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

Investment incentives are available to investors through an Investment Incentive Certificate (IIC), which is obtained from the General Directorate of Incentive Practises and Foreign Capital under the Ministry of Industry and Technology. 

In order for an investment to be granted an IIC, the minimum investment expenditures should be at least TRY 3 million for the first two regions and TRY 1.5 million for other regions. To be granted incentives, investment projects are subject to evaluation by the Ministry of Industry and Technology. The incentives under an IIC can be summarised as follows:

• VAT exemption on machinery and equipment.
• Customs duty exemption on machinery and equipment.
• Reduction in CIT.
• Social security premium support (employer's share).
• Social security premium support (employee's share).
• Interest rate or dividend support.
• Land allocation.
• VAT refund.

In general, the investment incentive legislation is comprised of general, regional, and strategic investment incentive schemes. 

General investment scheme

Investments that are not qualified as special types of investments are subject to general incentives. The incentives available to general investments are customs duty and VAT exemption on the purchase of investment goods (i.e. machinery and equipment).

Regional and sector-based investments scheme 

Turkey is separated into six regions based on the development level of district/cities in these regions. The first three zones represent more developed regions, whereas the last three are relatively less developed zones. The sectors to be supported in each region are determined in accordance with regional potential and the scale of economy, while the intensity of support (incentive) varies depending on the level of development in the region. The incentives available under the regional investment scheme are customs duty and VAT exemption on the purchase of investment goods (i.e. machinery and equipment), CIT rate reduction, social security premium support (employer's share), land allocation, and interest rate support. In case of investments in region 6, social security premium support for employee’s share is also available. 

Strategic investments scheme

The Program Evaluation Committee, within the scope of the Technology Oriented Industry Move Program, may decide to support the investment projects that are suitable for the production of the products in the Preferential Product List and meet the criteria to be determined by the Communiqué, as strategic investments.

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 USD 50 million.

Prioritised investments with over TRY 3 billion of minimum fixed investments will be qualified as strategic investments.

The incentives available under the strategic investments scheme are customs duty and VAT exemption on the purchase of investment goods (i.e. machinery and equipment), CIT rate reduction, social security premium support (employer's share), land allocation, interest rate support, and VAT refund.

Project-based investment incentive package

In addition to the investment incentive legislation, a project-based investment incentive package (also known as super incentives package) is also available. It aims to provide financial support for innovative, technology-oriented, research and development (R&D) focused, high value-added projects that also contribute to reducing foreign dependency. Projects seeking support under the incentive schemes must conform with the Turkish government's targets as set out in national development plans and annual programs, and with those promoted by the Ministry of Industry and Technology.

Technology Focused Industry Move program

The Technology Focused Industry Move program is a special program with the purpose of increasing the value-added production in Turkey. The support and incentives provided by the Ministry and its affiliated/related organisations are aimed at being intensified for the industries with medium-high and high-tech level. Increase in production capacity of the products with high future potential and critical importance is the aim of this program. 

Preferential Product List: Products in medium-high and high technology sectors, according to the definition of the OECD, as well as products that have critical importance for the development of these industries as determined by the Ministry. 

In order for projects to be evaluated within the scope of the Decision, the minimum fixed investment amount for the Technology Focused Industry Move program should be TRY 50 million. For other investments, the minimum fixed investment amount should be TRY 500 million.

Incentive items include customs duty and VAT exemption, CIT reduction, income tax withholding support, social security premium support (employer’s share), qualified personnel support, energy support, land allocation, interest rate support, capital contribution support, infrastructure support, purchasing guarantee (for the goods produced through the investment supported), facilitation of authorisation/permit licence procedures, and VAT refund.

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).