Turkey's Emerging Economy

Turkey has been in the process of reconstructing its economy since 1980 in order to adopt a more liberal economic policy. Its new economic policy is focused on decreasing the unemployment rate, increasing technology transfers, privatizing State Economic Enterprises, and most of all increasing the integration of its economy with the world economy and increasing the flow of foreign capital into the country. Turkey has been using the method of incentives to attract domestic and foreign investments to promote industrial development and rural-urban integration. These incentives are available to investors for the purpose of promoting private investment activities in specified regions and sectors depending on the scale of an investment. (Abdulkadir, 2011). The following paragraphs will cover the forms of these incentives.

The Investment Incentive Regime provides incentives that are available to investors through an “Investment Incentive Certificate” (IIC). An IIC can be obtained from the Undersecretariat of Treasury. The Foreign Investment Department (FID) of the Treasury grants incentives solely for projects that involve foreign investment. The purpose of these incentives is to encourage exports, advance technology, add to the international competitiveness of the Turkish economy, and to encourage and focus investments.

Turkey is separated into four zones based on the level of development in these regions/sectors. The first two level of zones include the most developed regions, and the second two levels include the lesser developed zones. In order for an investment to qualify for an Investment Incentive Certificate, the minimum investment amounts in these four zones must be TRY 1 million for the first two zones and TRY 500 thousand for the second two zones. Investments that meet these qualifications are granted an IIC and are eligible to benefit from Customs Duty Exemption, Value Added Tax (VAT) Exemption, Reduced Rate Corporate Income Taxes, Social Security Employer Premium Contribution, Interest Support on Financing, and Allocation of State Land. (KPMG)

General incentives are provided to investments that qualify for an Investment Incentive Certificate. These include 100% customs duty exemption on imported machinery and equipment. 100% Value Added Tax Exemption is also available on locally purchased and imported machinery and equipment for projects that qualify under the terms of an IIC. (KPMG) However, purchases of services, materials, spare parts, and operating supplies are not eligible for VAT exemption, regardless of their relation to machinery and equipment. (“How to Do Business: Investors’ Guide Turkey”)

Sector based and Regional incentives are provided to sector based investments depending on zones. For investments made after December 31, 2010, reduced Corporate tax rates between 4-15% are applied depending on which zone the investment is located in. Social Security premium contribution is available