Incentive System

The new Incentive System entered into force with the publication of the Declaration Related to the Decision Concerning the Government Aid in Investments on 19.06.2012 and the Application of the Decision Concerning the Government Aid in Investments on 20.06.2012 in the official gazette.

A new regulation has been made according to the  Socio-economic Development Index of Provinces (2011) and a transition into province-based incentive system has been made with the New Incentive System. Kahramanmaras is in the 5th zone in the 6-zone new incentive system.

Support elements, to be provided, are shown in the table below

The new Incentive System consists of 4 different applications:

• General Investment Incentive Scheme
• Regional Investment Incentive Scheme
• Large-Scale Investment Incentive Scheme
• Strategic Investment Incentive Scheme

GENERAL IINVESTMENTS

Conditions:

• Minimum fixed investment amount is 500 thousand TL,
• Not to be within the scope of investment issues which will not be incentivized and other incentive applications

Which Supports are provided?

• VAT exemption
• Customs Duty Exemption
• Social Security Premium Support (Employer’s Share) (Only for the investments of yards in shipbuilding and on condition that it does not exceed 18 months)

REGIONAL INVESTMENTS
Conditions:

• Fulfilling the conditions in the Annex (Annex 2) of Decision Related to the Government Aid in Investments

Which Supports are provided?

• VAT Exemption
• Customs Duty Exemption
• Tax Deduction
• Social Security Premium Support (Employer’s Share)Interest Rate Support
• Land Allocation

LARGE-SCALE INVESTMENTS
Conditions:

• To be on the list of large-scale investments in the Annex (Annex 3) of Decision Related to the Government Aid in Investments

Which Supports are provided?

• VAT Exemption
• Customs Duty Exemption
• Tax Deduction
• Social Security Premium Support (Employer’s Share)Land Allocation

STRATEGIC INVESTMENTS
Conditions:

• Minimum fixed  investment amount is 50 million TL,
• Total domestic production capacity, related to the product for investment is less than the imports,
• Minimum added value to be provided with the investment should be 40% (this condition will not be stipulated for the refinery and petro chemistry investments),
• Total imports amount, related to the product to be produced, being at least 50 million $ for the previous year (this condition will not be stipulated for the goods, not produced domestically)

The products, which provide all the above-stated conditions will be assessed as strategic investments.

Which Supports Are Provided?

• VAT exemption
• Customs Duty Exemption
• Tax Deduction
• Social Security Premium Support (Employer’s Share)Land Allocation
• Interest Rate Support
• VAT refund (only for investments over 500 million TL and on condition that it will be valid only in building-construction expenses)

R&D AND ENVIRONMENTAL INVESTMENTS
R&D and environmental investments benefit from VAT exemption, customs duty exemption and interest subsidy

An Example of Incentive System Implementation
Let’s assume that a company in the metal kitchen utensils sector will provide 50 employment for additional with such an investment, beginning in 2013 as follows:

Land Expenses :  500. 000 TL
Building-Construction Expenses : 500.000 TL
Imported Machinery-Equipment Expenses : 2.000.000 TL
Domestic Machinery-Equipment Expenses : 1.000.000 TL
Total Investment Amount : 4.000.000 TL

Investment in questionis entitled to benefit from the regional investment incentive schemein terms of its sector and total investment amount.

VAT exemption
VAT exemption is non-payment of the value added tax for the machinery and equipment, investment goods, to be procured from the country or abroad within the scope of the investment incentivized.
In the event that the project of an investor, who will, within the scope of investment project, purchase domestic machinery and equipment from the country amounting to 1, 000, 000 TL and machinery and equipment from abroad amounting to 2, 000, 000 TL, benefits from the VAT exemption incentive, the investor may provide an advantage of approximately 540, 0000 TL.
VAT exemption amount = (Total Cost of Machinery and Equipment) x (Rate of VAT* )
= 3, 000, 000 TL  x 0, 18 = 540, 000TL**
* Except for the special conditions specified in the VAT law, the specified rate of VAT for the machinery and equipment, investment goods, procured within the scope of Investment Incentive Certificate is 18%.
** Net contribution of the support for the companies, capable of offsetting the Value Added Tax is the same as the ease of finance until offsetting VAT.

