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Turkey Corporate - Tax credits and incentives

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Foreign tax credit

A partial relief from income taxation is granted for the foreign tax paid that does not exceed the rate of tax payable for the same income in Turkey.

Participation exemption for dividends

There is an unconditional CIT and dividend WHT exemption for dividend income between Turkish companies. If a Turkish company has a shareholding in a foreign company, this dividend income is exempt from CIT, under certain conditions.

Exemption for income from foreign construction and repair activities

The profit from construction and repair activities carried out by Turkish corporations in foreign countries may be exempt from CIT in Turkey under the Turkish CTL. It should be noted that if loss occurs from these activities, it is not possible to deduct this loss amount from the income generated through domestic activities since deduction of a loss relating to foreign activities that are exempt from CIT in Turkey is not allowed for deduction.

Capital gains exemption

For capital gains generated from the sale of shares in a company, a 75% CIT exemption is applicable under certain conditions. This partial exemption may also be applicable for the capital gains derived from the alienation of real estate investments, under certain conditions.

In the event a foreign subsidiary is sold by a Turkish company, a CIT exemption at the rate of 100% is applicable under certain conditions.

Investment incentives

The investment incentive system comprises the following elements.

Priority Investment Projects

Based on the investment incentive system, certain investment projects (e.g. testing centres; R&D projects; pharmaceutical, tourism, cultural, education, and railway investments) are deemed as 'Priority Investment Projects'.

General incentive practices

Excluding the subjects of investments that do not meet the requirements, all investments above the minimum fixed investment amount will benefit from incentive elements, regardless of regional location.

Regional incentive practices

The industries categorised by region in the relevant Decree will benefit from incentive elements under the conditions determined for each relevant region.

Large-scale investments

Incentives are granted to all large-scale investments, although incentive size will vary depending on the investment’s regional location.

Strategic investments

The related legislation defines strategic investments as well as different incentive ratios and periods for strategic investments. A new committee to be established will decide which investments are strategic within the scope of the defined criteria.

Based on the related legislation, investments in production of products that are highly dependent on imports and meet all the following criteria will be regarded as strategic investments:

  • Minimum fixed investment amount should be more than TRY 50 million.
  • Total domestic production capacity for a given product that is the matter of investment should be below the import amount.
  • Added value to be generated with the investment should be at least 40%.
  • The total import amount realised related to the invested product within the prior year should be more than 50 million United States dollars (USD).

There are six main components of the investment regulation:

  • Reduced CIT rate.
  • VAT exemption.
  • Exemption for social security premiums (employer’s portion).
  • Customs duty exemption.
  • Interest support.
  • Allocation of land for investments.

A new investment incentive model supports investments on a project basis. The supportable investments and incentive items will be decided by the Council of Ministers.

Minimum investment amount should be USD 100 million.

The incentive items are as follows:

  • Reduction of CIT rate up to 100%.
  • Investment contribution rates up to 200%.
  • Employee income tax withholding incentive.
  • Customs tax exemption.
  • Social security premium employer share support for ten years.
  • Provision of free treasury land for 49 years.
  • During the operating period, 50% of the energy consumption expenditure for the investment should be met up to ten years.
  • Up to ten years interest support for investment loans.
  • For qualified personnel of special importance, minimum wage support up to 20 times wage support for five years.
  • Capital support up to 49%.
  • Guarantee of purchase for the goods produced through the investment supported.

Free trade zones

Free trade zones are special sites that lie geographically within the country but are deemed to be outside the customs territory. In these regions, the normal regulations related to foreign trade and other financial and economic areas are either inapplicable, partly applicable, or superseded by new regulations.

In general, activities such as manufacturing, storage, packing, general trading, banking, insurance, and trade may be performed in Turkish free trade zones. Goods moving between Turkey and the zones are treated, for all purposes, as exports or imports. However, operations within the zones are subject to the supervision of the zone management (and customs authorities), to whom regular activity reports must be submitted. Consequently, there is a requirement for zone users to maintain full accounting records (in Turkish) with respect to their activities. These accounting requirements extend to inventory records. Customs duty is levied on any unexplained inventory losses as though the goods had been imported into the country.

The right to operate in a free trade zone is conferred by an operating licence obtained from the Ministry of Economy, which reviews the application for conformity with the objectives and types of activity specified by the Economic Affairs Coordination Council.

