INVESTMENT INCENTIVES PROGRAM

INVESTMENT INCENTIVES PROGRAM 2015

2 Content is designed according to The Decree numbered 2002/3305, published in the Official Gazette of Turkey on 19 June 2012 and The Communiqué regarding the implementation of Decree on State Aids for Investments, published in the Official Gazette of Turkey on 20 June 2012 and further modifications.

Investment Incentives Program The investment incentives scheme is specifically designed to encourage investments with the potential to reduce dependency on the importation of intermediate goods vital to the country s strategic sectors. Amongst the primary objectives of the investment incentives scheme are to; reduce the current account deficit; boost investment support to lesser developed regions; increase the level of support instruments; promote clustering activities, and to support investments that will create the transfer of technology. Effective as of June 19, 2012, the investment incentives system is comprised of five different schemes. Local and foreign investors have equal access to: 1- General Investment Incentives Scheme 2- Regional Investment Incentives Scheme 3- Priority Investment Incentives Scheme 4- Large-Scale Investment Incentives Scheme 5- Strategic Investment Incentives Scheme The support instruments to be provided within the framework of various investment incentives schemes are shown in the following table: Support Instruments VAT Exemption General Investment Incentive Scheme Regional Investment Incentive Scheme Priority Investment Incentives Scheme Large Scale Investment Incentive Scheme Strategic Investment Incentive Scheme Customs Duty Exemption Tax Reduction Social Security Premium Support (Employer s Share) Income Tax Withholding Support* Social Security Premium Support (Employee s Share)* Interest Support ** Land Allocation VAT Refund * Provided that the investment is made in the Region 6. ** Provided that the investment is made in the Regions 3, 4, 5 or 6 within the frame of the Regional Investment Incentive Scheme 1

VAT Exemption: In accordance with the measure, VAT is not paid for imported and/or domestically provided machinery and equipment within the scope of the investment encouragement certificate. Customs Duty Exemption: Customs duty is not paid for the machinery and equipment provided from abroad (imported) within the scope of the investment encouragement certificate. Tax Reduction: Calculation of income or corporate tax with reduced rates until the total value reaches to the amount of contribution to the investment according to envisaged rate of contribution. Social Security Premium Support (Employer s Share): The measure stipulates that for the additional employment created by the investment, employer s share of social security premium on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry. Income Tax Withholding Allowance: The measure stipulates that the income tax regarding the additional employment generated by the investment within the scope of the investment encouragement certificate will not be liable to withholding. The measure is applicable only for the investments to be made in Region 6 within the scope of an investment encouragement certificate. Social Security Premium Support (Employee s Share): The measure stipulates that for the additional employment created by the investment, employee s share of social security premium on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry. The measure is applicable only for the investments to be made in Region 6 within the scope of an investment encouragement certificate. Interest Support: Interest support, is a financial support instrument, provided for the loans with a term of at least one year obtained within the frame of the investment encouragement certificate. The measure stipulates that a certain portion of the interest/profit share regarding the loan equivalent of at most 70% of the fixed investment amount registered in the certificate will be covered by the Ministry. Land Allocation: Refers to allocation of land to the investments with Investment Incentive Certificates, if any in that province in accordance with the rules and principles determined by the Ministry of Finance. VAT Refund: VAT collected on the building & construction expenses made within the frame of strategic investments with a fixed investment amount of 500 million TRY will be rebated. 2

Who Can Apply? Individuals Partnerships Capital stock companies i.e. a joint stock company Cooperatives Unions Joint ventures Public institutions and entities Institutions of Professionals that have Public Status. Associations and foundations Local branches of foreign companies General Investment Incentives Scheme Regardless of the region where investment takes place, all projects meeting both the specific capacity conditions and the minimum fixed investment amount are supported within the framework of the General Investment Incentives Scheme. Some types of investments are excluded from the investment incentives program and would not benefit from this scheme. The minimum fixed investment amount is TRY 1 million in Region 1 (İzmir is in Region 1) and 2, and TRY 500,000 in Region 3, 4, 5 and 6. Major investment incentive instruments for İzmir : VAT Exemption Customs Duty Exemption Regional Investment Incentives Scheme The sectors to be supported in each province are determined in accordance with potentials of the provinces and the economies of scale and the intensity of the supports are differentiated in line with the development level of the regions. The minimum fixed investment amount is defined separately for each sector and each region. The lowest amount is TRY 1 million in Regions 1 (İzmir is in Region 1 ) and 2, and TRY 500,000 in the remaining Regions. 3

