INVESTMENT ENCOURAGEMENT PROGRAM (IEP) - NEW FRAMEWORK

Saadet DENİZ Head of International Relations Department

General Directorate of Incentives and Implementation

. .2010, ISTANBUL

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OUTLINE

I. The Legal Basis and Scope

II. New Approach in Implementation- Three Pillar Mechanism

III. General Investment Encouragement Mechanism

IV. New Regional Classification

V. Regional and Sectoral Implementation

VI. Implementation for Large Investments

VII. Explanations of The Measures

VIII. Agricultural Investment Projects

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I. LEGAL BASIS and SCOPE

• A new “Decree Concerning State Encouragements to Investments” has been adopted on July 14th, 2009, Decree No: 2009/15199, published on the Official Gazette dated 16.07.2009 and No: 27290.

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I. LEGAL BASIS and SCOPE

In the Decree, investments for;

• the production of goods and services, • research and development (R&D) and • environmental protection

can benefit from the encouragement measures.

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II. NEW APPROACH IN IMPLEMENTATION

The Mechanism comprises of three main categories :

I. General investment encouragement mechanism

II. Regional and sectoral implementation

III. Implementation for large investments

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III. GENERAL INVESTMENT ENCOURAGEMENT MECHANISM

• It applies for all types of investments

• Encouragement measures are;

o Exemption from Customs Duties: • Imports of the machinery and equipment to be used in the production

process shall be subject to Customs Duty exemption,

o VAT Exemption:• Imports and domestic purchases of machinery and equipment within the

scope of investment project are exempted from the Value Added Tax,

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IV. REGIONAL CLASSIFICATION

• One of the main objectives of the system is to eliminate inter-regional imbalances.

• Regarding the implementation of encouragement measures, provinces have been classified into four regions according to their socio-economic development status on the basis of NUTS 2 classification of EU.

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IV. REGIONAL CLASSIFICATION ON NUTS 2 BASIS

REGION ı

REGION II

REGION III

REGION IV

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V. REGIONAL AND SECTORAL IMPLEMENTATION

The Measures:

• VAT Exemption• Customs Duty Exemption• Interest Support• Tax Reduction• Social Security Premium Support• Land Allocation

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V. REGIONAL AND SECTORAL IMPLEMENTATION

VAT exemption

Customs duty

exemption

Tax reduction

Social security premium support

Interest support

Land allocation

REGION I YES YESYES-

LOW RATE

YES-LOW RATE

NO YES

REGION II YES YESYES-

MEDIUM RATE

YES- MEDIUM

RATENO YES

REGION III YES YESYES-

HIGH RATE

YES-HIGH RATE

YES-LOW RATE

YES

REGION IV YES YESYES-

HIGHEST RATE

YES- HIGHEST

RATE

YES-HIGH RATE

YES

ENCOURAGEMENT MEASURES WITHIN THE SCOPE OF REGIONAL IMPLEMENTATION

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VI. IMPLEMENTATION FOR LARGE INVESTMENTS

Definition:

Large investments are with an investment cost over 50 Million TL as defined in the Article 32/A of Corporate Tax Law No:5520. Agricultural industry is not considered in this category.

The Measures:• VAT Exemption• Customs Duty Exemption• Social Security Premium Support• Tax Reduction• Land Allocation

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1- The credit amount exceeding 70% of the fixed investment cost shall not be subject to compensation.

2- Financial leasing companies and all banks ratifying the Protocol to be made by Undersecretariat of Treasury shall be included.

VII. EXPLANATIONS OF THE MEASURES - INTEREST SUPPORT

Application categories of investment

TL CreditBasis Points

FX CreditBasis Points

Max. AmountCompensated

(TL)

Max. Duration for Compensation

(Years)

Region III 3 1 500.000

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Region IV 5 2 500.000

Environmental Protection

5 2 300.000

Research & Development

5 2 300.000

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VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION

• It applies for large investments and regional investments.

• According to the Article 32/A of Corporate Tax Law No:5520,

earnings through regional and large investments having an

investment encouragement certificate are subject to corporate or

income tax reduction.

• In operational undertakings, only earnings obtained from the

additional investments are subject to tax reduction.

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VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION (cont.)

Rates of Tax Reduction for Investments started before December 31st 2010

Regional Implementation Large Investments

Regions Contribution Rate to

Investment (%)

Annual Tax Reduction Rate

(%)

Contribution Rate to

Investment (%)

Annual Tax Reduction Rate

(%)

I 20 50 30 50

II 30 60 40 60

III 40 80 50 80

IV 60 90 70 90

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VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION (cont.)

Rates of Tax Reduction for Investments started after December 31st 2010

Regional Implementation Large Investments

Regions Contribution Rate to

Investment (%)

Annual Tax Reduction Rate

(%)

Contribution Rate to

Investment (%)

Annual Tax Reduction Rate

(%)

I 10 25 25 25

II 15 40 30 40

III 20 60 40 60

IV 25 80 45 80

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VII. EXPLANATIONS OF THE MEASURES -SOCIAL SECURITY PREMIUM SUPPORT

It is implemented ;

• For large investments• For regional investments

• Definition : The social security premium to be paid by the employer, corresponding to the amount to be paid on minimum wage cost, is funded from the budget for the specified periods.

