Incentives

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1. The investment incentive system in Turkey

The investment incentive scheme was amended in 2006 to promote investment in manufacturing services and the energy sector and also to encourage exports. Local and foreign investors have equal access to these incentives.

1.a. General investment incentive scheme

The general incentive scheme is mainly a tax benefit program, though in certain cases there are credit possibilities. Its application varies according to the location, scale, and subject of the investment.

The major investment incentive instruments:

• Exemption from customs duties for imported machinery and equipment with the investment incentive certificate.
• VAT exemption for imported or locally delivered machinery and equipment with the investment incentive certificate.

The interest rate of investment loans is partially held by the Treasury. Interest support is provided for:

• SMEs
• R&D projects
• Environmental projects
• Projects in 50 prioritized development provinces

1.b. Incentives for priority development regions

Incentives granted to investors are as follows:

• Free land allocation
• Income tax relief
• Employer's share for social security relief
• Energy support

Incentive type	For companies in OIZs and industrial zones	Others
Income tax relief	100%	80%
Compensation for the employers social security contribution	100%	80%
Energy support	Varies: min. 20% – 50%	Varies: min. 20% – 40%
Free land allocation	Available	Available

1.c. Incentives granted to Small and Medium Sized Enterprises (SME incentives)

SMEs are defined as companies which operate in the manufacturing, agro-industry, tourism, education and health, mining, and software industries:
• Medium size: employing 50−250 workers and with yearly net sales or total value of assets less than TRY 25,000,000 (approx. USD 20 million)
• Small size: employing 10−49 workers and with yearly net sales or total value of assets less than TRY 5,000,000 (approx. USD 4 million)
• Micro size: employing 1−9 workers and a yearly net sale or total value of assets less than TRY 1,000,000 (approx. USD 800 thousands).

Investment and operational credit support for SMEs covers:

• Manufacturing or agricultural investments
• Tourism investments in selected regions
• Modernization investment in existing tourism facilities
• Healthcare investments in priority regions
• Education investments on primary and secondary school in developed and normal regions
• Mining investments
• Software development investments
• Investments utilizing capital goods (including building, machinery, equipment and/or raw materials) of not more than TRY 950,000

Incentives provided:

• Custom duties exemption
• VAT exemption
• Interest support
• KOSGEB support of SMEs; The Small and Medium Industry Development Organization (KOSGEB) makes significant contributions to strengthening SMEs by means of various support instruments in financing, R&D, common facilities, market research, investment sites, marketing, export, and training

1.d. Research and development support

TUBITAK (Scientific and Technological Research Council of Turkey) and TTGV (Turkish Technology Development Foundation) both reimburse and/or grant R&D related expenses and capital loans for R&D projects.

Projects eligible for TUBITAK Incentives cover:

• Concept development
• Technological research and technical feasibility research
• Laboratory studies in the transformation of a concept to a design
• Design and sketching studies
• Prototype production
• Construction of pilot facilities
• Test production
• Patent and license studies
• Activities related to post-sale problems stemming from product design

1.e. New R&D law

Turkey's new R&D law provides special incentives for R&D investment projects in Turkey provided that at least 50 personnel are employed.

The incentives within the new law, which will be available until 2024, are:

• 100% deduction of R&D expenditure from tax base
• Income withholding tax exemption for employees
• Exemption from 50% of employer’s social security premium contribution for five years
• Stamp duty exemption for the documents to be drawn up
• Techno-initiative capital for new scientists up to TRY 100,000
• Deduction of certain funds granted by public bodies and internal organizations from tax base of the R&D company

1.f. Technology development zone support

• Infrastructure facilities are provided.
• Profits derived from software and R&D activities are exempt from income and corporate taxes until 12.31.2013.
• The salaries of researchers and software and R&D personnel employed in the zone are exempt from all taxes until 12.31.2013.
• VAT exemption during the exemption period of income and corporate taxes is provided for IT specific sectors.
• Exemption from customs duties and fund levies.

1.g. State incentives for export

The principle aims of this scheme are to encourage export and to increase the competitiveness of firms in international markets. This specific package mainly covers R&D activities, market research, participation in exhibitions and international fairs, and expenditure on patents, trademarks and industrial designs.

1.h. New employment incentives

• Social Security premiums of newly employed women and young unemployed people between the ages of 18 and 29 will be paid by the Unemployment Insurance Fund for a 5-year period.
• 5 points payable by employers for insurance holders’ disability, old-age and death insurance premiums will be paid by the Treasury.
• In businesses employing 50 or more persons, the premiums of those employed under the 3% disability contingent quota imposed on private sector employers will be paid by the Treasury on behalf of the employer. Where a business employs disabled persons despite having no obligation to do so, or where a business employs more disabled persons than the stipulated quota, half of the disabled persons' premiums will also be paid by the Treasury.

Eligibility for the incentive that Social Security premiums for newly employed women and newly employed young people between the ages of 18 and 29 who were previously unemployed will be paid by the Unemployment Insurance Fund for a period of five years is subject to the following conditions:

• The person to be employed should have been unemployed at least for the last six months.
• The person in question must be recruited and employed within a period of one year as of July 1st, 2008 (unless the effective period for this article is extended, employers will not be covered under this incentive with regard to employees employed after the termination of the effective period).
• The Unemployment Insurance Fund will pay the following proportions of the Social Security payments:

a) One hundred percent for the first year,
b) Eighty percent for the second year,
c) Sixty percent for the third year,
d) Forty percent for the fourth year,
e) Twenty percent for the fifth year,

to be calculated from the lower earnings limit of the employed person defined as the basis for calculation of premiums (TRY 638.70 as of July 1st, 2008). There are no incentives for the amount remaining above the lower earnings limit defined as the basis for calculation of premiums, and the employer will continue to pay the corresponding amount of the Social Security contribution for this higher amount.