Governmental resolution on investment incentives

Governmental resolution on investment incentives

The Turkish government’s attempts to reap economic gains and development through investment incentives can be traced back to the last years of the Ottoman Empire. Incentives to stimulate activities in some sectors and regions and improve the economic outlook of the country as a whole were codified for the first time in the Industry Encouragement Law in 1913.

Since then, incentives have been heavily employed as policy instruments to back up conventional fiscal policy tools. Successive governments since the inception of the Turkish Republic have resorted to investment incentives to combat chronic unemployment, raise the country’s international trade profile, diminish dependency on imported goods, reallocate economic resources to the most preferred sectors or deprived regions and sometimes to satisfy demands coming from electoral bases regarding promises they have given during the election campaigns to tackle the persistent and notorious regional discrepancies.

Still, the investment incentive package introduced by the government in April 2012 with a governmental resolution stands as the most comprehensive in its scope and the best in terms of variety of benefits it offers to the would-be investors.

Relevant legislation

Unlike various other less comprehensive and less generous incentive schemes, which are mostly codified in laws, that investment incentive package is stipulated in the Council of Ministers Resolution on State Aids to Investments (hereafter “resolution”) revoking various previously enacted investment incentive legislation.

The resolution went into effect retrospectively on Jan. 1, 2012. The Communiqué Regarding the Implementation of the Resolution on State Aids to Investments specifies principles and procedures regarding the day-to-day implementation of the resolution that was put into effect. Apart from some minuscule changes, no significant alteration was carried out regarding this piece of legislation.

The objective of the resolution is to explain the principles and procedures of how to:

- Orient savings to investments with high added value;

- Boost production and employment;

- Encourage regional, large-scale, and strategic investments with greater content of research and

- Enhance international competitiveness;

- Attract more foreign direct investment; and

- Cope with regional developmental discrepancies.

Investment incentive certificate

Investment incentive certificates, which are important to the functioning of the whole system, need to be obtained by individual investors to activate whatever investment benefits will be granted to them. Thus, this document, issued upon request of investors, specifies which benefits will be granted and utilized in what investment-related circumstances under the relevant provisions of the resolution. Any investment project to be granted with an investment incentive certificate goes through an elaborate and extensive sectoral, financial and technical assessment process carried out by the relevant central/local authority.

Relevant authorities

The General Directorate of Incentive Implementation and Foreign Capital, affiliated with the Economy Ministry, is the central, if not the sole, public body vested with authority to issue investment incentive certificates. But there are also local authorities such as chambers of industry, development agencies, and other chambers that operate as local branches of the Union of Chambers and Commodity Exchanges of Turkey to issue investment incentive certificates pertaining to investments under 10 million Turkish Liras and falling within the scope of the general investment incentive scheme.

Eligibility for the application

Natural persons and legal entities such as individuals, capital stock companies, partnerships, cooperatives, unions and joint ventures, as well as local branches of foreign companies, have the legal right to apply for and get an investment incentive certificate and retain it during the investment process as long as they comply with rules and procedures.

This investment incentive system functions within the confinement of four distinct incentive schemes envisaged elaborately by the relevant regulation and which include several or all of the nine investment benefits largely depending on which investment scheme a specific investor is entitled to. The investment benefits offered to those investors that meet all necessary criteria set out by the resolution are substantially diverse in nature and enormously generous in terms of their financial significance. 

*Diyadin Yakut is a tax inspector at the Finance Ministry