INVESTMENT INCENTIVES

The incentive system can be classified under three headings:

• General Incentive Regime,
• Incentives granted to small and medium sized enterprises (SMEs),
• Incentives granted to less developed regions.

In principle, the foreign capital companies can benefit from all incentives and allowances granted to local companies. This equal treatment is guaranteed by the law and treaties of the "Reciprocal Protection and Promotion of Investments". In order to qualify for investment incentives, the foreign investors must receive an incentive certificate from the General Directorate of Foreign Investments (GDFI)

General Incentive Regime

• Exemption from customs duties and fund levies
  The imported machinery and equipment for the investment can be brought to the country with the exemption of customs duties and fund levies.

• Investment allowance
  Investment allowance is a corporate tax exemption applied to taxpayers. Of the expenses incurred within the scope of investment incentive certificate, those relating to buildings, machinery, equipment, freight and installation are entitled to benefit from the investment allowance. The current allowance rate is 100 %, which means that an amount equal to the fixed investment cost can be deducted from the future taxable profits.

• VAT exemption for imported and locally purchased machinery and equipment
  The Value Added Tax, which is due to be paid for both the imported and locally purchased machinery and equipment, shall be exempted by this incentive measure.

• Exemption from certain taxes, duties and fees

The investors granted an incentive certificates are exempted from the stamp, duties and fees related to:

• Establishing a company,
• Increasing capital within the investment period,
• Receiving investment credits whose terms are at least one year,
• Registration of land and properties as capital-in-kind.

The general incentive regime is applied varying to the location, scale and subject of investment. In terms of application of general incentives, Turkey is divided into three types of regions:

• Developed Regions: The city boundaries of Istanbul and Kocaeli; and the municipality boundaries of Ankara, Izmir, Bursa, Adana and Antalya
• First Priority Regions: 50 cities which are determined by the Council of Ministers
• Normal Regions: The remaining part of the country

The above incentive measures are applicable to all types of investments in the normal and first priority regions, but only the following investments can be qualified for incentives in the developed regions:

• Electricity production (including autoproducers)
• Infrastructure investments
• Investments under the BOT and or / BOO schemes,
• Investments related to R&D, design and development of new products or models,
• Investments for environmental protection,
• Priority technology investments determined by the High Council of Science and Technology,
• Electronic sector investments,
• Boat and yacht construction,
• Shipyard investments,
• Technoparks, information technology, education, health, tourism and telecommunication investments,
• Capacity increase, modernisation, quality improvement and integration investments,
• Projects over 50 million US Dollars meeting at least one of the following requirements: High-tech, increase in employment, high level of value added and increase in tax revenues,
• Certain service sector investments such as freight and passenger transportation, maintenance facilities, congress, fair and exhibition centers, hypermarkets
• Pumping and storage facilities for petroleum and chemical products
• Film studios,
• Storing and packaging facilities,
• Photogrametric mapping,
• Automation investment,
• Press and printing industries,
• Sports complexes,
• Newspaper and periodical distribution,
• Public sector investments,
• CD printing,

To be eligible for these incentive measures, the minimum amount of fixed investment must be 50 billion TL for the normal and developed regions, and 25 billion TL for the first priority regions, together with the following minimum equity rates:

Incentives Granted to Small and Medium Sized Enterprises (SME's)

SME is defined as an establishment operating in manufacturing sector, employing at most 150 workers, and utilizing capital goods (machinery, equipment, vehicles and office stock-excluding land and buildings) of not more than 50 billion TL registered in the legal books.

The incentives applicable to SMEs includes the standard measures such as exemption from customs duties and fund levies, investment allowance, exemption from certain taxes, duties and fees.

SME's have an additional incentive called subsidised credit facility which is a fund-sourced credit to finance machinery, equipment and raw materials for the investment project. The terms and conditions of the credit facility can be summarised as follows:

Priority Support Regions

Incentives Granted to Less Developed Regions

To restore the interregional discrepancies and create employment in less developed regions, some extra incentive measures have been taken.

• Energy incentives
  This measure enables the investors to benefit from a 50 % reduction in their electricity expenses within the following city boundaries: Van, Diyarbakýr, Siirt, Tunceli, Þýrnak and Hakkari.

• Corporate and Income Tax Exemption
  Tax exemption is for the new businesses established between January 1, 1998 and December 31, 2000 in the following centers: Batman, Bingöl, Bitlis, Diyarbakýr, Hakkari, Mardin, Muþ, Siirt, Þýrnak, Tunceli, Van, Adýyaman, Aðrý, Ardahan, Bayburt, Erzurum.
  
  These establishments are exempt from corporate and income taxes for a period of 5 years from the beginning of operations provided that they employ at least 10 workers. This incentive does not require an incentive certificate

• Free Land Allocation
  This incentive requires at least 10 jobs to be created and an incentive certificate to be taken. Land allocation applications shall be evaluated according to the availability of publicly owned lands in the investment location.