A Comprehensive Guide to State Investment Incentives in Türkiye

·01/08/2024·Investment in Turkey, Business, Featured·22 min·

This comprehensive overview covers the main aspects of state incentives in Turkiye while providing specific details and examples.

State Incentives in Turkiye

Investment incentives play a crucial role in attracting both domestic and foreign capital to Türkiye. The country offers a wide array of support mechanisms designed to boost economic growth, increase employment, and enhance the competitiveness of Turkish industries on the global stage. In this comprehensive guide, we’ll explore the various incentive schemes available to investors in Türkiye as of June 2024.

1. Investment Incentive Schemes

Inestment incentives in Turkiye is multi-faceted, catering to different types of investments and regional development needs. The country is divided into six regions based on their level of development, with Region 1 being the most developed and Region 6 the least. This regional approach aims to promote balanced growth across the country.

1.1 General Investment Incentives

These are the most basic incentives available to all investors who meet the minimum fixed investment amount criteria:

Incentives

  • VAT Exemption for Machinery
  • Customs Duty Exemption

1.2 Regional Investment Incentives

These incentives are designed to encourage investments in specific regions, with more generous support provided in less developed areas:

Incentives

  • VAT Exemption for Machinery and Construction
  • Customs Duty Exemption
  • Corporate Tax Reduction (15-55% of investment expenditures)
  • Social Security Premium Support (Employer’s Share) for 2-12 years
  • Land Allocation
  • Interest Rate Support (in Regions 3-6)

1.3 Strategic Investment Incentives

Strategic Investment Incentives are designed to encourage large-scale, high-value investments in Turkey. These incentives focus on sectors with high export potential and technological advancement.

Key Incentives:

  • Corporate Tax Reduction: Significant reduction in corporate tax for qualifying investments.
  • VAT Exemption: Exemption from Value Added Tax (VAT) for machinery, equipment, and construction costs.
  • Customs Duty Exemption: Exemption from customs duties on imported machinery and equipment.
  • Social Security Premium Support: Support for a portion of employer’s social security contributions.
  • Interest Rate Support: Reduced interest rates on loans for investment projects.
  • Land Allocation: Potential allocation of land for investment projects.

1.4 Project-Based Investment Incentives

This is a tailor-made incentive scheme for large-scale, strategic investments:

– All benefits of Strategic Investment Incentives
– Additional supports such as energy subsidies, capital contributions, and purchasing guarantees

1.5 Medium-High Tech Investment Incentives in Turkey

The Turkish government offers a variety of incentives to encourage investments in medium-high technology sectors.These incentives are designed to stimulate economic growth, create jobs, and foster technological advancement.

Key Incentives:

  • Corporate Tax Reduction: Businesses can benefit from a significant reduction in corporate taxes, with the exact percentage depending on the investment location and industry.
  • VAT Exemptions: Value Added Tax (VAT) exemptions are provided for machinery, equipment, and construction costs, reducing overall investment costs.
  • Customs Duty Exemptions: Imported machinery and equipment used in the investment project are exempt from customs duties.
  • Social Security Premium Support: The government provides support for a portion of the employer’s social security contributions for a specific period.
  • Interest Rate Support: The government offers interest rate support for loans taken out to finance the investment.
  • Land Allocation: In some cases, the government may provide land for investment projects.

1.6 Priority Investment Incentives

The Turkish government offers a range of incentives to encourage priority investments in specific sectors and regions.These incentives aim to boost economic growth and create employment opportunities.

Key Incentives:

  • Customs Duty Exemption: Exemption from customs duties for imported machinery and equipment.
  • VAT Exemption: Exemption from Value Added Tax (VAT) for machinery and construction costs.
  • Corporate Tax Reduction: Significant reduction in corporate tax rates.
  • Social Security Premium Support: Support for a portion of employer’s social security contributions.
  • Interest Rate Support: Reduced interest rates on loans for investment projects.
  • Land Allocation: In certain cases, the government may provide land for investment projects.

Item Value Description
Total Investment Amount TRY 100M The total cost of the project.
Imported Machinery & Equipment TRY 50M The cost of machinery and equipment sourced from foreign countries.
Domestic Machinery & Equipment TRY 30M The cost of machinery and equipment purchased locally.
Construction Cost TRY 20M The cost of building and infrastructure required for the project.
Employment 100 People The number of jobs created by the project.
Investment Location No Significance The location of the project is not relevant to the analysis.

