Incentives

 

Investment Incentives

The new investment incentives scheme is specifically designed to encourage investments with the potential to reduce dependency on the importation of intermediate goods vital to the country’s strategic sectors.

Amongst the primary objectives of the new investment incentives scheme are: reduce the current account deficit; boost investment support for lesser developed regions; increase the level of support instruments; promote clustering activities; and to support investments that will create the transfer of technology.

Effective as of January 1, 2012, the new investment incentives system has been comprised of four different schemes. Local and foreign investors have equal access to:

1-      General Investment Incentives Scheme

2-      Regional Investment Incentives Scheme

3-      Large-Scale Investment Incentives Scheme

4-      Strategic Investment Incentives Scheme

 

The support instruments to be provided within the framework of the various investment incentives schemes are shown in the following table:

 

Support Instruments

General Investment

Incentives Scheme

Regional Investment

Incentives Scheme

Large-Scale Investment

Incentives Scheme

Strategic Investment

Incentives Scheme

VAT Exemption

+

+

+

+

Customs Duty Exemption

+

+

+

+

Tax Reduction

 

+

+

+

Social Security Premium Support

(Employer’s Share)

 

+

+

+

Income Tax Withholding Allowance *

 

+

+

+

Social Security Premium Support

(Employee’s Share) *

 

+

+

+

Interest Rate Support **

 

+

 

+

Land Allocation

 

+

+

+

VAT Refund***

 

 

 

+

 

*Provided that the investment is made in Region 6.

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

***For construction expenditures of strategic investments with a minimum fixed investment amount of TRY 500 million. 

 

http://www.invest.gov.tr/en-US/investmentguide/investorsguide/PublishingImages/Incentives%202014%20graphs%20EN/turkey-incentives-map.jpg

 

Region 1

 

Region 2

 

Region 3

 

Region 4

 

Region 5

 

Region 6

 

Ankara

Adana

Balıkesir

Afyonkarahisar

Adıyaman

Ağrı

Antalya

Aydın

Bilecik

Amasya

Aksaray

Ardahan

Bursa

Bolu

Burdur

Artvin

Bayburt

Batman

Eskişehir

Çanakkale

(Bozcaada & Gökçeada excluded)

Gaziantep

Bartın

Çankırı

Bingöl

Istanbul

Denizli

Karabük

Çorum

Erzurum

Bitlis

Izmir

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

Bozcaada & Gökçeada

 

 

 

Sivas

 

 

   

1- General Investment Incentives Scheme

 

Regardless of the region where investment takes place, all projects meeting both the specific capacity conditions and the minimum fixed investment amount are supported within the framework of the General Investment Incentives Scheme. Some types of investments are excluded from the investment incentives system and would not benefit from this scheme.

 

The minimum fixed investment amount is TRY 1 million in Region 1 and 2, and TRY 500,000 in Region 3, 4, 5 and 6.

 

Major investment incentive instruments are:

 

1) Exemption from customs duties:

Customs tax exemption for imported machinery and equipment for projects with an investment incentive certificate.

 

2) VAT exemption:

VAT exemption for imported or domestically purchased machinery and equipment for projects with an investment incentive certificate. 

 

2- Regional Investment Incentives Scheme

 

The sectors to be supported in each region are determined in accordance with regional potential and the scale of the local economy, while the intensity of support varies depending on the level of development in the region.

 

The minimum fixed investment amount is defined separately for each sector and region with the lowest amount being TRY 1 million for Region 1 and 2, and TRY 500,000 for the remaining regions.

 

The terms and rates of support provided within the Regional Investment Incentives Scheme are shown in the following table. 

 

Regional Investment Incentives Scheme Instruments

Incentive Instruments

Region

I

II

III

IV

V

VI

VAT Exemption

YES

Customs Duty Exemption

YES

Tax Reduction

Tax Reduction Rate (%)

50

55

60

70

80

90

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 (Employer’s Share)

Support Period

Out of OIZ*

2 years

3 years

5 years

6 years

7 years

10 years

Within OIZ*

3 years

5 years

6 years

7 years

10 years

12 years

Upper Limit for Support (%)

Out of OIZ*

10

15

20

25

35

No limit

Within OIZ*

15

20

25

35

No limit

No limit

Land Allocation

YES

Interest Rate Support

TRY Denominated Loans (points)

