Introduction
The project-based government incentive system has been designed to support investments of strategic importance, within the scope of Türkiye's economic development objective. The system offers exclusive incentives for high value-added, technology-oriented investments that aim to reduce foreign dependency.
In this article, the legal basis of the aforementioned incentive system, its application and evaluation procedures, the incentive elements provided, and the authority of the Ministry of Industry and Technology ("Ministry") to conclude contracts with certain investors are examined, with an emphasis on the fundamental principles governing the system's implementation.
1. Relevant Legislation and Legal Background
Law No. 6745 on Supporting Investments on Project-Basis and on the Amendment of Certain Laws and Decrees ("Project-Based Incentives Law") was enacted and entered into force on 7 September 2016, to establish the legal framework necessary for the provision of project-based incentives for investments that aim to meet Türkiye's current or future critical needs, ensure supply security, reduce foreign dependency, enable technological and green transformation, and promote innovation, R&D, and high value-added production. Under the Project-Based Incentives Law, the authority to determine and implement the procedures and principles governing project-based government incentives is vested in the President of Türkiye, and the scope and limits of this authority are defined under Article 80 of the same. In this context, investors deemed eligible by the Ministry may benefit from the incentives provided under the law upon the issuance of a presidential decision issued specifically for the relevant investment ("Presidential Support Decision") and the terms and conditions of the applicable incentives are set out in the relevant Presidential Support Decision.
Following the enactment of the Project-Based Incentives Law, Decree No. 2016/9495 on the Provision of Project-Based State Incentives for Investments ("Project-Based Incentives Decree") was adopted by the Council of Ministers and entered into force on 26 November 2016. The Project-Based Incentives Decree regulates the types of incentives, procedures for applying for such incentives, satisfaction of the incentive requirements, and sanctions, applicable throughout the investment process. In addition, in order to further regulate the details of certain types of incentives, the Communiqué No. 2019/1 on the Implementation of the Decree on the Provision of Project-Based State Incentives for Investments ("Implementation Communiqué") was adopted and entered into force on 28 December 2019.
Pursuant to the first paragraph of Article 12 of the Project-Based Incentives Decree, with respect to matters not specifically addressed in either the Project-Based Incentives Decree or the Presidential Incentive Decree, the provisions of the Council of Ministers' Decree No. 2012/3305 on State Incentives for Investments ("General Incentives Decree"), issued under the authority of the Ministry, applies.
2. Application and Evaluation
Pursuant to Article 4 of the Project-Based Incentives Decree, applications for project-based government incentives are submitted via the Ministry's dedicated digital platform, E-TUYS, following either a general call for applications announced by the Ministry or a direct invitation extended by the Ministry to select companies. All applications are collected electronically, and the process is conducted under the coordination of the Ministry. The Ministry carries out its activities within the scope of the legislation in line with strategic priority programs such as the HIT-30 High Technology Investment Program and the Technology-Oriented Industry Initiative Program.
Pursuant to Article 5 of the Project-Based Incentives Decree, in order to benefit from the determined incentives:
- for investments aimed at the production of products listed in the Priority Product List and determined to be supported under the Technology-Oriented Industry Initiative Program, a minimum fixed investment amount of TRY 100 million is required;
- for all other investments, either a minimum fixed investment amount or R&D expenditure of TRY 2 billion is required.
In addition to the minimum investment thresholds mentioned above, certain qualitative criteria, such as the investment's potential to address the country's critical needs, its ability to ensure the supply security of products with insufficient production capacity, and its contribution to closing technological gaps in strategic sectors are also considered during the evaluation process.
Based on these criteria, projects deemed eligible by the Ministry for evaluation under the Project-Based Incentives Decree are submitted for the approval of the President. Following the issuance of the Presidential Support Decision by the President, an investment incentive certificate is granted by the Ministry, thereby enabling the investor to benefit from the relevant incentives.
In addition to the standard application procedure described above, it is also possible in exceptional cases for certain investments to be included under the scope of project-based incentives through execution of a contract with the Ministry. The details of this procedure are examined below under the heading "4. Contractual Procedure".