Portfolio investment income

Under the WHT regime introduced on 1 January 2006, certain portfolio investment income (e.g. capital gains derived from listed equities acquired after 1 January 2006 or capital gains or interest from Turkish local government bonds issued after 1 January 2006) derived by eligible entities are subject to 0% WHT. However, the WHT rate is 10% for other resident and non-resident entities. In the case of repo income, 15% WHT should be applied for all non-resident investors (the provisions of double tax treaties [DTTs] are reserved).

Furthermore, 0% WHT is applicable for all type of investors with respect to capital gains derived from listed equities on the Istanbul Stock Exchange (ISE) purchased after 1 January 2006 (excluding securities investment trust shares), income derived from transactions on equity index futures carried out under Turkdex, warrants with underlying of equities traded on ISE, and participation shares of investment funds that intensively invest in listed shares (equity intensive funds).

Under the Communiqué No: 277 of Income Tax Law, the following qualify for the eligibility criteria for 0% WHT:

  • Turkish resident capital corporations (limited liability companies, joint stock companies, and commandite companies whose capital is divided into shares).
  • Non-resident corporations that have the same characteristics as Turkish capital corporations.
  • Turkish investment funds (regulated in accordance with the Capital Markets Board).
  • Non-resident investment funds similar to Turkish investment funds.
  • Those non-residents similar to Turkish investment funds and trusts that engage in investment in securities and other capital markets instruments as their only business in Turkey to derive income and capital gains from these instruments and to exert the rights attached to these instruments.

Under the aforementioned Communiqué, the investor should be an institutional portfolio investor. However, what is meant by 'institutional' is not crystal clear. It seems to us that the intention of the MoF is to treat all non-resident portfolio investors (other than the individuals) as institutional portfolio investors. The Communiqué does not have a principle based approach; rather, it enlists a number of 'institutional investor' examples, such as limited liability partnerships (LLPs), sovereign funds, investment funds, investment institutions, and investment companies.

In terms of interest income from deposits, the WHT rates on interest income from bank deposits (excluding interbank deposits and money market operations of intermediaries) differ depending on the currency (Turkish lira or the foreign exchange) and maturity, which are as follows:

  • Interest income derived from foreign exchange deposit:
    • In current call accounts and deposit accounts with maturity of less than six months (including six months): 18%.
    • In deposit accounts with maturity of less than one year (including one year): 15%.
    • In accounts with maturity of more than one year: 13%.
  • Interest income derived from a Turkish lira deposit:
    • In current call accounts and deposit accounts with maturity of less than six months (including six months): 15%.
    • In deposit accounts with maturity of less than one year (including one year): 12%.
    • In accounts with maturity of more than one year: 10%.

The withholding will be applied by local intermediary banks, brokerage houses, or local custodian banks, instead of the conventional self-declaration mechanism, and this withholding will be the final taxation in Turkey for both non-residents and Turkish individuals.

On the other hand, certain portfolio investment income (e.g. capital gains from unlisted shares) is taxed under permanent tax rules. In some cases, a non-resident fund may need to file a tax return within 15 days following the sale of securities and subject to a 32% effective tax rate. However, DTTs may provide relief except in special cases. Certain income, such as interest and dividends, are usually taxed via the WHT regime, so no filing is required for a non-resident investor.

Moreover, Turkish corporate bonds that are issued after 1 January 2006 and sold outside of Turkey are not taxed under the WHT regime, and rather taxed as per permanent tax rules. The WHT rates on interest income from such corporate bonds issued by all type of resident corporations (including Turkish banks and corporations) vary depending on the maturities of the bonds and are regressive. The WHT rates are as follows (please note that DTT provisions are reserved):

  • 10% if the maturity is under one year.
  • 7% if the maturity is between one and three years (including one year).
  • 3% if the maturity is between three and five years (including three years).
  • 0% if the maturity is five or more than five years (including five years).

The interest income derived from bonds that are issued by the Turkish Treasury outside of Turkey (i.e. Eurobonds) is subject to a 0% WHT. Capital gains derived by non-residents from Turkish Eurobonds issued by the Treasury are exempt from capital gains taxation.

The responsibility to apply this WHT belongs only to the issuer of the corporate bond, regardless of the fact that a payment agent exists or not, and the WHT liability of the issuer is not disregarded even if the payment agents make any withholding.

