Turkey

Foreign tax credit

A tax credit is granted for foreign tax paid, up to the amount of Turkish CIT attributable to the foreign income. Any unused credit may be carried forward to the following three years. The foreign tax paid must be documented through foreign tax office receipts approved by the Turkish consulate in the country in which the foreign tax was paid. Special conditions apply to foreign tax credits relating to dividends received by Turkish resident companies from their foreign participations.  

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.

Investment incentives

Incentive mechanisms in Turkey are categorized into two main systems: the Project-Based Incentive System and the Investment Incentive System. The latter is further structured under the new regulation into two subcategories: the Century of Türkiye Development Initiative and the Sectoral Incentive System.

The Century of Türkiye Development Initiative includes:

1. Technology Initiative: This program supports high-tech and high value-added investments. Eligible projects are evaluated individually by the Technology Leap Program Evaluation Committee, focusing on specific products or technologies listed under the program.
2. Local Development Initiative: Aimed at reducing regional disparities and enhancing regional competitiveness, this program supports investments aligned with regional potential, such as integrated food production, manufacturing, and integrated livestock projects. Investment priorities are updated annually.
3. Strategic Initiative: This program supports strategic investments meeting specific criteria, including inclusion in the strategic investment list, export-import ratio limits, minimum value-added thresholds, equity requirements, and significant import volume related to the investment. Projects meeting at least three of these criteria are forwarded to development and investment banks for feasibility assessment.

The Sectoral Incentive System covers:

1. Priority Investment Incentive System: Supporting designated investment areas with specific minimum requirements and restrictions.
2. Target Investment Incentive System: Supporting investments in certain sectors and regions, with some exclusions such as tax and financial incentives for projects in Istanbul and specific sectors.

Project Based Incentives and HIT-30 Program

Project-Based Incentives and the HIT-30 Program provide tailored support for high-value, innovative, R&D-intensive projects aligned with national development goals. The Project-Based Incentive System targets investments with a minimum of 2 billion TRY, focusing on critical needs, supply security, reduced foreign dependency, technological transformation, and high added value. The HIT-30 Program offers comprehensive incentives for specialized projects in priority technology fields, also requiring a minimum investment of 2 billion TRY, with customized solutions designed to meet specific project needs.

Opportunities to Benefit from the Incentive System

These incentives offer various advantages such as customs duty exemptions, VAT exemptions, tax reductions, and interest or dividend support. For small and medium-sized investments, these incentives create significant opportunities for firms with growth potential. For large-scale investments, tax reduction rates, interest and dividend supports increase, and additional incentives such as machinery support are provided. These incentives are especially attractive for industry- and technology-focused investments, encouraging projects that contribute to the Turkish economy. Additionally, certain large-scale, high value-added projects may be eligible for cash support, including funding for skilled personnel, energy subsidies, and grants.

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.

Research, development, and design activities

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

R&D legislation:

• Law No. 5746 on Support for Research, Development, and Design Activities.
• Law No. 4691 on Technology Development Zones.
• Institutions providing cash supports on project basis:
  • Scientific and Technological Research Council of Turkey (TÜBİTAK).
  • Ministry of 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%. The same expenditures should also be capitalised and expensed through amortisation over five years in the case of successful projects, whereas failed projects’ R&D and design expenditures can be expensed immediately.

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 'supported programs' declared by the Ministry, 90% for the personnel with a master’s degree or undergraduate degree on supported programs declared by the Ministry, 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.

VAT exemption and amortisation on machines and equipment acquired for R&D and design activities

Deliveries of machines and equipment that will be used for R&D, innovation, and design projects by the R&D Centres are exempt from VAT.

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 'supported programs' declared by the Ministry

The minimum gross wage portion of monthly salaries of each R&D or design personnel that have at least a bachelor’s degree in 'supported programs' declared by the Ministry employed in R&D and design centres will be financed from the budget of the Ministry of Industry and Technology for two years, under the specific circumstances stated in the R&D legislation.

Please note that, contract-based R&D activities will be out of the scope as stated in the aforementioned Decision, as the companies do not need any intellectual property (IP) registration for contract-based R&D activities to utilise CIT exemption.

If the project results in a loss, it is not possible to deduct this loss from the CIT base. In addition, the income from other activities (other than R&D and software income) is subject to CIT. 

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 techno parks are exempt from CIT.

In accordance with the decision of the Council of Ministers issued in the official gazette dated 19 October 2017, in order for companies operating in technology development zones to benefit from CIT exemption over the income that is derived from the sale, transfer, or lease of IP, these IPs should be subjected to patents or patent equivalent documents (utility model certificate, design registration certificate, copyright registration certificate, integrated circuit topography registration certificate, certificate of breeding of new plant varieties, etc.).

Please note that, contract-based R&D activities will be out of the scope as stated in the aforementioned Decision, as the companies do not need any IP registration for contract-based R&D activities to utilise the CIT exemption.

If the project results in a loss, it is not possible to deduct this loss from the CIT base. In addition, the income from other activities (other than R&D and software income) is subject to CIT.  

Income tax exemption (100%)

The salaries of R&D and support personnel carrying out R&D and software development activities in techno parks are exempt from income tax until 31 December 2028. 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 on machines and equipment acquired for R&D and design activities

Deliveries of machines and equipment that will be used for R&D, innovation, and design projects by the companies located in techno parks are exempt from VAT. 

VAT exemption on deliveries of certain type of software and services

Deliveries of software and services (system management, data management, business applications, Internet, games, mobile and sector applications, military command control applications) arising from software development activities by the companies operating in the techno parks are exempt from VAT until 12 December 2028.

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 'supported programs' declared by the Ministry

The minimum gross wage portion of monthly salaries of each R&D and design personnel that have at least a bachelor’s degree in 'supported programs' declared by the Ministry will be financed from the budget of the Ministry of Industry and Technology for two years, under the specific circumstances stated in the techno park legislation.

Additional support for Ph.D. students

The minimum gross wage portion of monthly salary of each Ph.D. student employed in techno parks may be financed from the budget of the Ministry of Industry and Technology for two years, under the specific circumstances stated in the techno park legislation (limited to two personnel).