Sectors Supported by the Measures of the Regional Scale Investment Incentive Scheme Sector Code US-97 Code Sectors 1st Region (İzmir) 1 0121, 0122.2 Integrated livestock investments including integrated breeding investments (excluding investments not suited to minimum capacity conditions defined in footnote 1) * TRY 1 Million 2 0500.0.04 Aquaculture (including tiddler and caviar production ) TRY 1 Million 3 15 Food products and beverages production (excluding investment fields defined in footnote 2) ** TRY 2 Million 8 1912 and 1920 M a n u f a c t u r e o f l u g g a g e, h a n d b a g, l e a t h e r c r a f t s, s h o e s e t c. TRY 1 Million 9 20 Manufacture of wood products and cork products (excluding f u r n i t u r e ), m a n u f a c t u r e o f s t r a w a n d s i m i l a r w o v e n p r o d u c t s TRY 4 Million 10 21 Manufacture of paper and paper products TRY 10 Million 11 24 Manufacture of chemicals and chemical products TRY 4 Million 23 2691.2, 2691.3, 2693.1 27 2720, 273 Manufacture of sanitary products made of ceramic, ceramic insulation materials, ceramic tile and pavement stone Base metal industry (other than iron-steel industry), metal casting industry TRY 4 Million TRY 4 Million 30 29 Manufacture of machinery and equipments TRY 4 Million 33 31 Manufacture of electrical machines and devices TRY 4 Million 36 34 Motor land vehicles and components industry Investment amount is TRY 50 Million in motor land vehicles and TRY 4 Million in motor vehicles components 38 3591 and 3592 Motorcycle and bicycle production TRY 4 Million 39 361 Furniture manufacture (excluding those made only from metal and plastics ) TRY 4 Million 41 5510.1.01 Hotels*** 3 stars and above 42 5510.3.01 Dormitories 100 students 43 6302.0.01 Cold storage services 1,000 m 2 44 6302.0.03 Licensed warehousing TRY 2 Million 45 80 (except 809) Education services (including preschool education services, e x c l u d i n g a d u l t e d u c a t i o n a n d o t h e r e d u c a t i o n s e r v i c e s ) TRY 1 Million 46 8511.0.01-05, 8511.0.99, 8531.0.01-03 Hospital investments, nursing home Hospital 1 Million Nursing Home: 100 people 48 Waste recycling or disposal facilities TRY 1 Million 50 Greenhousing 40 decares 4

