THE FRAMEWORK OF NEW INVESTMENT INCENTIVES PROGRAM IN TURKEY

The new investment incentives program, which will be effective from the 1st January 2012 comprises 4 different schemes: (1)

 1-      General Investment Incentive Scheme

2-      Regional Investment Incentive Scheme

3-      Large Scale Investment Incentive Scheme

4-      Strategic Investment Incentive Scheme

 The support measures to be provided within the frame of those schemes are summarised in the table below:

Support Measures General Investment Incentive Scheme Regional Investment Incentive Scheme   Large Scale Investment Incentive Scheme  Strategic Investment Incentive Scheme 
VAT Exemption  Ok Ok Ok Ok
Customs Duty Exemption  Ok Ok Ok Ok
Tax Reduction    Ok Ok Ok
Social Security Premium Support    Ok Ok Ok
(Employer’s Share) 
Income Tax Withholding Support * Ok Ok Ok Ok
Social Security Premium Support    Ok Ok Ok
(Employee’s Share) *
Interest Support **   Ok   Ok
Land Allocation    Ok Ok Ok
VAT Refund        Ok

* Provided that the investment is made in the Region 6.

** Provided that the investment is made in the Regions 3, 4, 5 or 6 within the frame of the Regional Investment Incentive Scheme

THE SUPPORT MEASURES

VAT Exemption:

In accordance with the measure, VAT is not paid for imported and/or domestically provided machinery and equipment within the scope of the investment encouragement certificate.

  Customs Duty Exemption:

Customs duty is not paid for the machinery and equipment provided from abroad (imported) within the scope of the investment encouragement certificate.

 Tax Reduction: 

Calculation of income or corporate tax with reduced rates until the total value reaches to the amount of contribution to the investment according to envisaged rate of contribution.

Social Security Premium Support (Employer’s Share):

The measure stipulates that for the additional employment created by the investment, employer’s share of social security premium on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry.

 Income Tax Withholding Allowance:

The measure stipulates that the income tax regarding the additional employment generated by the investment within the scope of the investment encouragement certificate will not be liable to withholding. The measure is applicable only for  the investments to be made in Region 6 within the scope of an investment encouragement certificate.

Social Security Premium Support (Employee’s Share):

The measure stipulates that for the additional employment created by the investment, employee’s share of social security premium on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry. The measure is applicable only for the investments to be made in Region 6 within the scope of an investment encouragement certificate.

 Interest Support:

Interest support, is a financial support instrument, provided for the loans with a term of at least one year obtained within the frame of the investment encouragement certificate. The measure stipulates that a certain portion of the interest/profit share regarding the loan equivalent of at most 70% of the fixed investment amount registered in the certificate will be covered by the Ministry.

  Land Allocation:

Refers to allocation of land to the investments with Investment Incentive Certificates, if any in that province in accordance with the rules and principles determined by the Ministry of Finance.

  VAT Refund:  

VAT collected on the building & construction expenses made within the frame of strategic investments with a fixed investment amount of  500 million TL will be rebated .

The following Regional Map and Table of Provinces show classification of provinces for the implementation purpose of the Investment Incentives Program

map

Region 1 Region 2 Provinces Region 3 Provinces Region 4 Provinces Region 5 Provinces Region 6 Provinces
Provinces
Ankara Adana Balıkesir Afyonkarahisar Adıyaman Ağrı
Antalya Aydın Bilecik Amasya Aksaray Ardahan
Bursa Bolu Burdur Artvin Bayburt Batman
Eskişehir Çanakkale Gaziantep Bartın Çankırı Bingöl
İstanbul Denizli Karabük Çorum Erzurum Bitlis
İzmir Edirne Karaman Düzce Giresun Diyarbakır
Kocaeli Isparta Manisa Elazığ Gümüşhane Hakkari
Muğla Kayseri Mersin    Erzincan Kahramanmaraş Iğdır
Kırklareli Samsun Hatay Kilis Kars
Konya Trabzon Kastamonu Niğde Mardin
Sakarya Uşak Kırıkkale Ordu Muş
Tekirdağ Zonguldak Kırşehir Osmaniye Siirt
Yalova Kütahya Sinop Şanlıurfa
Malatya Tokat Şırnak
Nevşehir Tunceli Van
Rize Yozgat
Sivas
8 PROVINCES 13 PROVINCES 12 PROVINCES 17 PROVINCES 16 PROVINCES 15 PROVINCES

 General Investment IncentIves Scheme

Regardless of in which Region an investment is made all projects which meet conditions of specific capacity and the following minimum fixed investment amount will be supported within the frame of the General Investment Incentives Scheme. Investment subjects which are excluded from the investment incentives program can not benefit from this scheme.

The amount of minimum fixed investment is 1 million TL in Region 1 and 2 and 500 thousand TL in Regions 3, 4, 5 and 6.

RegIonal Investment IncentIves Scheme

The sectors to be supported in each province are determined in accordance with potentials of the provinces and the economies of scale and the intensity of the supports are differentiated in line with the development level of the regions.

The amount of minimum fixed investment is defined separately for each sector and each region, the lowest amount being 1 million TL in Regions 1 and 2, and 500 thousand TL in the remaining Regions.

