New Incentive System

What is an Investment Incentive Certificate?

The incentive certificate is a document that (1) contains the characteristic values of the investment, (2) provides the opportunity to benefit from the support elements registered on it provided that the investment is realized in accordance with these values and the determined conditions, and (3) is issued for investments to be carried out in accordance with the objectives of the Decision.

What is the Legislation Related to the Investment Incentive Certificate?

To encourage investments, the Council of Ministers published the new incentive system in the Official Gazette dated 19.06.2012 and numbered 28328 with the "Decision on State Aids for Investments". To facilitate the implementation of the system, the "Communiqué on the Implementation of the Decision on State Aids for Investments" was included in the Official Gazette dated 20.06.2012 and numbered 28329.

Who Can Obtain an Investment Incentive Certificate?

Real persons, ordinary partnerships, capital companies, cooperatives, unions, joint ventures, public institutions and organizations (general and special budgeted institutions and organizations, provincial special administrations, municipalities, public economic enterprises and institutions and organizations where their share in the capital composition exceeds fifty percent), professional organizations with public institution status, associations and foundations, and branches of foreign companies abroad may apply for the issuance of an incentive certificate. However, applications for incentive certificates on behalf of legal entities whose establishment process is not completed are not evaluated.

Where to Apply for an Investment Incentive Certificate?

Applications for Investment Incentive Certificates are made to the Incentive Implementation and Foreign Capital General Directorate under the Ministry of Economy. However, for investments within the scope of general incentive practices, with a fixed investment amount not exceeding ten million Turkish Lira and listed in Annex-4 of the Communiqué, applications can be made to local units. Applications to local units can be made for the manufacturing of electrical machinery and equipment and the manufacturing of radio, television, communication equipment and devices, which concern our sector.

Local Units That Can Evaluate Incentive Certificate Applications:

Chambers of Industry CHAMBERS: Adana, Aydın, Balıkesir, Denizli, İzmir, Muğla, Eskişehir, Gaziantep, İstanbul, Kayseri, Kocaeli and Konya Chambers of Industry.

Development Agencies:

Ahi Development Agency (Kırşehir, Kırıkkale, Nevşehir, Niğde, Aksaray)
Ankara Development Agency
Western Mediterranean Development Agency (Antalya, Isparta, Burdur)
Western Black Sea Development Agency (Zonguldak, Karabük, Bartın)
Bursa-Eskişehir-Bilecik Development Agency
Çukurova Development Agency (Adana – Mersin)
Tigris Development Agency (Mardin, Şırnak, Siirt, Batman)
Eastern Mediterranean Development Agency (Kahramanmaraş, Osmaniye, Hatay)
Eastern Anatolia Development Agency (Van, Hakkari, Muş, Bitlis)
Eastern Black Sea Development Agency (Ordu, Trabzon, Giresun, Rize, Gümüşhane, Artvin)
Eastern Marmara Development Agency (Kocaeli, Sakarya, Yalova, Bolu, Düzce)
Fırat Development Agency (Malatya, Elazığ, Bingöl, Tunceli)
Southern Aegean Development Agency (Aydın, Muğla, Denizli)
Southern Marmara Development Agency (Çanakkale, Balıkesir)
Silk Road Development Agency (Gaziantep, Adıyaman, Kilis)
Istanbul Development Agency
Izmir Development Agency
Karacadağ Development Agency (Şanlıurfa, Diyarbakır)
Northern Anatolia Development Agency (Sinop, Kastamonu, Çankırı)
Northeast Anatolia Development Agency (Erzurum, Erzincan, Bayburt)
Mevlana Development Agency (Konya, Karaman)
Central Anatolia Development Agency (Kayseri, Sivas, Yozgat)
Central Black Sea Development Agency (Samsun, Çorum, Tokat, Amasya)
Serhat Development Agency (Kars, Ardahan, Iğdır, Ağrı)
Thrace Development Agency (Edirne, Tekirdağ, Kırklareli)
Zafer Development Agency (Kütahya, Manisa, Uşak, Afyonkarahisar)

What Documents Are Required to Obtain an Incentive Certificate?