*1- For integrated livestock investments; -For benefitting from supports in the 1st and 2nd regions: dairy based bovine integrated investments need 500 bovine animals minimum capacity, meat based bovine integrated investments need 700/season bovine animals minimum capacity, stockbreeding bovine integrated investments need 500 bovine animals minimum capacity, stockbreeding ovine integrated investments need 2,000 ovine animals minimum capacity, dairy and meat based ovine integrated investments need 2,000/season ovine animals minimum capacity and poultry integrated investments need 200,000/season minimum animal capacity (no capacity condition is sought for breeding purpose poultry integrated investments). - For benefitting from supports in the 3rd and 4th regions: dairy based bovine integrated investments need 300 bovine animals minimum capacity, meat based bovine integrated investments need 500/season bovine animals minimum capacity, stockbreeding bovine integrated investments need 300 bovine animals minimum capacity, stockbreeding ovine integrated investments need 1,000 ovine animals minimum capacity, dairy and meat based ovine integrated investments need 1,000/season ovine animals minimum capacity and poultry integrated investments need 200,000/season minimum animal capacity (no capacity condition is sought for breeding purpose poultry integrated investments). **2-Exluding 6th region, pasta, pasta-integrated farina investments, vermicelli, couscous, phyllo, kadayıf, rice, pet food, fish flour, fish oil, fish food, bread, rakı, beer, dried nuts, pickle, linter cotton, tea, nut crushing/roasting, instant soup, beef extracts and likewise along with legume sorting and packaging investments among food products and beverages production investments may not benefit from regional supports. ***3- Special facilities, plains/mountain homes and boutique hotel investments with tourism investment/ operation certificate do not necessitate 3 stars and above condition. The terms and rates of supports within the Regional Investment Incentives Scheme for Izmir Region are summarized in the Table below: INCENTIVE MEASURES VAT Exemption Customs Duty Exemption Tax Reduction ( For investment projects to be started till Dec. 31th 2015 ) *Tax reduction rate is: 30% for outside OIZ*, 40% for Within OIZ Social Security Premium Support (Employer s Share) ( For investment projects to be started till Dec. 31th 2015 ) Land Allocation Interest Support Social Security Premium Support (Employee s Share) Income Tax Withholding Support Rate of Contribution to Investment (%) Support Period Local Loans Foreign Exchange/ FX denominated loans İZMİR Regional Sectors Out of OIZ* 15 Within OIZ* 20 Out of OIZ* Within OIZ* 2 years 3 years N/A N/A N/A OIZ: Organized Industrial Zones 5

Priority Investment Incentives Scheme Other than the sectors listed; 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. Investments for cargo and/or passenger transportation by seaway. Railway investments of the private sector for intercity cargo and/or passenger transportation and railway investments for urban cargo transportation. Test centers wind tunnels and similar investments (automotive, space and defense industry). Tourism accommodation investments to be realized in Culture and Tourism Protection and Development Regions (for İzmir Region, tourism investments in Bergama Allanoi and thermal tourism investments in Dikili) or investment to be realized in thermal tourism areas. International exhibition center investments with a minimum covered area of 50.000 m 2 (excluding accommodation and shopping mall units). Investments in the fields of defense, aviation and space which are to be realized after the project approval of the Ministry for Defense and with a minimum amount of twenty million Turkish Liras. Mine extraction and/or processing investments (excluding group I minerals as stated in Mining Law No. 3213 dated 4/6/1985 and crushed stones and extraction and/or processing investments in Istanbul). Day Care, Kindergarten, Pre school, Primary, Middle and High School investments by private sector Investments made to produce products developed by an R&D Project which is supported by Ministry of Science, Industry and Technology, TÜBİTAK and KOSGEB. Investments in motor vehicle industry with a minimum investment amount of TRY 300 million, Engine production investments with a minimum investment amount of TRY 75 million and Investments in components of engine, transmission components and their parts, and automotive electronics with a minimum investment amount of TRY 20 million. Investments in electricity generation in which mines, specified in article 2/4-b group of Law No. 3213, used as a source (under a mining and prospecting license given by the Ministry of Energy and Natural Resources). Liquefied natural gas (LNG) investments and underground gas storage investments, Investments of carbon fiber or the composite materials made from carbon fiber, Investments made to generate electricity from coal, Pharmaceuticals manufacturing Office, accounting & computing machinery manufacturing Radio, television and communication machinery manufacturing Medical, precision and optical instruments manufacturing Aircraft and spacecraft manufacturing Aircraft and spacecraft maintenance 6 Investments for manufacturing of turbine and generator for renewable energy production and blades used in wind energy production

The terms and rates of supports within the Regional Investment Incentives Scheme for Izmir Region are summarized in the Table below: İZMİR INCENTIVE MEASURES VAT Exemption Customs Duty Exemption For priority investment subjects Tax Reduction ( For investment projects to be started till Dec. 31th 2015 ) *Tax reduction rate: 80% Rate of Contribution to Investment (%) Out of OIZ* 40 Within OIZ* 30 Social Security Premium Support (Employer s Share) (For investment projects to be started till Dec. 31th 2015) Support Period Out of OIZ* Within OIZ* 7 years 6 years Land Allocation Local Loans 5 Points Interest Support Foreign Exchange/ FX denominated loans 2 points Social Security Premium Support (Employee s Share) N/A Income Tax Withholding Support OIZ: Organized Industrial Zones N/A 7

