1. INVESTMENT ENCOURAGEMENT PROGRAM (IEP) - NEW FRAMEWORK Saadet DENİZ Head of International Relations Department General Directorate of Incentives and Implementation..2010, ISTANBUL

2. 2 OUTLINE I.The Legal Basis and Scope II.New Approach in Implementation- Three Pillar Mechanism III.General Investment Encouragement Mechanism IV.New Regional Classification V.Regional and Sectoral Implementation VI.Implementation for Large Investments VII.Explanations of The Measures VIII.Agricultural Investment Projects

3. 3 I. LEGAL BASIS and SCOPE A new “Decree Concerning State Encouragements to Investments” has been adopted on July 14th, 2009, Decree No: 2009/15199, published on the Official Gazette dated 16.07.2009 and No: 27290.

4. 4 I. LEGAL BASIS and SCOPE In the Decree, investments for; the production of goods and services, research and development (R&D) and environmental protection can benefit from the encouragement measures.

5. 5 II. NEW APPROACH IN IMPLEMENTATION The Mechanism comprises of three main categories : I.General investment encouragement mechanism II. Regional and sectoral implementation III. Implementation for large investments

6. 6 III. GENERAL INVESTMENT ENCOURAGEMENT MECHANISM It applies for all types of investments Encouragement measures are; o Exemption from Customs Duties: Imports of the machinery and equipment to be used in the production process shall be subject to Customs Duty exemption, o VAT Exemption: Imports and domestic purchases of machinery and equipment within the scope of investment project are exempted from the Value Added Tax,

7. 7 IV. REGIONAL CLASSIFICATION One of the main objectives of the system is to eliminate inter-regional imbalances. Regarding the implementation of encouragement measures, provinces have been classified into four regions according to their socio-economic development status on the basis of NUTS 2 classification of EU.

8. 8 IV. REGIONAL CLASSIFICATION ON NUTS 2 BASIS REGION ı REGION II REGION III REGION IV

9. 9 V. REGIONAL AND SECTORAL IMPLEMENTATION The Measures: VAT Exemption Customs Duty Exemption Interest Support Tax Reduction Social Security Premium Support Land Allocation

10. 10 V. REGIONAL AND SECTORAL IMPLEMENTATION VAT exemption Customs duty exemption Tax reduction Social security premium support Interest support Land allocation REGION IYES YES- LOW RATE YES- LOW RATE NOYES REGION IIYES YES- MEDIUM RATE YES- MEDIUM RATE NOYES REGION IIIYES YES- HIGH RATE YES- HIGH RATE YES- LOW RATE YES REGION IVYES YES- HIGHEST RATE YES- HIGHEST RATE YES- HIGH RATE YES ENCOURAGEMENT MEASURES WITHIN THE SCOPE OF REGIONAL IMPLEMENTATION

11. 11 VI. IMPLEMENTATION FOR LARGE INVESTMENTS Definition: Large investments are with an investment cost over 50 Million TL as defined in the Article 32/A of Corporate Tax Law No:5520. Agricultural industry is not considered in this category. The Measures: VAT Exemption Customs Duty Exemption Social Security Premium Support Tax Reduction Land Allocation

12. 12 1- The credit amount exceeding 70% of the fixed investment cost shall not be subject to compensation. 2- Financial leasing companies and all banks ratifying the Protocol to be made by Undersecretariat of Treasury shall be included. VII. EXPLANATIONS OF THE MEASURES - INTEREST SUPPORT Application categories of investment TL Credit Basis Points FX Credit Basis Points Max. Amount Compensated (TL) Max. Duration for Compensation (Years) Region III31500.000 5 Region IV52500.000 Environmental Protection 52300.000 Research & Development 52300.000

13. 13 VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION It applies for large investments and regional investments. According to the Article 32/A of Corporate Tax Law No:5520, earnings through regional and large investments having an investment encouragement certificate are subject to corporate or income tax reduction. In operational undertakings, only earnings obtained from the additional investments are subject to tax reduction.

14. 14 VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION (cont.) Rates of Tax Reduction for Investments started before December 31 st 2010 Regional ImplementationLarge Investments RegionsContribution Rate to Investment (%) Annual Tax Reduction Rate (%) Contribution Rate to Investment (%) Annual Tax Reduction Rate (%) I 20503050 II 30604060 III 40805080 IV 60907090

15. 15 VII. EXPLANATIONS OF THE MEASURES -TAX REDUCTION (cont.) Rates of Tax Reduction for Investments started after December 31 st 2010 Regional ImplementationLarge Investments RegionsContribution Rate to Investment (%) Annual Tax Reduction Rate (%) Contribution Rate to Investment (%) Annual Tax Reduction Rate (%) I1025 II15403040 III20604060 IV25804580

16. 16 VII. EXPLANATIONS OF THE MEASURES -SOCIAL SECURITY PREMIUM SUPPORT It is implemented ; For large investments For regional investments Definition : The social security premium to be paid by the employer, corresponding to the amount to be paid on minimum wage cost, is funded from the budget for the specified periods.