The documents required for the issuance of an Investment Incentive Certificate in applications to the Ministry of Economy or local units are:

Application petition signed by the person or persons authorized to represent and bind the investor
Notarized signature circulars of the persons authorized to represent and bind the investor, signature declarations for public institutions, sole proprietorships and real persons
Investment information form and commitment, and lists of machinery and equipment, prepared in accordance with the sample in Annex-1 of the Communiqué, signed and stamped on each page by the person or persons authorized to represent and bind the investor
For applications to the Ministry, a document showing that the amount of four hundred Turkish Lira has been deposited into the account specified in Annex-9 of the Ministry's Revolving Fund Enterprise; in case of application to local units, a document showing that one hundred Turkish Lira portion of the above-mentioned amount has been deposited into the relevant local unit's account and the remaining portion into the Ministry's Revolving Fund Enterprise account.
Original or notarized/notarized by the registry authority copy of the Turkish Trade Registry Gazette or Turkish Tradesmen and Craftsmen Registry Gazette showing the final status of the company's partnership structure, capital amount and fields of activity
Except for applications by public institutions and organizations, a letter to be obtained from the relevant units of the Social Security Institution or a barcoded printout from the Institution's electronic information communication environment stating that there are no accrued premium and administrative monetary fine debts to the Social Security Institution nationwide pursuant to Law No. 5510 dated 31/5/2006, or that they have been postponed and/or installments or restructured and the restructuring has not been violated
For investment subjects where only the "Positive Environmental Impact Assessment Decision" or "No Environmental Impact Assessment Required Decision" listed in the lists attached to the Environmental Impact Assessment Regulation published in the Official Gazette dated 17/7/2008 and numbered 26939 under the Environmental Law dated 9/8/1983 and No. 2872 is required, the Decision and/or letter regarding the Decision obtained from the Ministry of Environment and Urbanization
Prior to applying for the incentive certificate, other information and documents to be obtained from other public institutions and organizations as required by the relevant legislation depending on the characteristics of the investment and specified in Annex-2 of the Communiqué
For strategic investments, in addition, a feasibility report containing sectoral, financial and technical analyses related to the investment subject, along with information, documents, calculations and tables proving that each of the criteria specified in Article 10 of the Communiqué is met
Other information and documents that may be requested by the General Directorate depending on the sector, size or incentive practices of the investment

What Are My Obligations I Need to Pay Attention to After Obtaining the Incentive Certificate?

Certain obligations are imposed on those who obtain an Investment Incentive Certificate:

The investment within the scope of the incentive certificate must be completed under the determined conditions and capacities and put into operation.

Investments within the scope of the incentive certificate are essentially required to be realized within the period foreseen as a result of the project-based evaluation.

Transfer, sale, export or leasing of machinery and equipment within the scope of the incentive certificate for which completion visa has been made is free provided that five years have passed since the acquisition of such investment goods.

Large-scale investments and investments carried out within the scope of regional incentive practices must operate in their location for at least 5 (five) years from the date of commissioning. Requests for relocation of investments benefiting from general incentive practices are evaluated by the Ministry on a project basis.

The investor must apply to the local unit or the Ministry that issued the incentive certificate for the completion visa of the investment within six months following the end of the foreseen period or extension period.

What Does the New Incentive System Offer for Our Sector?

The New Incentive System is built on four different applications: "General Incentive Practices, Regional Incentive Practices, Large-Scale Incentive Practices and Strategic Investment Practices". Before providing information on these practices, it would be beneficial to focus on the support elements they include. There are nine support elements in the incentive system:

VAT Exemption: Machinery and equipment imports and domestic deliveries to be made within the scope of the incentive certificate to investors holding the incentive certificate may be exempted from VAT.

VAT Refund: Building-construction expenditures to be made within the scope of strategic investments with a fixed investment amount exceeding five hundred million Turkish Lira may benefit from VAT refund.

Customs Duty Exemption: It is the exemption from customs duties to be paid for the import of investment good machinery and equipment within the scope of the incentive certificate.

