A Guide to Turkey’s Investment Incentive System

August 18, 2014 at 3:50 pm | Consultist Blog | No comment

 
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This article aims to provide a straightforward outline for Turkey’s Investment Incentive System, which offers various opportunities for foreign and domestic investors.

The system aims to boost technology transfer, increase the investment at less developed regions, promote clustering activities, and decrease the import dependency at strategic sectors.

Before going into any details, let us start with the fundamentals of the system:

1)  The Investment Incentive System consists of 4 different schemes:

2)  Each scheme provides various support tools, as the table summarizes:
*Provided that the investment is made in Region 6
** Provided that the investment is made in Regions 3,4,5, or 6 within Regional Investment Incentive Scheme.
***For Strategic Investments with the minimum fixed investment of TRY 500 million (USD 230 million).

3)  All provinces in Turkey are grouped under six regions, regarding investment and development priorities. The support tools and rates vary in each region.

Four Schemes under the Investment Incentive System

1.   General Investment Incentive Scheme

The General Investment Incentive Scheme enables the beneficiaries to receive:

  • Customs duty support
  • VAT Exemption
  • Income tax withholding allowance (Only for investment made within 6th region )
  • Social Security Premium Support (only for ship building investments)

Minimum investment required: TRY 1 million (USD 460.000)for the regions 1 and 2, and TRY 500.000 (USD 230.000 )for regions 3,4,5 and 6

2.   Regional Investment Incentive Scheme

The Regional Investment Scheme provides following tools:

  • VAT exemption on machinery & equipment
  • Custom duty exemption
  • Income tax reduction
  • Social security premium support
  • Land allocation
  • Interest support
  • Income tax withholding allowance

Investment Regions

The scope of the incentives and the prerequisites vary depending on which region will the investment take place. As seen at the map and the table below, whole country is distributed into regions, depending on investment and development priorities.

Image credentials: ISPAT


Minimum Investment Required: TRY 1 million for Regions 1 and 2, TRY 500.000 (USD 230.000)for Regions 3,4,5 and 6

The table below summarizes the terms and rates of the incentive instruments for the Regional Investment Scheme:

2.1 Priority Investments

If your company is interested in investing on one of the specific areas mentioned below, you can benefit from the Regional Scheme by the measures of Region 5; regardless of which region your investment takes place.

  • Tourism accommodation investments in Cultural and Tourism Preservation and Development Regions, and those that could benefit from regional incentives with regard to thermal tourism
  • Investments for mine extraction and/or extraction
  • Railroad and maritime transportation investments
  • Specific pharmaceutical, defense, and aerospace industry investments with a minimum fixed investment amount of TRY 20 million (USD 9.2 million)
  • Test centers, wind tunnels, and similar investments made for the automotive, aerospace or defense industries
  • Investments made by the private sector for kindergartens and day-care centers, preschools, prim(ary schools, elementary schools, and high schools
  • International trade fair investments with a minimum indoor area of 50,000 square meters (excluding accommodation and shopping center units)
  • Investments for the manufacturing of products or parts developed by an R&D project that is supported by the Ministry of Science, Industry and Technology, TUBITAK and KOSGEB
  • Investments in the motor vehicles (main industry) worth a minimum amount of TRY 300 million (USD 138 million), engine investments worth a minimum amount of TRY 75 million, and investments for motor engine parts, transmission components/parts and automotive electronics worth a minimum amount of TRY 20 million (USD 9.2 million)
  • Investments for power generation where metals stated in the 4-b group of the Article 2 of the current Mining Law No. 3213 in scope of a valid mining license and permit issued by the Ministry of Energy and Natural Resources are used as inputs
  • Energy efficiency investments that would reduce energy consumption in unit production by a minimum of 20 percent for at least 5 years in existing manufacturing facilities with an annual consumption of least 500 tons of oil equivalent (toe) energy
  • Investments for electricity generation through waste heat recovery in a facility (excluding natural gas-fired electricity generation plants)
  • Liquefied natural gas (LNG) investments and underground gas storage investments with a minimum amount of TRY 50 million (USD 23 million)
  • Investments for the production of carbon fiber or composite materials made from carbon fiber (provided that it takes place along with carbon fiber production)

3.   Large-Scale Investment Incentives Scheme

As its name indicates, this scheme has a focus on large-scale investments. There are 12 areas of investment where the investors can benefit from the scheme.

Upgraded Incentives

If your investment fits to the requirements below, you can benefit from Regional and Large-Scale Investment Schemes with the benefits of a one-grade lower region, in terms of social security premium support (employer’s share) and tax reduction.

  • Investments in Organized Industrial Zones (OIZ)
  • Joint investments to be made by at least five companies operating in the same sector with the purpose of greater integration

For instance, if you have an investment project in an OIZ based on region 3, you can benefit the tax reduction level in region 4. If your investment takes place in region 6, you may benefit from a 5% additional contribution.

4.   Strategic Investment Incentive Scheme

This scheme provides the same tools and rates for the strategic investments at all regions and sectors.

The prerequisites for this scheme:

  • Minimum investment amount should be TRY 50 million (USD 23 million).
  • Investment should create minimum of 40% added value (this is not applicable for the investments for refined petroleum and petrochemicals manufacturing)
  • The investments should focus on manufacturing of intermediate and final goods with high import dependency.
    • Minimum of 50% of domestic demand should be supplied through imports
    • The product’s minimum import level of the previous year should be USD 50 million. (This condition is not applicable for the products with no domestic production)

The incentive tools and rates are summarized at the table below:

Source: ISPAT

 This article represents a summary of the Investment Incentive Scheme, and does not cover all industry-specific terms and conditions.

 Our experienced team would be happy to provide assistance for investors at all stages to benefit from the Investment Incentive System in Turkey. Contact us 

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