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VII. EXPLANATIONS OF THE MEASURES -SOCIAL SECURITY PREMIUM SUPPORT (cont.)

Regions Investments started before

Dec. 31st 2010

Investments started after

Dec. 31st 2010

I 2 years -

II 3 years -

III 5 years 3 years

IV 7 years 5 years

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VII. EXPLANATIONS OF THE MEASURES – LAND ALLOCATION

It applies for;

•large investments •regional investments

•Definition: Pursuant to additional article 3 of the Law dated 29/6/2001 and No 4706 and in accordance with the procedures and principles set forth by the Ministry of Finance.

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VII. EXPLANATIONS OF THE MEASURES-MOVING SUPPORT

- Enterprises Operating in the Textile, Apparel, Leather and Leather Products Sector ,

located in Regions I and II that move completely to the provinces in Region IV until 31/12/2010 and create employment for at least fifty persons, can benefit from:

– social security premium support for five years,

– land allocation,

– corporate or income tax reduction by 75% for the first five years following the moving and

– compensation of moving costs if the moving completed until the end of year 2009.

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Region I Region II Region III and IV

Investments such as;

food and beverages production, integrated animal husbandry including integrated animal husbandry investments for breeding production, farming industry aquaculture tanning and processing of leather green house

Investments such as;

food and beverages production integrated animal husbandry including integrated animal husbandry investments for breeding production, farming industry aquaculture tanning and processing of leather green houseAgricultural machinery production

Mainly labor intensive investments such as;

food and beverages production integrated animal husbandry including integrated animal husbandry investments for breeding production farming industry leather and leather products green house aquaculture Agricultural machinery productiontanning and processing of leather

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CONDITIONS FOR AGRICULTURAL INVESTMENTS TO BENEFIT FROM REGIONAL IMPLEMENTATION

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Conditions to be considered in regional investments for dairy farming:

– In regions I. and II. min. 500 cattles, 2000 milk sheeps,

– In regions III. and IV. min. 300 cattles,1000 milk sheeps,

– In an integrated investment with dairy products together with feed production unit and /or cooling warehouse.

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Conditions to be considered in regional investments for animal husbandry:– In regions I.and II. 700 cattles/period, 2000

sheeps/period,

– In regions III. And IV. 500 cattles/period, 1000 sheeps/period,

– In an integrated investment with slaugther house together with meat production and/or feed production unit and /or cooling warehouse.

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Conditions to be considered in regional investments for poultry

In all regions:– for meat and egg poultry 200.000/period chicken or turkey,

– for meat poultry integrated investment of slaugtherhouse together with advance meat processing or cooling warehouse or feed production facility,

– for egg poultry integrated investment of feed production facility or cooling warehouse or egg sorting and packing facility,

is required.

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Conditions to be considered in regional investments for aquaculture

In selected provinces;• in regions I.and II. min. 1.000.000 TL total fixed

investment amount,• in regions III.and IV. min 500.000 TL total fixed

investment amount

is required.

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VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION

Conditions to be considered in regional investments for greenhouse investments

For selected provinces,• in regions I. and II. min. 25 da.• in regions III. and IV. min. 10 da. of

greenhouse area

is required.

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VIII. AGRICULTURAL INVESTMENT PROJECTS

EXCLUDED FROM REGIONAL IMPLEMENTATION:

-completely new and expansion investments on “rice, bulgur, ready made food for pets, fish flour, cod oil, fish feed, bread, cake, waffle, rakı and beer” production,

-completely new and expansion investments on “dried nuts, pickle, cotton linter, tea and nut” production,

-investments on “instant soup and consomme production, classification and packaging of grains and legumes”

shall not benefit from the measures within the scope of regional implementation.

Leather tanning investments can only be supported in the organized industrial zones.

These subjects can be supported under general system.

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VIII. AGRICULTURAL INVESTMENT PROJECTS

NOT SUPPORTED UNDER GENERAL SYSTEM

• Grist products, starch and starch products and production of ready-made fodder (except rice, bulgur, ready made food for pets, fish feed and fodder production in integrated animal husbandry investments)• Biscuit,• Phyllo dough and kadayif (shredded wheat used to prepare a kind of dessert), • Pasta, semolina, noodle, coscous and similar products,• Catering companies,• Cube sugar,• Plant production (except greenhouse production, mushroom cultivation and forage crops cultivation in integrated animal husbandry investments),• Animal husbandry investments except integrated animal husbandry investments encouraged within the context of regional investments and conditionally encouraged animal husbandry investments.

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THANK YOU FOR YOUR ATTENTION

Saadet DENİZHead of International Relations Department

General Directorate of Incentives and Implementatione-mail: saadet.deniz@hazine.gov.trWebsite: http://www.treasury.gov.tr