Tax Reduction: It is the application of Income or Corporate Tax at a reduced rate. The reductions are applied until the total reaches the contribution amount to the investment and the contribution amounts vary by region.

Insurance Premium Employer Share Support: It is the payment by the Ministry of the employer share of the insurance premium to be paid for the additional employment provided as a result of the investment made within the scope of the Incentive Certificate. However, this amount is limited to the portion corresponding to the minimum wage. For this support, the completion visa of the incentive certificate must have been made.

Investment Place Allocation: Investment place may be allocated to large-scale investments, strategic investments and investments that will benefit from regional supports according to the procedures and principles determined by the Ministry of Finance.

Interest Support: Provided that it is also deemed appropriate by the Ministry, the interest or profit share to be paid for the portion up to seventy percent of the fixed investment amount registered in the incentive certificate of investment loans with a minimum term of one year may be covered from budget resources for a maximum of the first five years on condition that it is paid.

Insurance Premium Support: The portion of the worker share of the insurance premium to be paid by the employer to the Social Security Institution for the additional employment provided with the investment, corresponding to the minimum wage, may be covered from the Ministry's budget on behalf of the employer after the completion visa is made.

Income Tax Withholding Support: The income tax calculated on the portion of the workers' wages corresponding to the minimum wage for the additional employment provided with investments within the scope of investment incentive certificates is deducted from the tax accrued starting from the date the investment is partially or fully put into operation.

General Incentive Practice

Except for regional, large-scale and strategic investments and investment subjects not to be incentivized listed in Annex-4 of the Decision and investment subjects that cannot meet the conditions foreseen in Annex-4 for incentivization, investments with a fixed investment amount over 1 million TL in the 1st and 2nd regions and 500 thousand TL in other regions may benefit from the following support elements.

Customs duty exemption: Machinery and equipment imports and domestic deliveries to be made within the scope of the incentive certificate to investors holding the incentive certificate may be exempted from VAT.

Value Added Tax (VAT) exemption: It is the exemption from customs duties to be paid for the import of investment good machinery and equipment within the scope of the incentive certificate.

Income tax withholding support (for investments to be made in the 6th region)

Regional Incentive Practice

All provinces in our country have been numbered from 1 to 6 according to the Socio-Economic Development Index (SEGE) 2011 study. The most developed province is indicated by 1 and the least developed by 6. With the numbering, our provinces are divided into 6 separate regions and the sectors to be supported have been determined taking into account the potentials of the provinces and economic scale sizes.

The minimum investment amount in Regional Incentive practices is listed in Annex-2 of the Decision. The manufacturing of electrical machinery and equipment and the manufacturing of radio, television, communication equipment and devices, which closely concern our sector, can benefit from Regional Incentives in all provinces. The minimum amount for investments in these two areas is applied as 4 million TL in the 1st Region, 3 million TL in the 2nd Region, 2 million TL in the 3rd Region, 1 million TL in the 4th and 5th Regions, and 500 thousand TL in the 6th Region.

The support elements from which investments with Regional Incentive Certificates will benefit are as follows:

VAT Exemption (Applied as in General Incentive Practice.)
Customs Duty Exemption (Applied as in General Incentive Practice.)
Tax Reduction
Insurance Premium Employer Share Support
Investment Place Allocation
Interest Support (For investments in the 3rd, 4th, 5th and 6th regions).
Income tax withholding support (For investments to be made in the 6th region).
Insurance premium support (For investments to be made in the 6th region).
Tax Reduction

The reductions made in income or corporate tax vary between 30% and 90% depending on the region where the investment is made. In addition, the total of the tax reductions earned within the scope of the incentive continues until it reaches a certain percentage of the investment. This upper limit is called the contribution rate to the investment and is applied at a rate between 10% and 35% depending on the region where the investment is made. If the investment starts by 31.12.2012, the tax reductions and contribution rate to the investment are given in the table below at higher percentages.