Research and development (R&D) activities

In the last decade, the Turkish Parliament has enacted several regulations to provide incentives for R&D activities in Turkey. Tax incentives and support mechanisms that are provided to companies carrying out R&D and innovation activities in Turkey are as follows:

  • R&D legislation:
    • Law No. 5746 on Support of R&D Activities.
    • Law No. 4691 on Technology Development Zones.
  • Institutions providing cash supports on project basis:
    • Scientific and Technological Research Council of Turkey (TÜBİTAK).
    • Turkish Technology Development Foundation (TTGV).
    • Ministry of Science, Industry, and Technology.
    • Small and Medium Industry Development Organization (KOSGEB).
    • Development Agency.
    • European Commission.

Law No. 5746 on Support of R&D and Design Activities

R&D deduction (100%)

All eligible innovation and R&D or design expenditures made in technology centres, R&D centres (which must employ at least 15* full-time equivalent R&D personnel), design centres (which must employ at least 10 full-time equivalent design personnel), R&D and innovation or design projects supported by governmental institutions, foundations established by law, or international funds can be deducted from the CIT base at a rate of 100%.

In addition, in the event of providing an increase of at least 20% in any of the following indicators in R&D or design centres compared to the previous year, then 50% of the increase in the amount of R&D, innovation, or design expenses compared to the previous year will also be taken into consideration as an extra deduction in the calculation of the CIT base:

  • R&D or design expenditures share in total turnover.
  • The registered number of national or international patents.
  • The number of internationally funded projects.
  • The ratio of researchers holding graduate degrees to total R&D personnel.
  • The ratio of the number of total researchers to total R&D personnel.
  • The ratio of new products (output of successful R&D projects) turnover to total turnover.

* With the Council of Ministers’ decision, the minimum number of full-time equivalent R&D personnel that should be employed in R&D centres is reduced to 15 according to Law No. 5746 on Supporting Research, Development and Design Activities. However, the aforementioned number will continue to be considered as 30 for sectors (29.10.01, 29.10.02, 29.10.03, 29.10.04, and 29.10.07 classes and 30.30, 30.40, and 30.99 classes under the C - Manufacturing section) according to the Statistical Classification on Economic Activities for European Community (NACE Rev. 2).

Income tax exemption (95%, 90%, or 80%)

The salaries of R&D, design, and support personnel, at a rate of 95% for the personnel with a PhD degree or master’s degree on basic sciences, 90% for the personnel with a master’s degree or undergraduate degree on basic sciences, and 80% for others, is exempt from income tax.

Social security premium support (50%)

Half of the employer portion of social security premiums for R&D, design, and support personnel (maximum of 10% of the number of full-time R&D and design personnel) will be funded by the MoF for each R&D and support personnel.

Stamp tax exemption

The documents prepared for the R&D and design activities, including the payrolls of R&D, design, and support personnel, are exempt from stamp tax.

Customs duty exemption

Goods imported for the usage of studies in R&D, innovation, and design projects are exempt from customs duties. Additionally, any funds, held papers, and applied transactions are exempt from stamp tax and fees.

Additional support for personnel graduated from basic sciences

The minimum gross wage portion of monthly salaries of each R&D personnel that have at least a bachelor’s degree in basic sciences (mathematics, physics, chemistry, or biology) employed in R&D centres will be financed from the budget of the Ministry of Science, Industry, and Technology for two years, under the specific circumstances stated in the R&D legislation.

Law No. 4691 on Technology Development Zones

CIT exemption

The profits derived from the software activities or products developed as a result of the R&D activities in technoparks are exempt from CIT.

Income tax exemption (100%)

The salaries of R&D and support personnel carrying out R&D and software development activities in technoparks are exempt from income tax until 31 December 2023. The salary for the activities other than software development and R&D activities cannot benefit from income tax exemption.

Social security premium support (50%)

Half of the employer portion of social security premiums for R&D and support personnel (maximum of 10% of the number of full-time R&D personnel) will be funded by the MoF for each R&D and support personnel.

Stamp tax exemption (only on payrolls)

The payrolls prepared for the R&D activities are exempt from stamp duty.

VAT exemption

Deliveries of software and services (system management, data management, business applications, Internet, mobile and sector applications, military command control applications) arising from software development activities by the companies operating in the technoparks are exempt from VAT until 12 December 2023.

Customs duty exemption

Goods imported for the usage of studies in R&D, innovation, and design projects are exempt from customs duties. Additionally, any funds, held papers, and applied transactions are exempt from stamp tax and fees.


Last Reviewed - 15 August 2018

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