Encouraging investment: A new raft of incentives is aimed at improving competitiveness

The Ministry of Economy has issued a number of new incentives to encourage investment in Turkey, along with plans to roll out even more such initiatives in the coming years. Similarly, the Ministry of Industry has issued a new set of incentives aimed at attracting investors in technology start-ups, as well as plans to create investment incentives for the media sector in a bid to attract more foreign production companies.

In fact, the introduction of a new investment incentives programme every few years has become common practice in Turkey. This time, however, the amendments are different in that they offer a substantial number of new benefits. The New Investment Incentives Programme is very comprehensive and, unlike previous programmes, it goes beyond merely changing rates and dates. For example, it expands the periods and coverage areas of the incentives and also introduces a fourth “pillar” to the current programme, encouraging strategic investments with investment incentives categorised by region, sector and size.

Ultimately, the new programme aims to decrease the current account deficit and development disparities among regions. Additionally, it will further strengthen the country’s international competitiveness.

We have summarised the latest developments below and categorised the investments into five groups: general, regional, large-scale, strategic and sectoral.

General

The plan designates six regions, with investments in Region 1 receiving the least support and those in Region 6 receiving the most. These apply to all investments in Turkey, provided that they are not exempted by the Council of Ministers, and that they fall within the boundary of the minimum fixed investment amount, which is TL1m (€431,800) in Regions 1 and 2, and TL500,000 (€215,900) in Regions 3-6. General investments will only benefit from VAT and Customs duty exemptions on machinery and equipment expenditure. Income tax withholding allowances will also be available on labour wages for an amount of the legal minimum wage if an investment is made in Region 6.

Large-Scale

Large-scale investments form a separate category with unique benefits. Compared to the previous scheme, the minimum fixed investment amount has been reassessed, with certain categories having experienced a decrease in benefits.

Strategic

These are a new category of incentives designed to help reduce Turkey’s current account deficit and support high-tech and high value-added investments. An investment is considered “strategic” if it is made for the production of “intermediate or final products, of which more than 50% is supplied by imports”, or if they are energy investments made for the exclusive use of such investments. Such investments should also: (i) equal at least TL50m (€21.6m); (ii) create a minimum of 40% added value (this condition is not applicable to refined petroleum production and petrochemicals production investments); and (iii) have an import amount of at least $50m (€39m) for goods to be produced in the last one-year term.

Sectoral

These may be divided into two groups: venture capital incentives and service sector incentives. For venture capital investors, the programme introduces a tax support for those investing in venture capital funds or trusts on the condition that these funds or trusts have been established according to Capital Markets Board regulations. The capital invested in venture capital funds will be subject to exemptions from income tax, provided that exempted amount does not exceed 10% of the investor’s annual income. Venture capital funds and the corporate income derived from these are exempt from corporate tax.

For service sectors, the programme allows half of personal or corporate income derived from the export of certain services to be exempt from income or corporate tax. These services include: architecture, engineering, design services, software, medical reporting, call centre services, data storage, education, and health.

OBG would like to thank Consulta for their contribution to THE REPORT Turkey 2013