Investment in Turkey

The Turkish government views the encouragement and protection of investment as a fundamental
element in the development strategy of the nation. To supply this aim, Turkey currently extends a
number of incentives designed not only to encourage investment, but also to direct it to certain regions of the country. These incentives, most of which provide tax advantages, may be classified into two
categories: investment incentives and export incentives.

The incentives granted are revised annually and the precise measures are therefore subject to regular
update and change. Indeed, currently there are moves to reduce monetary incentives and potentially
remove them completely.

Investment Incentives

Turkey is divided into four regions for investment purposes. With limited exceptions, all activities
qualify for investment incentives. In order to qualify for investment incentives, projects must receive an
"incentive certificate" from the Undersecretariat of Treasury.

Incentives vary according to the location, scale and subject of the investment. To secure incentives,
f oreign investors must fulfil a number of requirements, the most important of which are:

  • a minimum total fixed investment, dependent upon the nature and the location of
  • a minimum debt to equity ratio, again dependent upon the nature and the location of

In general, to qualify for an investment incentive certificate, new investments must be over TL 12
billion, whereas investments upgrading or for the completion projects must be over TL 6 billion. For
investments in the areas of environmental pollution control, research and development and investments by
financial leasing firms, the required minimum amount is TL 250 million. For investments in priority
development regions, Free Zones, tourism, ready made garments manufacture, software development,
and for expansion that does not alter the identity of the original investment (nor increase its original
capacity by more than 100%) the minimum amount is 6 billion TL. These limits may be subject to
change in the near future.

The incentive scheme is revised annually and the incentives are therefore, subject to regular update
and change.

The main investment incentives current at 1 January 1996 include: exemption from customs duties and fund levies on investment goods; investment allowances against taxable profits for up to 100% of expenditure on approved projects (see table below); low interest loans from the "Encouragement of Investment and Foreign Currency Earning Services Fund" and the "Resource Utilisation Support Fund";

  • exemption from taxes, duties and fees on medium and long-term credits;
  • refund of VAT paid on locally supplied machinery and equipment;
  • postponement of VAT on imported machinery and equipment;
  • subsidy for 25% of electricity consumption for a maximum of five years;
  • in priority development regions, exemption from the employer's obligation to pay half of
    the social security premiums and all of the compulsory savings and housing funds for a maximum of
    three years; allocation of public land for large scale investments as well as for tourism,
    agro-industry, health and educational investments to be carried out outside the developed regions;
  • exemption from construction tax;
  • support from the financing fund where profitable companies may allocate up to 25% of
    their taxable income to use for their investment projects;
  • subsidy for 50% of the expenses on letters of guarantee relating to foreign credits.

Investment Allowance Rates

The table below summarises for different types of investment the corresponding investment
allowance rates for 1996:

Types of Investment Investment Allowance Rate
Investments in priority developed regions and sectors
(Priority sectors may change and are notified annually)
Investments in other regions and sectors 30%

To obtain these incentives, an investor must submit an application for an incentive certificate to the
Incentives Department of the Treasury. Along with the application, the following documents are

  • a Project Feasibility Study;
  • a list of domestic and imported machinery and equipment;
  • proforma invoices and catalogues of the machinery that will be used;
  • "Tourism Investment Certificate" for tourism investments;
  • financial information relating to the investment company.

Export Incentives

Exporters should apply to the Undersecretariat of Foreign Trade in order to benefit from the export
incentives which are available during the operation period. These include:

  • exemption from customs duties and taxes on imported raw, semi-finished and packaging
    materials used in producing goods to be exported;
  • exemption from taxes, fees and fund levies on banking and insurance transactions
    relating to export credits;
  • availability of various low interest export credit schemes from the Eximbank of Turkey and
    long-term loans from the Encouragement of Investments and Foreign Currency Earning Services
  • exemption from VAT on all goods and services exported and refund/offset of VAT
    payable against paid on local purchases for goods exported;

From the beginning of 1994, the corporate income tax exemption for a percentage of the value of
industrial goods exported and freight charges has been cancelled. The tourism revenue exemption of
20% for related foreign exchange earnings has been limited to the first ten years after the
commencement of operations.

Incentives are revised at least annually and sometimes more frequently. Investors should contact
Coopers & Lybrand for details of the current position.

Free Zones

One of the more important measures taken by Turkey in its modernisation drive has been the
establishment of a number of free zones. These were created to assist investors wishing to benefit from
Turkey's location relative to the markets in the Middle East, CIS, Western and Eastern Europe.
Domestically, the move aims to promote exports, increase employment and production and accelerate the inflow of foreign capital and technology. Free trade and export processing zones currently exist in
Adana, Antalya, Mersin, Izmir, Trabzon, as well as two zones in Istanbul. In addition to these, the
establishment of three new zones in Adana, Izmir, and Istanbul is underway. Activities and income in these zones are exempt from all Turkish taxes and foreign personnel may be freely employed.

Repatriation of Profits and Capital

Legislation to encourage foreign capital investment guarantees the transfer of profits, fees and
royalties and the repatriation of capital in the event of liquidation or sale subject to the payment of taxes on profits and withholding taxes where relevant, on fees and royalties. There are also existing regulations
permitting foreign currency to be freely taken out of the country.