3. Scope of Incentives
The incentives that may be granted under the Project-Based Incentives Decree and their details stipulated by Implementation Communiqué and other relevant regulations are as follows:
- Customs Duty Exemption: Customs duty exemption may be applied to the import of machinery and equipment.
- VAT Exemption and Refund: VAT exemption may be applied to the acquisition of machinery and equipment, as well as to the purchase or lease of software and intangible assets within the scope of the investment. In addition, construction expenditures incurred as part of the investment may also be eligible for VAT refund.
- Corporate Tax Reduction: A corporate tax reduction up to twice the amount of the investment, or a corporate tax exemption may be applied for a period of up to 10 years.
- Social Security Premium Support (Employer's Share): The employer's share of the social security premiums calculated for the personnel may be covered by the State for a period of up to 10 years.
- Income Tax Withholding Support: The portion of income tax calculated on the amount of salaries corresponding to the minimum wage for personnel may be covered by the State for a period of up to 10 years.
- Qualified Personnel Support: The wages of qualified personnel employed in the project, limited to 20 times the gross minimum wage, may be covered by the State for a period of up to 5 years.
- Interest/Profit-Share Support: Up to 80% of the interest (or profit-share in sharia-compliant financings) rate related to the financing of the project may be covered by the State, provided that it does not exceed 80% of the fixed investment amount.
- Equity Contribution: An equity contribution may be provided up to 49% of the investment amount.
- Energy Support: A portion of the energy expenses incurred following partial commissioning or the issuance of the completion visa may be covered by the State.
- Purchase Guarantee: A public procurement guarantee may be granted for the products to be manufactured at the facility.
- Land Allocation: Suitable lands may be allocated for the investment within the framework of the procedures and principles determined by the Ministry of Environment, Urbanization and Climate Change.
- Infrastructure Support: The infrastructure works required for the investment may be undertaken and completed by the State.
- Facilitation of Legal and Administrative Procedures: Administrative procedures such as allocation, permits, licenses, and authorizations related to the investment may be facilitated through the Presidential Support Decision.
- Cash Grant Support: A cash grant may be provided up to 25% of the actual expenditures on machinery and equipment.
The specific incentive components to be granted for each investment, as well as their respective upper limits, are determined based on the investment requirements by considering investor's material needs. The approved incentives are implemented by the relevant public institutions under the coordination of the Ministry.
4. Contractual Procedure
In response to evolving needs in the application of the Project-Based Incentives Decree, the Presidential Decree No. 1593 was adopted and published in the Official Gazette dated 2 October 2019, thus allowing the execution of framework investment agreements governed by private law for the implementation of project-based incentives.
Pursuant to the provision added to the Project-Based Incentives Decree by Presidential Decree No. 1593, an exception to the standard application and evaluation procedure has been introduced for projects that (i) qualify as completely new investments and (ii) have a minimum fixed investment amount of TRY 5 billion. For such projects, the establishment of private law governed framework investment agreements between investors and the Ministry, has been permitted. All actions to be taken throughout the investment process may regulated within the scope of the framework investment agreement to be executed between the investor and the Ministry.
Accordingly, under a contract governed by private law, the rights and obligations of the parties can be mutually defined, and the parties may be granted the opportunity to resort to international arbitration in the event of disputes arising from the investment. Such system aims to promote establishment of a commitment-based and confidence-enhancing relationship between the investor and the government and attract foreign capital to the country for strategic investments.
Conclusion and Comments
The project-based incentive system enables the creation of tailored incentive packages in line with the specific requirements of each individual investment. In this respect, it differs from general incentive mechanisms with predefined scopes. The primary objective underneath this distinction is to address the unique necessities that may arise in select investments that stand out in terms of scale and strategic importance. Thus, beyond the scope of standard incentive programs designed for more general types of investment, this model aims to establish the necessary legal and financial framework specifically for such high-impact and strategically significant investments.
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.