The terms and rates of supports within the Regional Investment Incentives Scheme are summarized in the Table below:

OIZ: Organized Industrial Zones

REGIONAL INVESTMENTS INCENTIVE SCHEME MEASURES
INCENTIVE MEASURES REGIONS
I II III IV V VI
VAT Exemption YES YES YES YES YES YES
Customs Duty Exemption YES YES YES YES YES YES
Tax Reduction Rate of Contribution to Investment (%) Out of OIZ 15 20 25 30 40 50
Within OIZ 20 25 30 40 50 55
Social Security              Premium Support Support Period Out of OIZ 2 years 3 years 5 years 6 years 7 years 10 years
(Employer’s Share)                 Within OIZ 3 years 5 years 6 years 7 years 10 years 12 years
Land Allocation YES YES YES YES YES YES
Interest  Support Local Loans N/A N/A 3 Points 4 Points 5 Points 7 Points
Foreign Exchange/ 1 Point 1 Point 2 Points 2 Points
FX denominated loans
Social Security Premium Support N/A N/A N/A N/A N/A 10 years
(Employee’s Share)
Income Tax Withholding Support  N/A N/A N/A N/A N/A 10 years

Specific priority investment subjects to be supported by measures of Region 5 even they are made in Regions 1, 2, 3 and 4.

     Tourism investments in Cultural and Touristic Preservation and Development Regions determined by the Council of Ministers Decree.

–      Mining investments

–      Railroad and maritime transportation investments

–      Specific pharmaceutical investments and Defense Industry investments with minimum investment amount of 20 Million TL

–      Test facilities, wind tunnel and similar investments made for automotive, space or defense industries

–      International fairground investments with a minimum covered area of 50.000 m2

–     Preschool, Primary, Middle and High School investments by private sector

–      Investments made to produce products developed by an R&D Project which is supported by Ministry of Science, Industry and Technology, SME Development Organization or The Scientific and Technological Research Council Of Turkey

–     Automotive OEM investments with a minimum investment amount of 300 million TL, automotive engine production investments with a minimum amount of 75 million TL and transmission and parts production and automotive electronics production with a minimum amount of 20 million TL

–     Electric production investments which uses IV-b group mines as defined in the Mining Law as input

Large Scale Investment IncentIve Scheme

12 investment categories in the table below are supported by the measures of the Large Scale Investment Incentive Scheme:

No Investment Subject Minimum Investment Amount
(
Million TL )
1 Production of Refined Petroleum Products 1000
2 Production of Chemical Products 200
3 Harbours and Harbour Services 200
4 Automotive OEM and Supply Industries
4-a Automotive OEM Investments 200
4-b Automotive Supply Industries Investments 50
5 Railway and Tram Locomotives and/or Railway and Tram
Cars
50
6 Transit Pipe Line Transportation Services 
7 Electronics 
8 Medical, High Precision and Optical Equipment 
9 Pharmaceuticals
10 Aircraft and Space Vehicles and/or Parts
11 Machinery (Including Electrical Machinery and
Equipment)
12 Integrated Metal Production

The terms and rates of supports provided within the Scheme are summarized in the Table below:

OIZ: Organized Industrial Zones

LARGE SCALE INVESTMENTS INCENTIVE SCHEME MEASURES
INCENTIVE MEASURES REGIONS
I II III IV V VI
VAT Exemption YES YES YES YES YES YES
Customs Duty Exemption YES YES YES YES YES YES
Tax Reduction Rate of Contribution to Investment (%) Out of OIZ 25 30 35 40 50 60
Within OIZ 30 35 40 50 60 65
Social Security              Premium Support Support Period Out of OIZ 2 years 3 years 5 years 6 years 7 years 10 years
(Employer’s Share)                 Within OIZ 3 years 5 years 6 years 7 years 10 years 12 years
Land Allocation YES YES YES YES YES YES
Social Security Premium  N/A N/A N/A N/A N/A 10 years
(Employee’s Share)
Income Tax Withholding Support  N/A N/A N/A N/A N/A 10 years

The following categories of investments within the Regional and Large Scale Investment Incentives Schemes will be supported by more beneficial one level up regional rates and terms of tax reduction and social security premium support (employer’s share):

–    Investments in Organized Industrial Zones

–      Joint investments to be made by at least 5 companies operating in the same sector with the purpose of integrating these companies to this joint investment

StrategIc Investment IncentIve Scheme

 The Goals:

–      On the basis of the “Input Supply Strategy”, this scheme aims at supporting production of intermediate and final products with high import dependence with a view to reduce current account deficit.

–       It also targets encouraging high-tech and high value added investments with a potential of strengthening Turkey’s international competitiveness.

  Investments meeting the criteria below are supported within the frame of the Strategic Investment Incentive Scheme:

–      to be made for production of intermediate and final goods with high import dependence of which more than 50% of these goods are supplied by imports,

–    to have a minimum investment amount of 50 Million TL,

–     to create minimum 40% value added (This condition is not applicable to refined petroleum production investments and petrochemicals production investments),

–      to have an import amount of at least $50 Million for goods to be produced in the last one year period (This condition is not applicable to goods with no domestic production)

STRATEGIC INVESTMENTS INCENTIVE SCHEME MEASURES
INCENTIVE MEASURES REGIONS
I II III IV V VI
VAT Exemption YES
Customs Duty Exemption YES
Tax Reduction Rate of Contribution to Investment (%) 50
Social Security              Premium Support Support Period 7 Years (10 years for 6th region)
(Employer’s Share)                
Land Allocation YES
Interest Support Local Loans 5 points
Foreign Exchange denominated loans 2 points
Social Security Premium Support 10 years (only for investments in the Region 6)
(Employee’s Share)
Income Tax Withholding Support  10 years (only for investments in the Region 6)
VAT Refund  YES 
(only for the expanditures of  building for
investments over 500 milyon TL)

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(1) Source: Ministry of Economy

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