State Incentives for Foreign Investors in Turkey
Disclaimer: The information provided in this article is general, incomplete and does not constitute financial, tax or legal advice.
Over the past fifteen years, Turkey has started a lot of incentive programs that encourage start-ups, entrepreneurs, businesses and investors. The programs vary on the type of business, sector, city and size of the investment. The most important aspect of these incentive programs is Turkey’s very liberal and progressive approach to foreign investors. As per the Foreign Direct Investment Law dated 2013, foreign investors have equal rights as Turkey investors, meaning foreign investors may benefit from all the incentive programs that Turkish investors benefit, if not more.
II. TYPES OF INCENTIVES
Turkish government offers a variety of investment incentives that depend on the type of business, sector, city and size of the investment, among other variables. All the incentives that the government offers may be listed as below:
VAT Exemption: Value-Added Tax is exempt for machinery and equipment to be purchased for the business.
Customs Duty Exemption: Customs duty is exempt for machinery and equipment to be supplied from abroad.
Corporate Tax Reduction: Corporate tax is reduced by certain percentages, depending on the situation
Social Security Premium Support (Employer’s Share): The employer’s share of the social security premium calculated for employment is covered by the government.
Social Security Premium Support (Employee’s Share): The employee’s share of the social security premium calculated on the basis of the legal minimum wage for employment is covered by the government.
Interest Rate Support: A certain portion of the interest to be paid for bank loans is covered by the government.
Land Allocation: Land is allocated by the state for the investment to be made on it, in accordance with the principles and procedures set by the Ministry of Environment and Urbanization.
Income Tax Withholding Support: The income tax determined for employment will be exempt.
VAT Refund: VAT refund is provided for building and construction expenditures.
Qualified Personnel Support: Gross wages of qualified personnel to be employed for up to 5 years is covered (up to 20 times the gross minimum wage)
Energy Support: Energy expenditures is partially rebated to the investor.
Capital Contribution: Government may make capital contribution of up to 49% of the investment amount.
Infrastructure Support: Investor’s infrastructural needs such as electricity, natural gas, etc. may be covered.
Purchasing Guarantee: Public purchase is guaranteed for the products that are manufactured by the investor’s business.
Cash Support: Some expenditures are partially rebated by the state.
Training Support: Daily expenses and eligible training costs are covered by İŞKUR.
R&D/Design Discount: R&D and design expenditures are wholly deductible from the corporate tax base.
Corporate Tax Exemption: No corporate tax is payable.
Credit Support: Loan opportunities with reduced interest rates are provided to investors to improve exportation.
Stamp Duty Exemption: No stamp duty is payable for documents.
Property Tax Exemption: No property tax is payable for land and buildings.
Special Consumption Tax Exemption: Enterprises in free zones are exempt from special consumption tax.
Some, but not all, of the aforementioned incentives are provided to specific types of businesses, depending on the size of the investment. Some examples for sectors that are eligible for investment incentives are hotels and renewable energy:
III. SOME EXAMPLES FOR STATE INCENTIVES
Example 1: Incentives For Hotels
Establishing 3, 4 or 5-star hotels in Antalya are granted “regional investment incentives”, irrespective of the size of the investment. Such investments benefit from customs duty exemption, Social Security Premium Support for 2 years, VAT exemption and 50% reduction in corporate tax until such time as the sum of these reductions reaches 15% of the investment amount. Upon request, the government may also allocate land in Antalya for the investor to build such hotels.
In the event that the said hotels are built in the government-appointed tourism development areas, the investment is granted additional incentives. In addition to the customs duty exemption, VAT exemption and land allocation, the investors may benefit from Social Security Premium Support for 7 years, 5 points interest reduction for bank loans in TL and 80% reduction in corporate tax until such time as the sum of these reductions reaches 40% of the investment amount
Example 2: Incentives For Renewable Energy
In addition to the aforementioned incentives, renewable energy investments are granted extensive government incentives, irrespective of the size of the investment. These incentives are:
1) Government guarantee that the produced energy will be purchased by the government for 10 years, based on the price scale in USD,
2) 100% exemption from stamp duty and Value-Added Tax,
3) Reduction in licensing fees for the first 8 years
4) Procedural priority for the renewable-energy plants
5) Land allocation for renewable-energy plants
6) Assistance in project-planning
Foreign investors may benefit from investment incentives as freely as Turkish investors can. The investment incentives include tax reductions, tax exemptions, personnel training support, land allocation, capital contribution and cash support. The number, type and extend of the incentives completely depend on the type of business, sector, city and size of the investment, among other variables.