25 Oct 2018
Turkey’s Competitive Incentive Schemes
To facilitate investment, Turkey currently has two ambitious incentive programmes, namely the “Investment Incentive Programme” and the “Project-Based Incentive Scheme”. In force since 2012, the Investment Incentive Programme comprises five different schemes – General, Regional, Priority, Large-Scale and Strategic. The “Project-Based Incentive Scheme”, in effect since late 2016, aims to foster economic growth by stimulating industrial production and boosting exports and is considered one of the most competitive investment incentive packages in emerging markets.
Investors, both local and foreign, can be eligible under different schemes for various support measures according to their investment size, region, sector and product. Measures include value-added tax (VAT) exemption, customs duty exemption, tax deduction, social security premium support for employer’s share, interest rate support, land allocation and VAT refund. For investments in the least developed region of Turkey (Region 6), income tax withholding support and social security premium support for the employee’s share are also available.
Turkey’s Investment Incentive System
Effective as of 1 January 2012, local and foreign investors have equal access to Turkey’s Investment Incentive Programme comprised of five different schemes – (i) General Investment Incentive Scheme; (ii) Regional Investment Incentive Scheme, (iii) Priority Investment Incentive Scheme; (iv) Large-Scale Investment Incentive Scheme and (v) Strategic Investment Incentive Scheme – devised to boost investment in line with different policy orientations.
Investors can benefit from different support measures according to their investment size, investment region, industry sector and product. For instance, all projects meeting both the specific capacity conditions and the minimum fixed investment amount – TRY1 million (US$164,000) in Regions 1 and 2, and TRY500,000 (US$82,000) in Regions 3, 4, 5 and 6 – are supported within the framework of the General Investment Incentive Scheme, except for some types of investments that are excluded from the investment incentive system altogether.
Manufacturing investment in any product whose domestic production capacity is less than the imports, with a minimum investment of TRY50 million (US$8.2 million), a minimum added-value of 40%  and a possible import substitution of a minimum of US$50 million as of the previous year (excluding products that are not locally produced) are supported within the framework of the Strategic Investment Incentive Scheme.
In order to support the less developed regions of Turkey, the investment support measures are applied at different rates depending on the region where the investments are made. Turkey’s 81 administrative provinces are thus grouped under the following six regions:
|Regions in Turkey|
|Region 1 (most developed) ||Ankara, Antalya, Bursa, Eskişehir, İstanbul, İzmir, Kocaeli, Muğla |
|Region 2 ||Adana, Aydın, Bolu, Çanakkale (excluding the municipalities of Bozcaada and Gökçeada), Denizli, Edirne, Isparta, Kayseri, Kırklareli, Konya, Sakarya, Tekirdağ, Yalova|
|Region 3||Balıkesir, Bilecik, Burdur, Gaziantep, Karabük, Karaman, Manisa, Mersin, Samsun, Trabzon, Uşak, Zonguldak|
|Region 4||Afyankarahisar, Amasya, Artvin, Bartın, Çorum, Düzce, Elazığ, Erzincan, Hatay, Kastamonu, Kırıkkale, Kırşehir, Kütahya, Malatya, Nevşehir, Rize, Sivas|
|Region 5||Adıyaman, Aksaray, Bayburt, Çankırı, Erzurum, Giresun, Gümüşhane, Kahramanmaraş, Kilis, Niğde, Ordu, Osmaniye, Sinop, Tokat, Tunceli, Yozgat |
|Region 6 (least developed)||Ağrı, Ardahan, Batman, Bingöl, Bitlis, Diyarbakır, Hakkari, Iğdır, Kars, Mardin, Muş, Siirt, Şanlıurfa, Şırnak, Van, the municipalities of Bozcaada and Gökçeada |
More information on the requirements applicable for different incentive programs can be found at the Invest in Turkey website. The key support measures available within the framework of the various investment incentive schemes  are summarised as follows:
- VAT exemption: VAT is exempted for imported and/or domestically delivered machinery and equipment within the scope of the investment incentive certificate.
- Customs duty exemption: Customs duty is exempted for imported machinery and equipment within the scope of the investment incentive certificate.
- Tax reduction: Income or corporate tax is calculated on the basis of reduced rates until the total amount of reduced tax reaches the amount of contribution to the investment. The rate of contribution to investment refers to the rate of the total fixed investment amount that is subject to tax reduction.
- Social security premium support (employee’s share): For additional employment created by the investment, the employee’s share of the social security premium calculated on the basis of the legal minimum wage will be covered by the government. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for Social Security Premium Support and it is applicable for 10 years.
- Social security premium support (employer’s share): For additional employment created by the investment, the employer’s share of the social security premium calculated on the basis of the legal minimum wage will be covered by the government.