N/A

N/A

3 points

4 points

5 points

7 points

FX Loans (points)

1 point

1 point

2 points

2 points

Social Security

Premium Support (Employee’s Share)

N/A

N/A

N/A

N/A

N/A

10 years

Income Tax Withholding Allowance

N/A

N/A

N/A

N/A

N/A

10 years

                     

 

*OIZ: Organized Industrial Zones   

 

Contribution Rate to Investment Applicable During Investment / Operating Periods

Under Regional Investment Incentives Scheme

Regions

Investment Period

Operating Period

I

80 %

20 %

II

80 %

20 %

III

80 %

20 %

IV

80 %

20 %

V

80 %

20 %

VI

80 %

20 %

 

The new investment incentives system defines certain investment areas as “priority” and offers them the regional support extended to Region 5 by the Regional Investment Incentives Scheme, regardless of the region of the investment. If the fixed investment amount in priority investments is TRY 1 billion or more, tax reduction will be applied by adding 10 points on top of the “rate of contribution to investment” available in Region 5. If priority investments are made in Region 6, the regional incentives available for this particular region shall apply.

 

Fields of investment with specific priorities to be supported with Region 5 instruments regardless of the investment’s region are:

 

 

Furthermore, together with the amendment to the incentives legislation on October 5, 2016, investments for the production of items in medium high-tech industry segment stipulated in the Organization for Economic Cooperation and Development’s (OECD) definition for technology intensity will be able to benefit from the instruments of Region 4 regardless of the location of the investment. The investment subjects in question are as follows:

 

 

3- Large-Scale Investment Incentives Scheme

 

12 investment subjects, which will potentially foster Turkey’s technology, R&D capacity and competitiveness, are supported by Large-Scale Investment Incentives Scheme instruments.

 

Large-Scale Investments

 

Investment Subject

Minimum Fixed Investment Amount

(million TRY)

1

Production of refined petroleum products

1,000

2

Production of chemical products

200

3

Harbors, harbor services and airport investments

200

4

a)      Automotive main industry

b)      Automotive supply industry

 

200

50

5

Production of railway and tram locomotives and/or tram cars

50

6

Transit pipeline transportation services

7

Electronics industry

8

Production of medical, high-precision and optical equipment

9

Production of pharmaceuticals

10

Production of aircraft and spacecraft and/or related parts

11

Production of machinery (including electrical machinery and equipment)

12

Mining (including metal production)

 

The terms and rates of support provided within the Large-Scale Investment Incentives Scheme are shown in the following table. 

 

Large-Scale Investment Incentives Scheme Instruments

Incentive Instruments

Region

I

II

III

IV

V

VI

VAT Exemption

YES

Customs Duty Exemption

YES

Tax Reduction

Tax Reduction Rate (%)

50

55

60

70

80

90

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 (Employer’s Share)

Support Period

Out of OIZ*

2 years

3 years

5 years

6 years

7 years

10 years

Within OIZ*

3 years

5 years

6 years

7 years

10 years

12 years

Upper Limit for Support (%)

Out of OIZ*

3

5

8

10

11

No limit

Within OIZ*

5

8

10

11

No limit

No limit

Land Allocation

YES

Social Security

Premium Support (Employee’s Share)

N/A

N/A

N/A

N/A

N/A

10 years

Income Tax Withholding Allowance

N/A

N/A

N/A

N/A

N/A

10 years

 

 *OIZ: Organized Industrial Zones 

 

Contribution Rate to Investment Applicable During Investment / Operating Periods

Under Large-Scale Investment Incentives Scheme

Regions

Investment Period

Operating Period

I

80 %

20 %

II

80 %

20 %

III

80 %

20 %

IV

80 %

20 %

V

80 %

20 %

VI

80 %

20 %

 

The following categories of investment within the Regional and Large-Scale Investment Incentives Schemes can benefit from support granted to a one-grade lower region in terms of tax reduction and social security premium support (employer’s share).

 

 

E.g.: A Region 3-level investment in an OIZ can take advantage of the tax reduction level in Region 4. Similarly, a Region 6-level investment may benefit from an additional 5% contribution to the investment.

 

4- Strategic Investment Incentives Scheme

 

Investments meeting the criteria below are supported within the framework of the Strategic Investment Incentives Scheme:

 

 

The terms and rates of support provided within the Strategic Investment Incentives Scheme are shown in the following table.

