INVESTMENT INCENTIVES IN TURKEY Nihat ALKAS Head of Department General Directorate of Incentives and Foreign MINISTRY OF ECONOMY
Policy Orientation The year 2023 would be the centenary of Turkish Republic s establishment. Therefore we set up a challenging vision for 2023. By year 2023, we do intend; to take place among the top 10 economies in the world, to achieve an annual export level of 500 billion USD and to raise per capita income to 25 thousand USD. to reach $2 trillion GDP to increase the share of R&D expenditures to %3 of GDP to host 50 million tourists annually with $50 billion revenue to have 125.000 MW installed power (up from 55.000 MW) to built 10.000 km high-speed railway, 4.000 km new railway 2
Regional Strategic General Priority s Large Scale 3
Additionally, all investment projects in Region 6 will be eligible for Income Tax Withholding Allowance and investments within the frame of regional, large scale and strategic schemes in Region 6 are also eligible for Social Security Premium support of Employee s Share. 4
Social Security Premium Support (Employee s Share) VAT Exemption Customs Duty Exemption Income Tax Withholding Support SUPPORT MEASURES Tax Deduction VAT Refund Social Security Premium Support (Employer s Share) Land Allocation Interest Support 5
Support Measures VAT Exemption: machinery and equipment imported and/or locally provided within the scope of the incentive certificate will be VAT exempt. (~18%) Customs Duty Exemption: machinery and equipment imported within the scope of the incentive certificate will be customs duty exempt. (~2%) Tax Deduction: Reduced tax rates for investor s income (50-90 %) until the total deduction reaches to the rate of contribution. (15-65 %) 6
Support Measures Interest Rate Support: For investment loans, a certain portion of the interest share will be covered by the Ministry. (3-7 percentage points for TL credits, 1-2 percentage points for foreign currency credits) (TL 500K-900K ~ $ 225K-403K) Land Allocation: Government land will be allocated for the investments VAT Refund: VAT collected on the building & construction expenses will be rebated. (only for strategic investment projects with a fixed investment cost of least TL 500M ~ $ 230M) 7
Support Measures For the additional employment created by the investment Social Security Premium Employer s Share, on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry. (~ $79 per employee per month) Social Security Premium Employee s Share, on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry. (only for Region 6) (~ $71 per employee per month) Income Tax Withholding exemption will provide exemption from income tax withholding. (only for Region 6) (~ $29 per employee per month) * A special note for Region VI: The minimum wage will be ~30% less by decreasing from ~$597 to ~$418 with the effect of this new investment incentive program. 8
Support Measures Support Measures General Regional & Priority Large Scale Strategic VAT Exemption Customs Duty Exemption Tax Deduction Social Security Premium Support (Employer s Share) Interest Support Land Allocation VAT Refund Only For Region 6 (The Least Developed Region) Income Tax Withholding Support Social Security Premium Support (Employee s Share) 9
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Regional Incentive Large Scale Incentive Strategic Incentive General Incentive 11
REGIONAL INVESTMENT INCENTIVE SCHEME The aim of the : Regional system aims to eliminate inter-regional imbalances. The supported sectors: Supported sectors are determined according to the economic potentials of provinces and scales of economies. For each provinces, there is a supported sectors list with a different minimum investment amount or capacity requirement. The support rates and terms: Rates and terms of support measures are differentiated according to development level of the regions. 12
Summary Table REGIONAL INVESTMENT INCENTIVE SCHEME Incentives Region 1 Region 2 Region 3 Region 4 Region 5 Region 6 VAT Exemption Customs Duty Exemption Tax Deduction Rate of Contribution to (%) out of OIZ in OIZ 15 20 25 30 40 50 20 25 30 40 50 55 Social Security Premium Support (Employer s Share) out of OIZ in OIZ 2 years 3 years 5 years 6 years 7 years 10 years 3 years 5 years 6 years 7 years 10 years 12 years Land Allocation Interest Support N/A N/A Income Tax Withholding N/A N/A N/A N/A N/A 10 years Social Security Premium Support (Employee s Share) N/A N/A N/A N/A N/A 10 years 13