- Income tax withholding support: The income tax with regard to additional employment created by the investment, within the scope of the investment incentive certificate, will not be liable to withholding taxes. The instrument is applicable only to investments made in Region 6 within the scope of the investment incentive certificate. There is no upper limit for income tax withholding allowance and it is applicable for 10 years.
- Interest rate support: Interest rate support is a financial support instrument provided for investment loans with a term of at least one year obtained within the scope of an investment incentive certificate. A portion of the interest/profit share regarding the loan equivalent, at most 70% of the fixed investment amount registered in the investment incentive certificate, will be covered by the government for a maximum of the first five years.
- Land allocation: Land may be allocated for investments, with an investment incentive certificate, in accordance with the rules and principles set by the Ministry of Finance, depending on the availability of such land.
- VAT refund: VAT collected on construction expenses, made within the scope of strategic investments with a minimum fixed investment amount of TRY500 million (US$82 million), will be rebated.
The Project-based Incentive Scheme
As an extra boost to existing investment incentive schemes, on 26 November 2016 the Turkish government launched a project-based incentive program designed to promote investments deemed to help meet critical national needs. Projects that ensure sufficient supply levels of strategic goods and services, boost technological capacity, research and development (R&D) efforts, competitiveness and added value in production, with a minimum of US$100 million investment value, are eligible for a pool of support instruments that the investor can use to form an incentive package to make the investment most feasible and profitable.
The scheme is aimed at creating leaders in key business sectors, promoting the development of a proactive economy and ensuring a sustainable investment and manufacturing environment. The scheme is planned to be used in such fields as the production of energy technologies, medical technologies, integrated metallurgy production facilities, transportation technologies, petrochemical investments, as well as defence systems, space and air technologies.
Despite these aims, the scheme is not sector-specific; any projects which meet the above criteria are evaluated on the basis of the following objectives:
- meeting current or future critical national needs;
- ensuring security of supply for products which are not produced in sufficient amounts in Turkey;
- enhancing the technological capacity of Turkey;
- reducing dependency on imports in fields where Turkey has a trade deficit;
- creating high added value;
- manufacturing goods with novel technological methods;
- helping different sectors gain a competitive edge;
- accelerating technological transformation in related sectors;
- focusing on research and development;
- focusing on production of high added-value processed goods where Turkey has a trade deficit and there is scarcity of raw materials; and
- focusing on integrated production which would use raw materials extracted in Turkey.
Unlike the broad-based and conventional Investment Incentive Programme which offers a fixed incentive package and focuses on what the investors plan to produce in the country, the project-based incentive scheme is much more selective and focuses not only on what investors are going to produce, but also the production process. A pool of support instruments can be used to tailor an incentive package for the best interests of both by the investor and the country.
The project-based incentives schemes application process also differs from other incentive schemes. Under the new scheme, certain companies may be “invited” to invest in certain areas or a general invitation for investments may be issued calling for investors to submit their applications to benefit from the scheme. Investors wishing to apply for the scheme must then provide information on the investor as well as the project, and complete a feasibility report and an impact assessment for the project. The investors are also required to list the incentives requested and justify their request for each incentive item by illustrating the importance of the incentive for the investment, the effect of the incentive on the cash flow and return-on-investment of the project, and the proportion of total incentive amount to the total investment amount.
Applications are evaluated within the context of aims and necessary qualifications expected from the investment projects underlined in the legislation by the Ministry of Industry and Technology. Projects which meet the required conditions will then be presented to the Council of Ministers before a “Support Decree’ specifying the intensity, amount and duration of support measures and an incentive certificate is issued. Projects which are granted the incentives are subsequently published in the Turkish Official Journal. If the investment project does not qualify for an incentive under the project-based incentives scheme, it may be re-evaluated for qualification under one of the other main incentive schemes upon the request of the investor.
So far, 23 projects with a total value of TRY135 billion (US$22 billion) have been included in the project-based incentives scheme, creating about 170,000 direct and indirect jobs and reducing Turkey’s annual current account deficit by US$19 billion. Examples of projects, among others, include an integrated mining project by Tosyalı Holding, an integrated livestock facility by Sütaş, a new generation engine production project by Oyak Renault, a base metal production project by Assan, a transportation and defence industry investment project by BMC, a carbon fibre and composite materials production project by Dow Aksa, a renewable energy technology investment by Ekore, a medical equipment production project by Alvimedica, petrochemical production project of SASA, a refinery project of Ersan, and an electric battery production investment project by Vestel.
 This condition is not applicable to refinery and petrochemicals investments.
 Incentives applicable under the Project-Based Incentives Scheme are granted on a case-by-case basis. Therefore, such incentives are not included in the table but discussed separately below.