 

Strategic Investment Incentives Scheme Instruments

Incentive Instruments

Region

I

II

III

IV

V

VI

VAT Exemption

YES

Customs Duty Exemption

YES

Tax Reduction

Tax Reduction Rate (%)

90

Rate of Contribution to Investment (%)

50

Social Security

Premium Support (Employer’s Share)

Support Period

7 years

(10 years for Region 6)

Upper Limit for Support (%)

15 (No limit for Region 6)

Land Allocation

YES

Interest Rate Support

TRY Denominated Loans (points)

5

5

FX Loans (points)

2

2

Maximum Support Amount (*)

TRY 50 million

TRY 50 million

Social Security

Premium Support (Employee’s Share)

10 years (for investments in Region 6)

Income Tax Withholding Allowance

10 years (for investments in Region 6)

VAT Refund

YES (for construction expenditures of the strategic investments over TRY 500 million)

                 

 

*Provided that it will not exceed 5 percent of the investment amount

 

Contribution Rate to Investment Applicable During Investment / Operating Periods

Under Strategic Investment Incentives Scheme

Regions

Investment Period

Operating Period

I, II, III, IV, V

80 %

20 %

VI

80 %

20 %

 

Support Instruments

 

VAT Exemption:

VAT is exempt for imported and/or domestically delivered machinery and equipment within the scope of the investment incentive certificate.

 

Customs Duty Exemption:

Customs duty is exempt for imported machinery and equipment within the scope of the investment incentive certificate.

 

Tax Reduction:

The income or corporate tax is calculated on basis of reduced rates until the total amount of reduced tax reaches the amount of contribution to the investment. The rate of contribution to investment refers to the rate of the total fixed investment amount that is subject to tax reduction.

 

Social Security Premium Support (Employee’s Share):

For additional employment created by the investment, the employee’s share of the social security premium calculated on basis of the legal minimum wage will be covered by the government. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for Social Security Premium Support and it is applicable for 10 years.

 

Social Security Premium Support (Employer’s Share):

For additional employment created by the investment, the employer’s share of the social security premium calculated on basis of the legal minimum wage will be covered by the government.

 

Income Tax Withholding Allowance:

The income tax with regard to additional employment created by the investment, within the scope of the investment incentive certificate, will not be liable to withholding taxes. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for income tax withholding allowance and it is applicable for 10 years.

 

Interest Rate Support:

Interest rate support is a financial support instrument provided for investment loans with a term of at least one year obtained within the scope of an investment incentive certificate. A portion of the interest/profit share regarding the loan equivalent, at most 70 percent of the fixed investment amount registered in the investment incentive certificate, will be covered by the government for a maximum of the first five years. 

 

Land Allocation:

Land may be allocated for investments, with an investment incentive certificate, in accordance with the rules and principles set by the Ministry of Finance, depending on the availability of such land.

 

VAT Refund:

VAT collected on construction expenses, made within the scope of strategic investments with a minimum fixed investment amount of TRY 500 million, will be rebated.

 

R&D Incentives

 

1-      R&D Law

 

The R&D Law provides exclusive incentives for R&D and design investment projects in Turkey provided that a minimum of 15 personnel are employed in an R&D center and a minimum of 10 personnel are employed in a design center. The required number of personnel has been set by the Council of Ministers as 30 employees in the production of motor vehicles, aircraft, spacecraft, and related machinery thereof, including military aircrafts. The incentives within the new law will remain in effect until 2024 and include: 

 

 

2-      Support for Technology Development Zones

 

The advantages in Technology Development Zones are:

 

 

3-      Industrial Thesis (SANTEZ) Program

 

Direct financial support for new technology adaptation, process development, quality improvement, and environmental modification projects to be achieved via university partnerships:

 

 

4-      TUBITAK Support

 

TUBITAK (Scientific and Technological Research Council of Turkey) compensates or grants R&D related expenses and capital loans for R&D projects.

 

Projects eligible for TUBITAK incentives:

 

 

TUBITAK 1515 – Frontier R&D Laboratory Support Program

 

The 1515 Program applies an integrated perspective that extends beyond a consideration of the initial establishment phase of the R&D laboratory. The 1515 Program offers an entirely grant-based financial model to cover up to 75 percent of the operating expenses of the R&D laboratory in Turkey up to TRY 10 million for each calendar year for a duration of 10 years at most.