PRIORITY INVESTMENTS Following priority investments will benefit from terms and rates of the support measures of Region 5 even they are made in Regions 1, 2, 3, 4. Tourism investments in Cultural and Touristic Preservation and Development Regions determined by the Council of Ministers Decree and thermal tourism investments. Mining s Specific pharmaceutical (bio-technologic and oncology pharma, blood products) investments and Defense Industry investments with a minimum investment amount of TL 20 Million (~ $ 9.3 Million) Railroad and maritime transportation investments 14
PRIORITY INVESTMENTS Test facilities, wind tunnel and similar investments made for automotive, space or defense industries International fairground investments with a minimum covered area of 50.000 m 2 Nursery, Pre-school, Primary, Middle and High School investments by private sector s made to produce products developed by an R&D Project which is supported by Ministry of Science, Industry and Technology, TUBITAK and KOSGEB 15
PRIORITY INVESTMENTS Automotive OEM investments with a with a minimum investment amount of TL 300 Million (~ $140 Million) Engine production investments with a with a minimum investment amount of TL 75 Million (~ $35 Million) Engine parts, transmission and parts and/or automotive electronics production with a minimum investment amount of TL 20 Million (~ $9.3 Million) Electric energy production which uses specific mines (i.e. lignite, hard coal, anthracite) as inputs. 16
Priority s PRIORITY INVESTMENTS Energy efficiency investments of existing manufacturing facilities. s on production of electricity through waste heat recovery in a facility (excluding natural gas-based electricity generation plants) Liquefied natural gas (LNG) investments and underground gas storage investments with a minimum amount of TL 50 M (~ $23 M) s of carbon fiber or the composite materials made from carbon fiber provided that along with carbon fiber production 17
Summary Table SUPPORT MEASURES FOR PRIORITY INVESTMENTS Incentives Terms and Rates VAT Exemption Customs Duty Exemption Tax Reduction Rate of Contribution to (%) Social Security Premium Support (Employer s Share) Land Allocation Interest Support 40 7 years 18
Regional Incentive Large Scale Incentive Strategic Incentive General Incentive 19
Goals of the : Large Scale Incentive - Improvement of Technology and R&D Capacity - Provide a competitive advantage in the international arena # Subjects Min. Inv. Amount Million TL Million USD 1 Refined Petroleum Products 1.000 448 2 Chemical Products 200 90 3 Harbours and Harbour Services 200 90 4 Automotive OEM and Side Suppliers 200-50 90-22.5 5 Railway and Tram Locomotives and/or Railway Cars 50 22.5 6 Transit Pipe Line Transportation Services 50 22.5 7 Electronics 50 22.5 8 Medical, High Precision and Optical Equipment 50 22.5 9 Pharmaceuticals 50 22.5 10 Aircraft and Space Vehicles and/or Parts 50 22.5 11 Machinery (including Electrical Machines And Equipments) 50 22.5 12 Integrated Metal Production 50 22.5 20
Summary Table Large Scale Incentive Incentives Region 1 Region 2 Region 3 Region 4 Region 5 Region 6 VAT Exemption Customs Duty Exemption Tax Reduction Rate of Contribution to (%) Social Security Premium Support (Employer s Share) (Year) out of OIZ in OIZ out of OIZ in OIZ 25 30 35 40 50 60 30 35 40 50 60 65 2 3 5 6 7 10 3 5 6 7 10 12 Land Allocation Interest Support N/A N/A N/A N/A N/A N/A Income Tax Withholding N/A N/A N/A N/A N/A 10 Social Security Premium Support (Employee s Share) (Year) N/A N/A N/A N/A N/A 10 21
Regional Incentive Large Scale Incentive Strategic Incentive General Incentive 22
Strategic Incentive Goals of the scheme: This scheme aims at supporting production of intermediate and final products with high import dependence with a view to reduce current account deficit. It also targets encouraging high-tech and high value added investments with a potential to strengthen Turkey s international competitiveness. 23
Strategic Incentive Eligibility Criteria for Strategic : Production of import dependent intermediate goods and final products (more than 50% supplied by imports) 50 Million TL ($22.5 M) minimum investment amount A minimum 40% value addition Import in the last year should be at least $ 50M (This condition is not necessary for goods with no domestic production) 24
