Incentives and State Aids in Turkey

1) The General Incentive Scheme

All investment activities which envisage a fixed investment of at least YTL 200,000 in the Priority Development Regions (or at least YTL 400,000 in the other regions) are granted incentives.

Investors are exempt from customs duties and levies when they import the machinery and equipments shown in the attachment of their incentive certificates provided by the relevant authorities.

Moreover, they are exempt from VAT when they import or domestically purchase the machinery and equipments in question.

Investment and operational credits under more reasonable conditions than the market conditions are also granted.

2) Incentives Granted to Small and Medium Sized Enterprises (SMSEs)

SMSEs, the companies with less than 250 employees, which make a fixed investment of at most YTL 950,000 are granted incentives.

The tax incentives in this scheme are the same as those in the general scheme.

However, investment and operational credits differ from those envisaged by the general scheme.

3) Incentives pursuant to the Law No. 5084

According to the “Employment Encouragement in the Underdeveloped Regions” Law (No. 5084), the enterprises which operate in the (36) provinces where income per capita was less than $1,500 in year 2001 are granted the designated incentives when they increase the number of their employees.

These incentives include;

o Exemption from 80%-to-100% of both income tax and social insurance contributions (employer’s share) to be calculated out of the minimum wage for each additional employee,

o Energy subsidies amounting to 20%-to-50% of “the total energy costs to be billed by the suppliers” for the integrated animal breeding & butchery & milk (or egg) enterprises, some selected agro-industrial companies and freezing-warehousing companies which increase the number of their employees,

o Land provision by the Treasury or local governments at very reasonable costs in case no space is left in the Organised Industrial Zones and Industrial Zones.

4) Incentives pursuant to the Law No. 5350

Law No. 5350 broadened the coverage envisaged by Law No.5084 to include 13 more provinces where the year-2003 Socio-economic Development Index value announced by the State Planning Organisation is negative.

5) Incentives for the Free Trade Zones

The Free Trade Zones (FTZ), which are the export-oriented special industrial sites, are granted the following tax incentives:

o Production companies in an FTZ are exempt from both corporate and income taxes.

o Goods imported from abroad are exempt from customs duty. In addition, there are no restrictions on the age/model of machinery to be imported from abroad, and these items are exempt from both VAT and customs duty.

o Goods purchased in Turkey by companies located in an FTZ are exempt from VAT.

o Companies based in an FTZ can keep their products in a designated duty-free storage area for an indefinite period of time and they can export the products in lots at any time (at the time of export, a customs duty for the lots is paid).

o Energy, water and telephone utilities supplied within a zone are all exempt from special consumption tax (OTV) and VAT.

6) Incentives for the Technology Development Zones

For the Technology Development Zones (TDZ), the special techno-parks in which high-tech or high-tech-targeting/R&D companies operate, the following incentives are provided:

o Participating companies are exempt from income and corporate taxes for 5-to-10 years.

o Within the framework of sponsorship, donations to be granted to R&D firms operating in a TDZ enable the sponsor to be granted tax discounts.

o TDZs with water treatment facilities are exempt from “water-refusal levy” imposed by municipalities.

o Depending on the sufficiency of budgetary allocations, some of the costs relating to land acquisition, infrastructure, and the construction of the administrative buildings can be financed by the Ministry of Industry and Trade.

7) Incentives for the Organised Industrial and Industrial Zones

Enterprises which employ new employees and that participate in the Organised Industrial Zones or Industrial Zones in the underdeveloped provinces determined by Law No 5084 are subject to comparatively much higher amount of incentives than the other companies in those provinces.

8) Export Incentives

The State aids to encourage exports include;

o Aids with regards to the ‘Turquality Certificate’ (a certificate granted to the selected products of exporters) holders, www.dtm.gov.tr/IHR/dvyardim/turquality.htm

o Supports pursuant to Communique No. 2003/3 regarding the creation of well-known and prestigious trademarks/brands among Turkish export products,

o Research and Development assistance to exporters,

o Subsidisation of the participation costs of exporters in the fairs and exhibitions held abroad,

o Subsidisation of international fairs held in Turkey,

o Subsidisation of some environmental costs of the exporters,

o Aids with regards to market research,

o Training assistance,

o Employment assistance,

o Aids for establishing branches and brand/trademark advertisements abroad,

o Tax, duty and levy exemptions for export-based and foreign-exchange denominated revenues.