the Technology Development Zones Law No. 7263 that published and became effective on January 28, 2021, the Regulation has been amended to determine its 4 procedures and principles and the Regulation on the Amendment to the Regulation on Technology Development Zones Implementation entered in force.

In parallel with the Law, Article 35/C of the Regulation regulates that the income and corporate taxpayers of which total earning exempted within the scope of the Provisional Article 2 of the Law is above 1,000,000(onemillion) Turkish Liras and more in the annual income and corporate tax declaration to be given as from 1/1/2022, must transfer 2% of this amount to a provisional account in the passive, but the amount to be transferred is limited to 20,000,000(twentymillion) Turkish Liras on annual basis.

The lawmaker imposes the obligation to deposit that amount to buy venture capital fund shares to invest in the entrepreneurs residing in Turkey or venture capital trust or to invest in other entrepreneurs operating in incubators within the scope of the Law as capital until the end of the year when the provisional account is created. In the event of violating the respective obligation, 20% of the revenues cannot be subject to the income and corporate tax exemption that year in the annual declaration within the scope of Law, and the taxes that have not been levied on time due to this amount will be levied without imposing tax loss penalty.

As is seen, the lawmaker imposes an investment obligation in relatively smaller entrepreneurs in the incubators within the Zone, and in this way, with the support and investment in early-stage entrepreneurs, it aims to contribute to the development of those sectors in our country by increasing technology, innovation, and R&D practices within the Zone and hence within the country.

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.