On 16 July 2009, the Council of Ministers introduced a new tax incentive regime by way of Decree No. 2009/15199, which entered into force on that date. The new incentives introduce, inter alia, a reduction of corporate and individual income tax for qualifying investments. The basic features of the new incentive regime are summarized below.
Qualifying investments
Investment incentives are granted in respect of qualifying investments, certified by an investment document issued by the Under Secretariat of Treasury (UT). The UT may reject the application if the project is not deemed to be economically, regionally, financially and technically justified. The applicants must pay to the Treasury an application fee of TL 400.
The Decree differentiates among four qualifying regions, ordered by degree of economic development, e.g. the first group includes, inter alia, the regions of Istanbul, Ankara, Edirne, Izmir and Bursa. It also provides for qualifying regional sectors with respect to business activities and products. In addition, business activities that will not be granted incentives, or be granted incentives under specific conditions, are also listed.
The minimum required investment value is TL 500,000 for the first and second region and TL 1,000,000 for the third and fourth region. For investments carried out by way of financial leasing, however, the minimum investment is TL 200,000.
In addition, the Decree provides different minimum investment values and capacity requirements for large-sized investments and for regional investments in respect of different business activities and sectors.
Incentives
Under the new regime, companies and individuals may enjoy several incentives, such as customs exemptions, tax deductions, value added tax exemptions for machinery and equipment, and subsidy for the employers' social security contributions.
Tax deductions
Income arising from the qualifying investments is subject to reduced corporate and individual income tax rates, while the relevant tax savings are capped by a specified investment subsidy. Expenditures for land, royalties, spare parts and other expenditures not subject to depreciation, are not eligible for the rate reduction.
Joint ventures finance and insurance companies, however, do not qualify for the reduced corporate income tax rate. No reduction is applicable for withholding taxes.
The applicable rate reductions and investment subsidy amounts for qualified investments commencing before 31 December 2010 are as follows:
Regional investments
Regions |
Investment subsidy (%) |
Reduction CIT rate (%) |
I |
20 |
50 |
II |
30 |
60 |
III |
40 |
80 |
IV |
60 |
90 |
Large-sized investments
Regions |
Investment subsidy (%) |
Reduction CIT rate (%) |
I |
30 |
50 |
II |
40 |
60 |
III |
50 |
80 |
IV |
70 |
90 |
For qualified investments commencing after 31 December 2010:
Regional investments
Regions |
Investment subsidy (%) |
Reduction CIT rate (%) |
I |
10 |
25 |
II |
15 |
40 |
III |
20 |
60 |
IV |
25 |
80 |
Large-sized investments
Regions |
Investment subsidy (%) |
Reduction CIT rate (%) |
I |
25 |
25 |
II |
30 |
40 |
III |
40 |
60 |
IV |
45 |
80 |
For example, the income from a qualifying large-sized investment project of TL 100 million commencing before 31 December 2010 in the first region will be taxed at the rate of 10%, instead of the normal CIT rate of 20%. The tax savings for that investment are capped at the rate of 30% (investment subsidy) to TL 30 million.
If a similar company invests in the fourth region under the same conditions, the applicable corporate income tax rate will be 2% until the tax savings amount to TL 70 million.