Another question during the implementation of the incentive is whether the entire tax reduction is used during the investment period. In this regard, a portion of the contribution rate to the investment can be used during the investment period and the remaining portion during the operation period. The application varies as follows depending on the investment region:

Investments evaluated within the scope of Regional Incentives benefit from the tax reduction of one lower region if made in organized industrial zones (OSB). If the investment is in the lowest region, the 6th Region, 5 points are added to the contribution rate to the investment.

Insurance Premium Employer Share Support

In this support element within the scope of Regional Incentives, the application continues for the periods specified in the table below throughout the years, provided that it does not exceed the employment registered in the incentive certificate for which completion visa has been made. However, in this support element, an upper limit is applied at the rates given below.

As in the tax reduction practice, the opportunity to benefit from the support rates and periods of one lower region is available by making the investment in OSBs.

Investment Place Allocation

Investment place allocation to investors can be made by the Ministry of Finance. Within this scope, immovable properties belonging to the Treasury, Special Budgeted Administrations, Provincial Special Administrations, Municipalities, and places under the rule and disposal of the State can also be allocated as investment places.

Interest Support

It is a financing support provided for credits with a minimum term of one year used within the scope of this support element. A certain portion of the interest or profit share to be paid regarding the credit used up to 70% of the fixed investment amount registered in the incentive certificate is covered by the Ministry. Investors who will benefit from regional incentives will be able to use loans with a maximum term of 5 years from banks agreed with the Ministry of Economy at 70% of their investment amounts.

Insurance premium support (Applied for investments to be made in the 6th region)

Pursuant to the Decision, for the additional employment provided with the investment to be realized based on the incentive certificate within the scope of regional incentive practices in the 6th region, provided that it does not exceed the employment number registered in the incentive certificate for which completion visa has been made, the portion of the worker share of the insurance premium to be paid by the employer to the Social Security Institution corresponding to the minimum wage may be covered from the Ministry's budget on behalf of the employer for ten years after the completion visa is made.

Income tax withholding support (Applied for investments to be made in the 6th region)

Pursuant to the Decision, for the additional employment provided with investments to be realized within the scope of incentive certificates issued for the 6th region, provided that it does not exceed the employment number registered in the certificate, the income tax calculated on the portion of the workers' wages corresponding to the minimum wage is deducted from the tax accrued through the withholding tax return to be given for ten years starting from the date the investment is partially or fully put into operation.

Large-Scale Investment Practice

The minimum investment amount for the application of the incentive for Large-Scale Investments is listed in Annex-3 of the Decision. In electronic industry investments that closely concern our sector, the minimum investment amount is applied as 50 million TL.

The support elements from which investments with Regional Incentive Certificates will benefit are as follows:
VAT Exemption (Applied as in General Incentive Practice.)
Customs Duty Exemption (Applied as in General Incentive Practice.)
Tax Reduction
Insurance Premium Employer Share Support
Investment Place Allocation
Income tax withholding support (Applied for investments to be made in the 6th region)
Insurance premium support (Applied for investments to be made in the 6th region)
Tax Reduction

The reductions made in income or corporate tax are as given below depending on the region where the investment is made. The upper limit in the total reduction is again applied depending on the region where the investment is made. If the investment starts by 31.12.2012, the tax reductions and contribution rate to the investment are given in the table below at higher percentages.

A portion of the investment contribution rate can be utilized during the investment period, and the remaining portion during the operation period.

Investments evaluated under the Incentives for Large-Scale Investments benefit from the tax discount of one lower region if made in organized industrial zones (OSB). If the investment is in the lowest region, the 6th Region, 5 points are added to the investment contribution rate.

Employer Share of Insurance Premium Support

The application of this support element continues for the durations specified in the table below throughout the years, provided that it does not exceed the employment recorded in the incentive certificate with completion visa. However, an upper limit is applied in this support element at the rates given below.

As in the tax discount application, in this support element as well, there is an opportunity to benefit from the support rates and durations of a lower region by making the investment in OSBs.