 

The coverage of the grant support consists of the following items:

 

 

For eligibility to have personnel costs covered in the total grant amount, at least 50 percent of the personnel must hold Turkish citizenship and at least 1/3 should have a doctoral degree.

 

5-      TTGV Loans

 

The Technology Development Foundation of Turkey (TTGV) offers long-term interest-free loans for R&D projects on agriculture technologies, health technologies, education technologies, and energy efficiency improvement.

 

The loans are intended to provide financial support to those activities whose purpose is the development of new products with commercial value in the aforementioned technological areas, or for the promotion of competitiveness of current products in these areas. The scope of the program includes:

 

 

Export Support

 

Inward Processing Regime

 

The aim of the Inward Processing Regime is to enable exporters to procure inputs at world market prices for the production of their exports without being subject to customs duties, including VAT, as well as trade policy measures.

 

The Inward Processing Regime includes two types of processing measures: Conditional Exemption System and Reimbursement System.

 

1)      The Conditional Exemption System waives commercial policy measures and taxes that arise during the importation of non-freely circulating raw materials, auxiliary materials, packages, and operating equipment used in production of the export product subject to Inward Processing Regime. It is called conditional as the exporter has to guarantee through collateralization of the imported materials and equipment that they will only be used for the production and exportation of the product subject to Inward Processing Regime. The guarantee given for the collateralized materials and equipment will be released upon exporting of the final product.

 

2)      The Reimbursement System is the reimbursement of taxes that were paid during the importation of freely circulating raw materials, auxiliary materials, packages, and operating equipment used for the production of the exported product subject to Inward Processing Regime. These taxes are reimbursed upon the exporting of the final product subject to Inward Processing Regime. Commercial policy measures are applied to the imported materials and equipment and all the import procedures such as technical regulations in foreign trade and standardization legislation must have been completed.

 

Evaluation of Applications

 

 

Benefits of Inward Processing Regime

 

 

Sectoral Incentives

 

Incentives for Renewable Energy

 

In addition to the General, Regional, Priority, and Strategic Investment Incentive schemes that apply to investments in the energy sector, the government provides specific incentives for electricity production investments that are based on renewable energy sources.

 

 

§  Differentiated FiT scheme based on resource type

§  Extra premiums for domestic components

 

 

§  Only 10 percent of licensing fee (preliminary license and license fee)

§  Exemption from the annual license fee for the first eight years of operation

 

 

Renewable Energy FiT Rates

Type of production facility based on renewable energy resources

Feed-in-tariff Prices Applicable

(US Dollar cent/kWh)

Hydroelectric production facility

7.3

Wind power-based production facility

7.3

Geothermal power-based production facility

10.5

Biomass-based production facility (including landfill gas)

13.3

Solar power based production facility

13.3

  

Additional FiT rates for Local Content Support

Type of facility

Domestic production

Domestic Contribution

(US Dollar cent/kWh)

A-Hydroelectric production facility

1- Turbine

1.3

2- Generator and power electronics

1.0

Wind power based production facility

1- Blade

0.8

2- Generator and power electronics

1,0

3- Turbine tower

0.6

4- All of the mechanical equipment in rotor and nacelle groups (excluding payments made for the blade group and the generator and power electronics.)

1.3

Photovoltaic solar power based production facility

1- PV panel integration and solar structural mechanics production

0.8

2- PV modules

1.3

3- Cells forming the PV module

3.5

4- Invertor

0,6

5- Material focusing the solar rays onto the PV module

0.5

Intensified solar power-based production facility

1- Radiation collection tube

2.4

2- Reflective surface plate

0.6

3- Sun tracking system

0.6

4- Mechanical accessories of the heat energy storage system

1.3

5- Mechanical accessories of steam production system that collects the sun rays on the tower

2.4

6- Stirling engine

1.3

7- Panel integration and solar panel structural mechanics

0.6

Biomass power-based production facility

1- Fluid bed steam tank

0.8

2- Liquid or gas fuel steam tank

0.4

3- Gasification and gas cleaning group

0.6

4- Steam or gas turbine

2.0

5- Internal combustion engine or stirling engine

0.9

6- Generator and power electronics

0.5

7- Cogeneration system

0.4

Geothermal power-based production facility

1- Steam or gas turbine

1.3

2- Generator and power electronics

0.7

3- Steam injector or vacuum compressor

0.7

 

 

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