Customs Duty Exemption
Customs Duty exemption is the non-payment of customs duty specified in the import regime for machinery and equipment, investment goods, to be procured from abroad within the scope of the investment incentivized. The annex of “Import Regime Decision” of the Customs Duty Tax Rates on the basis of sections is specified in the lists. In the event that the project of an investor, who will within the scope of investment project purchase imported machinery and equipment from abroad amounting to 2, 000, 000 TL, benefits from the customs duty exemption incentive, the investor may provide an advantage of approximately 40, 000 TL.
Customs Duty Exemption Amount =  (Imported Machinery and Equipment Amount) x (Rate of Customs Duty*)                  
=  TRY 2, 000, 000 x (2%)*=  40, 000 TL* Customs Duty Rate envisaged in the Import Region Decision varies from country to country and 2% can be considered as  average rate. 

Tax Deduction
Deducted Tax Rate 80%, the contribution rate to the investment 40%, total investment amount: 4 million TL
The company may benefit from a tax deduction, at 1,6 million TL. Until the tax, which will be deducted from the annual tax liabilities reaches this amount, investor will pay the corporate tax, which is 20% in Turkey, on 4%,.. Because the application, with which his project is supported, provides the utilization of incentive means even before the investment is completed, investor will be able to use 800 thousand TL of tax reduction, which is total 1, 6 million TL, for the revenues obtained from current activities in the investment period.

Social Security Premium Support (Employer’s Share)Contribution rate to the investment 35% = 4.000.000 TL * 0, 35 = TL 1.400.000 (The Upper Limit of Support)  
Duration of Support: 7 Years
Labor costs are aimed to be reduced in the operating period with the Social Security Premium Support (Employer’s Share). After the investment is completed, the part of the each additional employee’s Social Security Premium Share of Employer corresponding to minimum wage will be paid from the budget of the Ministry of the Economy.
Employer’s National Insurance Contribution Amount = (Additional Employment) x (Duration)* x (Employer’s Share of National Insurance)**
= 50 employees x 84 months  x TRY 141, 90
= TRY 595.980
We can calculate the number of personnel the company can employ for 7 years without paying Social Security Premium Share of Employer’s.. 
Upper Limit of Support/ f( (Duration) x (Employer’s Share of National Insurance))
= 1.400.000/(84 Months*141, 90) = 117 People
* “Duration” is the expression of support duration specified in the region in “months”.
** The amount which is valid for the first half of 2013. It was assumed to be constant throughout 7 years.

Interest Rate Support
Amount of Loan to be Supported= Total Fixed Investment *0, 75 
= 4 million TL *0, 75 = 3 million TL
Subsidy Rate = 5 points in TL loans, 2 points in foreign currency loans
Upper Limit of Subsidy = 700.000 TL
According to this, 5 points of the interest for the 3 million TL part of the loan, which the company used within the scope of the investment may be paid by the Ministry of the Economy, until it reaches 700.000 TL, for 5 years.

Land Allocation
On condition that an appropriate land for investments is present in the province, in which the investment will be made, it can be allocated through tender for large-scale investments, , strategic investments and regional investments, within the framework of the principles and procedures set by the Ministry of Finance.
The total investment amount, to be made on immovables cannot be less than once for the agriculture, livestock and education investments, twice for tourism investments, and three times for other investments the immovable property’s current value. Current value of the land claimed can be maximum 1.330.000 TL for an example investment amounting to 4 million TL. Annual rental value of immovable property is specified according to 0.5-2.5% of property tax and this amount is increased each year according to PPI.