Government Incentives

Item Value Description
VAT Exemption for Machinery (Base) TRY 80M Total value of machinery eligible for VAT exemption.
VAT Rate 20% Standard VAT rate applied in the country.
VAT Exemption for Machinery TRY 16,000,000 Calculated VAT exemption amount (80M * 20%).
Customs Duty Exemption (Base) TRY 50M Total value of imported machinery eligible for customs duty exemption.
Customs Duty Rate 2% Standard customs duty rate applied in the country.
Customs Duty Exemption TRY 1,000,000 Calculated customs duty exemption amount (50M * 2%).
Total Support TRY 17,000,000 (17%) Combined VAT and customs duty exemptions.

Simulation

Item Value Description
Total Investment Amount TRY 100M Total cost of the project.
Imported Machinery & Equipment TRY 60M Cost of machinery and equipment sourced from foreign countries.
Domestic Machinery & Equipment TRY 20M Cost of machinery and equipment purchased locally.
Construction Cost TRY 20M Cost of building and infrastructure required for the project.
Employment 100 People Number of jobs created by the project.
Investment Location Region 3 (Outside OIZ) Location of the project.

Government Incentives

Item Value Description
VAT Exemption for Machinery (Base) TRY 80M Total value of machinery eligible for VAT exemption.
VAT Rate 20% Standard VAT rate applied in the country.
VAT Exemption for Machinery TRY 16,000,000 Calculated VAT exemption amount (80M * 20%).
VAT Exemption for Construction (Base) TRY 20M Total value of construction eligible for VAT exemption.
VAT Exemption for Construction TRY 4,000,000 Calculated VAT exemption amount (20M * 20%).
Customs Duty Exemption (Base) TRY 60M Total value of imported machinery eligible for customs duty exemption.
Customs Duty Rate 2% Standard customs duty rate applied in the country.
Customs Duty Exemption TRY 1,200,000 Calculated customs duty exemption amount (60M * 2%).
Corporate Tax Reduction (Base) TRY 100M Total investment amount eligible for corporate tax reduction.
Corporate Tax Reduction Rate 25% Support rate for Region 3 (Outside OIZ).
Corporate Tax Reduction TRY 25,000,000 Calculated corporate tax reduction amount (100M * 25%).
Social Security Premium Support (Base) 100 employees Number of employees eligible for support.
Monthly Support Period 60 months Duration of social security premium support.
Employer’s Share TRY 3,100 Monthly employer’s share of social security premium.
Social Security Premium Support TRY 18,600,000 Calculated support amount (100 * 60 * 3,100).
Interest Rate Support TRY 1,000,000 Maximum interest rate support for Region 3.
Total Support TRY 65,800,000 Combined value of all incentives.
Total Support Rate 65.8% Percentage of total support relative to total investment.

Incentive Details and Calculations

Incentive Calculation Amount (TRY) Description
Investment Amount – 100,000,000 Total investment value
Imported Machinery & Equipment – 60,000,000 Value of imported machinery and equipment
Domestic Machinery & Equipment – 20,000,000 Value of domestic machinery and equipment
Construction Cost – 20,000,000 Total construction cost
VAT Exemption for Machinery Imported Machinery & Equipment (TRY 60M) x 0.20 (VAT rate) 16,000,000 Exemption from VAT for machinery
VAT Exemption for Construction Construction Cost (TRY 20M) x 0.20 (VAT rate) 4,000,000 Exemption from VAT for construction costs
Customs Duty Exemption Imported Machinery & Equipment (TRY 60M) x 0.02 (Customs duty) 1,200,000 Exemption from customs duty for imported machinery and equipment
Corporate Tax Reduction Total Investment Amount (TRY 100M) x 0.30 (Support rate for Region 4) 30,000,000 Reduction in corporate tax based on investment location and industry
Social Security Premium Support (Employer’s Share) 100 People x 72 Months x 3100 (Employer’s share) 22,320,000 Support for employer’s share of social security premiums for 100 employees over 72 months
Interest Rate Support Depends on investment location 1,200,000 – 1,800,000 Support for interest rates on loans
Total Support 74,720,000 Total amount of government support
Total Support Rate 74.7% Percentage of total support relative to total investment