TAX REFORM AND IMPROVEMENT OF FDI IN TURKEY

Transcription

1 TAX REFORM AND IMPROVEMENT OF FDI IN TURKEY Prepared by Timur ÇAKMAK The Presidency of Revenue Administration-TURKEY The Head of the Department of EU and Foreign Affairs

2 REFORM ON THE CORPORATE INCOME TAX

3 NEW Corporate Income Tax Law No The Corporate Tax Law (No. 5520) enacted on 13 June 2006 Effective from the begining of the year 2006.

4 THE RATIONALE Changing old structure and law as well as updating in order to respond to current economic and social needs. Economic activities and in particular trade have gained an international character in an increasing trend, making it irrational for the states to make regulations that solely cover the domestic activities of resident companies. The new era makes it impossible to deal with the issue of foreign investment by merely relying on daily decisions and thus calls for a sound legal infrastructure that takes into account this fact.

5 THE RATIONALE (Cont d) The Law complies with the facts of this new era as well as the long term strategic goals of the country. It is designed with an innovative and taxpayer-focused understanding that supports growth, provides a tax environment with low tax rates and covers a wider span of taxpayers. Particularly concerning non-residents, it gathers the provisions which display an unintegrated structure in the former Law in a systematic way. 5

6 New Rules Corporate Income Tax Law No Transfer Pricing (Art:12) Controlled Foreign Company CFC (Art.7) Existing thin capitalization rules have also been amended to comply with the EU and OECD norms (Art.13). 30% withholding tax on the money transferred (cash or accrual) to the corporations or to branches located in the countries (tax heavens) determined by the Council of Ministers. 6

7 Important Renewal The new Law reduces the corporate tax rate from 30% to 20 % while re-regulating the earnings exempt from tax and the reductions.

8 FDI INFLOWS TO TURKEY A BRIEF REVIEW OF RECENT YEARS

9 Developments in March 2007 Components of Foreign Direct Investment Inflow, January March 2007 The net inflow has been $ million in March 2007

10 Sectoral Distribution of FDI Inflows

11 The Origin of FDI Inflows International Direct Investment Inflow, by Country, January-March 2007

12 Developments in the 2007 January-March Period

13 Sectoral Distribution of FDI Inflows

14 The Origin of FDI Inflows International Direct Investment Inflow, by Country, ( )

15 Number of Companies with International Capital

16 Breakdown of Companies with International Capital by Mode of Establishment ( )

17 Breakdown of Companies with International Capital by Sector According to Size of Equity Capital, ( )

18 Breakdown of Companies with International Capital by Country According to Size of Equity Capital ( )

19 Number of Companies with International Capital by Year According to Mode of Establishment

20 Breakdown of Companies with International Capital by Sector, ( )

21 Breakdown of Companies with International Capital by Country, ( )

22 Breakdown of Companies with International Capital by Investment Location

23 Breakdown of Companies with International Capital by Sector According to the Investment Location ( /March)

24 Investment Incentive Certificates Issued for Companies with Foreign Capital (January-March 2007)

25 Other Government Subsidies for Investing In Turkey

26 SOME LEGISLATION TO SUPPORT FDI INFLOW Foreign Direct Investment Law (Law no. 4875, dated 05 June, 2003) Regulation regarding implementation of Foreign Direct Investment Law The General Comminiquié No.4 on Incentives of Investment and Employment (O.G. No: 26533, O.G. Date: ) Law on work permits for foreigners (Law no. 4817, dated 06 March, 2003) Law on Encouragament of Invetsment No:5084

27 Certificates of Investment Incentive Investors may apply to Undersecreteriate of Tresury for the Certificate of Investment Incentive to enjoy some duty and tax benefits.

28 Exemption From Customs Duties and Fund Levies Imports of machinery and equipment with Incentive Certificate are exempt from Customs Duty and fees payable as per the current Import Regulation.

29 VAT Exemption Imported and domestic machinery and equipment delivered to investors who have incentive certificates, are exempt from VAT which is % 18.

30 Other Benefits for Foreign Investors Exemption on Wages paid by non-resident taxpayers Possibility to keep accounting records in foreign currency. Inflation correction is allowed to protect the value of capital of companies

31 Law Numbered 5084 No income tax withholding from the wages of new personnel (Law numbered 5084 a.2, a.3, a.7/h) Payment of employer contribution by the treasury (Social Security Contrubution) (Law numbered 5084, a.4) Energy support (Law numbered 5084, a.6) Free investment place allocation (Law numbered 5084, a.6)

32 INCENTIVES FOR RISING OF INVESTMENT IN TURKEY (Cont d)

33 INCENTIVES FOR RISING OF INVESTMENT IN TURKEY (Cont d) Income (witholding) Tax Exemption Support Requirments: Minimum 30 employers have to be recruited If enterprise has been estabilished in Organized Industrial Zone or Industry Zone - % 100 tax exemption on wages. If not - % 80 tax exemption on wages

34 INCENTIVES FOR RISING OF INVESTMENT IN TURKEY (Cont d) Incentive for the employers' share in social insurance premiums

35 INCENTIVES FOR RISING OF INVESTMENT IN TURKEY (Cont d) Free Investment Place Allocation The following may be assigned lands that belong to the Treasure, free of charge: Entities who are engaged in investments and who anticipate a minimum of 30 employees, Entities who are in the 49 provinces determined by law Entities who are in all the Priority Regions for Development, Organizations with added budget, Municipalities Special Provincial Administrations

36 INCENTIVES FOR RISING OF INVESTMENT IN TURKEY (Cont d) Energy Support 20% of the Electricity expenses of enterprises which started operations as of April 1, 2005, will be subsidized by the Treasury and this will apply until December 31, 2008 in the following fields: The Manufacturing Industry, Mining, Stock farming (including aqua farming and chicken farming), Greenhouse Cultivation, Certified Seed Propagation, Cold Storage, Tourist Accommodation Facilities, Education, Health

37 INCENTIVES FOR RISING OF INVESTMENT (Cont d) Energy Support These enterprises must physically and permanently employ a minimum of 30 workers. 0.5 points will be added to this rate for each employee above the 30-employee limit. This increased rate, however, may not be over 50% energy price for enterprises established in organized Industrial Zones and in Industrial Areas, nor over 40% for enterprises established in other areas.

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