A Quick Look at Turkey’s Domestic Incentives Mechanism for Investment
As a developing country, Turkey shines out as a good opportunity for foreign investors to make good use of their budgets. Investors’ primary expectations from a developing country like Turkey are a powerful and reliable legal system, confidentiality, security and existence of domestic incentives in specific areas. Turkey has rebuilt its incentives system on 1st of January 2012 to encourage investments in order to reduce dependency on importation of goods essential for country’s economical and political strategy. Incentives system mainly focuses on reducing the account deficit, boosting investment support for backward areas and regions, supporting instruments and supporting technology-based developments. New investment schedule has been comprised of four different categories. Those are General Investment Incentives Scheme, Regional Investment Incentives Scheme, Large-Scale Investment Incentives Scheme and Strategic Investment Incentives Scheme.
By obtaining an incentive certificate, State provide various benefits for investors such as VAT exemptions, from which investors can take benefit when they import or domestically delivered machinery within the scope of the investment incentive certificates. Tax Reductions are also a mechanism shall be used to reduce income or corporate taxes at the determined rates by the incentives Code. Additionally, only for Region 6 investments, employee’s social security shares shall be calculated on the basis of the legal minimum wage covered by the government. Also investments meeting some specific obligations are exempted from withholding taxes, and again only for Region 6 investments. Moreover, State grants an interest rate support, which is a financial support provided for investment loans with a term of at least one year obtained within the scope of an investment incentive certificate. The government shall cover up to %70 of the interest taken as a credit from the private banks.
Besides all these VAT Refunds, Customs Duty Exemptions, Land Allocation and other Social Security Supports also exist for investors.
Investment system stipulates 6 regional divisions with the proportion of cities’ industrial and social development rates throughout Turkey. Region 1 includes most developed cities like Istanbul, Ankara and Izmir whereas Region 6 includes less developed cities such asArdahan, Şırnak, Hakkari and Diyarbakır etc. Basic idea under the regional division unveils as the power of the incentives; Investments made in Region 6 cities take benefit from some specific incentives more than Region 1 cities.
Regardless of the regional division of the investment, projects meeting a specific financial amount are supported within the framework of the General Investment Incentives.For example minimum fixed budget of investments in Region 1 and 2 is 1.000.000 TRY, whereas 500.000 TRY for Region 3,4,5 and 6. Of course investments in some sectors are totally excluded from the incentives system regardless of their budgets and regions. Main incentives for the investments are exemptions from custom obligations of taxing of goods required for projects, VAT exemptions for both domestic and imported machinery or other components of the projects.
In regional Investment Incentives, State provides the incentives in accordance with the Region of the projects. The minimum fixed budget is defined for each sector and region with the lowest amount of 1.000.000 TRY for Region 1-2 and 500.000 for the remaining regions same as General Investment Incentives scheme. To give an example regarding regional difference according to the power of incentives; Tax Reductions for specific projects in Region 1 is %50; %55 for Region 2, %60 for Region 3, %70 for Region 4, %80 for Region 5 and %90 for Region 6. And reduced yearly tax rates are %10 for Region 1, %9 for Region 2, %8 for Region 3, %6 for Region 4, %4 for Region 5 and %2 for Region 6. Investor should keep in mind that the rates are changing according to Organised Industrial Zones.
Region 6 cities meet special incentives like Income Tax Withholding and Social Security Support for 10 years whereas other Regions are excluded from these exemptions.
Land Allocation also exists for specific projects mostly in Energy Sector for all Regions.
There are some specific investment fields taking benefit from incentives system regardless the region of the projects or some regional support exists according to the territory of the investments. Following of the specified fields are some of the fields that are meeting the incentive rates just like a Region 5 or 6 systems regardless of the Region:
Investments in high-tech goods production stipulated in Organization of Economic Corporation; Carbon-fiber and composite materials of Carbon production, Electricity generation through waste heat and renewable resources, Energy efficiency investments provides a less rate of energy consumption, manufacturing of products that is supported by Ministry of Science, TUBITAK and other Authorities promoting science, International Trade Fair organization investments, building of kinder-gartens and day-care centers, aerospeace or defense investments, railroad installation investments, enterprises in mining sector like mine extraction, exploration in licenced areas, tourism accommodation investments in specific areas.
Investments meeting some criterias are evaluated as strategic investments and getting extra priorities from the State. Total production capacity of the product in country shall be less than the import rate of the product, investments shall have a minimum amount of 50.000.000 TRY, investments shall provide a minimum added-value of %40 in country-wide, total import amount of the product to be manufactured shall be minimally 50.000.000 US Dollars as of the past year.