Large Scale Investment Incentive Scheme Twelve investment subjects are supported by the instruments of the Large-Scale Investment Incentives Scheme. The minimum fixed investment amount is defined separately for each sector. The lowest amount is TRY 50 million. Sectors Supported by t he Measures of the Large Scale Investment Incentive Scheme No Investment Subject Minimum Fixed Investment Amount (million TRY) 1 Production of refined petroleum products 1,000 2 Production of chemical products 200 3 Harbors and harbor services 200 4 Automotive OEM & 4-a a) Automotive OEM supply industries 200 4-b b) Automotive supply industries 50 5 Production of railway and tram locomotives and/or railway and tram cars 6 Transit pipeline transportation services 7 Electronics industry 8 Production of medical, high-precision and optical equipment 9 Production of pharmaceuticals 50 10 Production of aircraft and spacecraft and/or related parts 11 Production of machinery (including electrical machinery and equipment) 12 Mining (including metal production) The terms and rates of supports within the Large Scale Investment Incentives Scheme for Izmir The following categories of investment within the Large Scale Investment Incentives Scheme can benefit from supports granted to a region rated one grade higher, in terms of tax reduction and social security premium support (employer s share). 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 8

INCENTIVE INSTRUMENTS WITHIN THE LARGE SCALE INVESTMENT INCENTIVES SCHEME VAT Exemption Customs Duty Exemption İZMİR Tax Reduction ( For investment projects to be started till Dec. 31th 2015 ) Rate of Contribution to Investment (%) Out of OIZ* 25 Within OIZ* 30 Social Security Premium Support (Employer s Share) (For investment projects to be started till Dec. 31th 2015) Land Allocation Social Security Premium (Employee s Share) Income Tax Withholding Support *OIZ: Organized Industrial Zones Support Period Out of OIZ* Within OIZ* 2 years 3 years N/A N/A Strategic Investment Incentive Scheme The minimum fixed investment amount is defined separately for each sector. The lowest amount is TRY 50 million. On the basis of the Input Supply Strategy, 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 to encourage high-tech and high value added investments with a potential of strengthening Turkey s international competitiveness. Investments meeting the criteria below are supported within the frame of the Strategic Investment Incentive Scheme: to be made for the production of intermediate and finished goods with high import dependency to have a minimum investment amount of TRY 50 million to create a minimum added-value of 40% (this condition is not applicable to refinery and petrochemicals investments) to possess an import value of at least USD 50 million during the past one year, for goods to be produced (this condition is not applicable to goods with no domestic production) 9

The terms and rates of supports within the Strategic Investment Incentives Scheme for Izmir INCENTIVE INSTRUMENTS WITHIN THE STRATEGIC INVESTMENT INCENTIVES SCHEME VAT Exemption Customs Duty Exemption ALL REGIONS Tax Reduction Rate of Contribution to Investment (%) 50 Social Security Premium Support (Employer s Share) Land Allocation Interest Support Support Period Local Loans Foreign Exchange denominated loans 7 Years (10 years for 6th region) 5 points 2 points Social Security Premium Support (Employee s Share) Income Tax Withholding Support VAT Refund 10 years (only for investments in the Region 6) 10 years (only for investments in the Region 6) (only for the expenditures of building for investments over TRY 500 million) R&D and Environment Investments R&D investments may benefit from VAT exception, customs duty exemption and interest support. If the mentioned investments are in Region 6, they may also benefit from income tax stoppage and social security premium support. Definition of Research and Development (R&D) Investment Investments for research and development activities based on scientific principles and of which each phase is previously determined in order to develop new products, increase product quality and standards, and adopt any new technology that would reduce the costs and enhance the standards to conditions of the country. Definition of Environment Investment Investments concerning the cleaning or disposal of waste such as solid, liquid or gas waste of facilities that already exists or will be established, and which are not directly concerned with commodity production. 10

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