Summary Table Strategic Incentive Incentives All Regions VAT Exemption Customs Duty Exemption Tax Reduction Rate of Contribution to (%) 50% ( and ½ of Tax Deduction can be used before the investment is completed) Social Security Premium Support (Employer s Share) Land Allocation VAT Refund Interest Payment Support 7 Years (10 years for Region 6) For the building and construction expenditures of investment projects of at least 500 Million TL (~$233 Million) Limited to 5% of total investment amount and with a cap of 50 Million TL ($22.5M) Income Tax Withholding Exemption 10 years only for Region 6 Social Security Premium Support (Employee s Share) 10 years only for Region 6 25
Regional Incentive Large Scale Incentive Strategic Incentive General Incentive 26
General Incentive Regardless of region where investment is made, the scheme is available for all investment projects provided that: subject is not excluded from the investment incentives programs. Requirement of minimum fixed investment amount is met 1 Million TL. ($470K) in Regions I and II, 500 Thousand TL.($235K) in Regions III, IV, V and VI respectively. The investment projects that are supported from the General Incentives will benefit only from Customs Duty and VAT exemptions on their machinery and equipment expenditures. 27
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TAX REDUCTION Rate of Contribution to (%) Regions Regional Large Scale For investment projects to be started till Dec. 31th 2014 For investment projects to be started after Jan. 1st 2015 For investment projects to be started till Dec. 31th 2014 For investment projects to be started after Jan. 1st 2015 I 15 10 25 20 II 20 15 30 25 III 25 20 35 30 IV 30 25 40 35 V 40 30 50 40 VI 50 35 60 45 29
SOCIAL SECURITY PREMIUM SUPPORT (Employer s Share) Regions For investment projects to be started till Dec. 31th 2013 For investment projects to be started after Jan. 1st 2014 Regional Support Cap (Ratio to Fixed - %) Large Scale Strategic s** Region 1 2 years N/A 10 3 15 Region 2 3 years N/A 15 5 15 Region 3 5 years 3 years 20 8 15 Region 4 6 years 5 years 25 10 15 Region 5 7 years 6 years 35 11 15 Region 6* 10 years 7 years Limitless 30
INTEREST SUPPORT s TL Loans Support Rate Loans in Foreign Currency Maximum Amount of Support (Thousand TL /~ $) R&D and Environmental Protection s 5 Points 2 Points 500 / ~225 Strategic s 5 Points 2 Points 5% of maximum 50.000 /~22.500 Region 3 3 Points 1 Points 500 / ~225 Regional Region 4 4 Points 1 Points 600 / ~269 Region 5 5 Points 2 Points 700 / ~ 313 Region 6 7 Points 2 Points 900 / ~403 31
Ayse Canan GURHAN- Commercial Counsellor Turkish Embassy in Sao Paulo Office of Commercial Counsellor Phone: + 00 55 11 3045 1733 Fax: +00 55 11 3045 1899 E-mail: saopaulo@ekonomi.gov.tr Caner SANNAV- Representative of Ministry Of Economy in Sao Paulo Office of Commercial Counsellor Phone: + 00 55 11 3045 1733 Fax: +00 55 11 3045 1899 E-mail: saopaulo@ekonomi.gov.tr Republic of Turkey General Directorate of Incentive Implementation and Foreign
Phone : + 90 312 444 43 63 E-mail Web : incentives@economy.gov.tr : www.economy.gov.tr www.incentives.gov.tr Nihat ALKAS Head of Department E-mail: alkasn@ekonomi.gov.tr Ismet INCE Foreign Trade Expert E-mail: incei@ekonomi.gov.tr Alper Kursad ALKAN Foreign Trade Expert E-mail: alkana@ekonomi.gov.tr Republic of Turkey General Directorate of Incentive Implementation and Foreign
TAX DEDUCTION IN REGIONAL AND LARGE SCALE INVESTMENT INCENTIVE SCHEMES Regions Rate of Contribution to (%) Tax Deduction Rate (%) Applicable Rates of Tax Deduction Amount before and after completion of investment project Before After Regional Large Scale 50 0 100 Region 1 15 25 Region 2 20 30 55 10 90 Region 3 25 35 60 20 80 Region 4 30 40 70 30 70 Region 5 40 50 80 50 50 Region 6 50 60 90 80 20 34
Explanatory Calculations for a Hypothetical Project Valid only with certain assumptions on project characteristics REGION 2 REGION 3 REGION 4 REGION 5 REGION 6 Amount (Thousands) TL 5.000 ~ $ 2.250 TL 5.000 ~ $ 2.250 TL 5.000 ~ $ 2.250 TL 5.000 ~ $ 2.250 TL 5.000 ~ $ 2.250 Tax Deduction : 55% 60% 70% 80% 90% Contribution Rate: 20% 25% 30% 40% 50% Tax Deductable Amount (Thousands): TL 1.000 ~ $ 448 TL 1.250 ~ $ 560 TL 1.500 ~ $ 672 TL 2.000 ~ $ 896 TL 2.500 ~ $ 1.120 - Period: (Thousands TL) (10%) 100 (20%) 250 (30%) 450 (50%) 1.000 (80%) 2.000 - Operation Period: (Thousands TL) (90%) 900 (80%) 1.000 (70%) 1.050 (50%) 1.000 (20%) 500 Corporate/income tax rate until it reaches the amount of contribution to investment: 9% (reduced tax rate: 11%) 8% (reduced tax rate : 12%) 4% 6% (reduced tax rate : (reduced tax rate : 14%) 16%) 2% (reduced tax rate : 18%) 35