Investment Site Allocation

Investment site allocation to investors can be made by the Ministry of Finance. Within this scope, immovable properties belonging to the Treasury, Special Budgeted Administrations, Provincial Special Administrations, Municipalities, and places under the sovereignty and disposal of the State can also be allocated as investment sites to investors.

Income tax withholding support (applicable to investments to be made in the 6th region)

Pursuant to the Decision, for the additional employment provided by investments to be realized within the scope of incentive certificates arranged for the 6th region, the income tax calculated on the portion of workers' wages corresponding to the minimum wage, without exceeding the number of employment recorded in the certificate, is deducted from the tax accrued through the withholding tax return to be issued starting from the date the investment is partially or fully operational, for a period of ten years.

Social security premium support (applicable to investments to be made in the 6th region)

Pursuant to the Decision, for the additional employment provided by the investment realized based on the incentive certificate within the scope of large-scale investment applications in the 6th region, the portion of the social security premium worker's share that the employer is required to pay to the Social Security Institution, corresponding to the minimum wage, without exceeding the number of employment recorded in the incentive certificate for which the completion visa has been made, can be covered from the Ministry's budget on behalf of the employer for a period of ten years following the completion visa.

Strategic Investment Application

The aim is to encourage investments for the domestic production of products included in our country's import items. The purpose of this new incentive is to encourage high-tech and high value-added investments that have the potential to increase international competitiveness, aimed at the production of intermediate goods and products with high import dependency, within the framework of GITES and the Import Map, in order to reduce the current account deficit. For an investment to be evaluated as a strategic investment in the Strategic Investment Incentive Application, it must meet certain conditions:

The minimum fixed investment amount must be over 50 million TL.
The total domestic production capacity related to the product to be produced in the investment subject to the incentive certificate must be less than the import of the same product.
A minimum of 40% value added must be provided with the investment to be realized within the scope of the incentive certificate.
The total import amount realized in the last year regarding the product to be produced in the investment facility must exceed 50 million USD.

The support elements included in this important incentive application are listed below:

VAT Exemption (Applied as in the General Incentive Application.)
Customs Duty Exemption (Applied as in the General Incentive Application.)
Tax discount: The discount rate is 90% in all regions and the contribution rate to the investment is applied at 50%. The total discounts up to the upper limit of the contribution rate to the investment of 50% (80% for the 6th region) can be provided during the investment period, and the remaining portion during the operation period as support.
Social security premium employer's share support: Support is provided for 7 years (10 years in the 6th Region).
Investment site allocation: Investment site allocation to investors can be made by the Ministry of Finance. Within this scope, immovable properties belonging to the Treasury, Special Budgeted Administrations, Provincial Special Administrations, Municipalities, and places under the sovereignty and disposal of the State can also be allocated as investment sites to investors.
Interest support: Interest support is provided up to a maximum of 50 Million TL, without exceeding 5% of the investment amount. The upper limit for loans in foreign currency is 2%.

VAT refund: Applied to building-construction expenditures of investments exceeding 500 Million TL.

Income tax withholding support (for investments to be made in the 6th region): Pursuant to the Decision, for the additional employment provided by investments to be realized within the scope of incentive certificates arranged for the 6th region, the income tax calculated on the portion of workers' wages corresponding to the minimum wage, without exceeding the number of employment recorded in the certificate, is deducted from the tax accrued through the withholding tax return to be issued starting from the date the investment is partially or fully operational, for a period of ten years.

Social security premium support (for investments to be made in the 6th region): Pursuant to the Decision, for the additional employment provided by the investment realized based on the incentive certificate within the scope of large-scale investment applications in the 6th region, the portion of the social security premium worker's share that the employer is required to pay to the Social Security Institution, corresponding to the minimum wage, without exceeding the number of employment recorded in the incentive certificate for which the completion visa has been made, can be covered from the Ministry's budget on behalf of the employer for a period of ten years following the completion visa.

Support Elements

REGIONS

III

VAT Exemption

YES

Customs Duty Exemption

YES

Tax Reduction

Contribution Rate to Investment (%)

Portion to be Applied During Investment Period (%)

50 (80 for the 6th region)

Insurance Premium Employer Share Support