17. 17 VII. EXPLANATIONS OF THE MEASURES -SOCIAL SECURITY PREMIUM SUPPORT (cont.) RegionsInvestments started before Dec. 31 st 2010 Investments started after Dec. 31 st 2010 I2 years- II3 years- III5 years3 years IV7 years5 years

18. 18 VII. EXPLANATIONS OF THE MEASURES – LAND ALLOCATION It applies for; large investments regional investments Definition: Pursuant to additional article 3 of the Law dated 29/6/2001 and No 4706 and in accordance with the procedures and principles set forth by the Ministry of Finance.

19. 19 VII. EXPLANATIONS OF THE MEASURES -MOVING SUPPORT - Enterprises Operating in the Textile, Apparel, Leather and Leather Products Sector, located in Regions I and II that move completely to the provinces in Region IV until 31/12/2010 and create employment for at least fifty persons, can benefit from: –social security premium support for five years, –land allocation, –corporate or income tax reduction by 75% for the first five years following the moving and –compensation of moving costs if the moving completed until the end of year 2009.

20. 20 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Region IRegion IIRegion III and IV Investments such as;  food and beverages production,  integrated animal husbandry including integrated animal husbandry investments for breeding production,  farming industry  aquaculture  tanning and processing of leather  green house Investments such as;  food and beverages production  integrated animal husbandry including integrated animal husbandry investments for breeding production,  farming industry  aquaculture  tanning and processing of leather  green house  Agricultural machinery production Mainly labor intensive investments such as;  food and beverages production  integrated animal husbandry including integrated animal husbandry investments for breeding production  farming industry  leather and leather products  green house  aquaculture  Agricultural machinery production  tanning and processing of leather

21. 21 CONDITIONS FOR AGRICULTURAL INVESTMENTS TO BENEFIT FROM REGIONAL IMPLEMENTATION

22. 22 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Conditions to be considered in regional investments for dairy farming: –In regions I. and II. min. 500 cattles, 2000 milk sheeps, –In regions III. and IV. min. 300 cattles,1000 milk sheeps, –In an integrated investment with dairy products together with feed production unit and /or cooling warehouse.

23. 23 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Conditions to be considered in regional investments for animal husbandry: –In regions I.and II. 700 cattles/period, 2000 sheeps/period, –In regions III. And IV. 500 cattles/period, 1000 sheeps/period, –In an integrated investment with slaugther house together with meat production and/or feed production unit and /or cooling warehouse.

24. 24 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Conditions to be considered in regional investments for poultry In all regions: –for meat and egg poultry 200.000/period chicken or turkey, –for meat poultry integrated investment of slaugtherhouse together with advance meat processing or cooling warehouse or feed production facility, –for egg poultry integrated investment of feed production facility or cooling warehouse or egg sorting and packing facility, is required.

25. 25 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Conditions to be considered in regional investments for aquaculture In selected provinces; in regions I.and II. min. 1.000.000 TL total fixed investment amount, in regions III.and IV. min 500.000 TL total fixed investment amount is required.

26. 26 VIII. AGRICULTURE INVESTMENT PROJECTS SUPPORTED UNDER REGIONAL IMPLEMENTATION Conditions to be considered in regional investments for greenhouse investments For selected provinces, in regions I. and II. min. 25 da. in regions III. and IV. min. 10 da. of greenhouse area is required.

27. 27 VIII. AGRICULTURAL INVESTMENT PROJECTS EXCLUDED FROM REGIONAL IMPLEMENTATION: -completely new and expansion investments on “rice, bulgur, ready made food for pets, fish flour, cod oil, fish feed, bread, cake, waffle, rakı and beer” production, -completely new and expansion investments on “dried nuts, pickle, cotton linter, tea and nut” production, -investments on “instant soup and consomme production, classification and packaging of grains and legumes” shall not benefit from the measures within the scope of regional implementation. Leather tanning investments can only be supported in the organized industrial zones. These subjects can be supported under general system.

28. 28 VIII. AGRICULTURAL INVESTMENT PROJECTS NOT SUPPORTED UNDER GENERAL SYSTEM Grist products, starch and starch products and production of ready-made fodder (except rice, bulgur, ready made food for pets, fish feed and fodder production in integrated animal husbandry investments) Biscuit, Phyllo dough and kadayif (shredded wheat used to prepare a kind of dessert), Pasta, semolina, noodle, coscous and similar products, Catering companies, Cube sugar, Plant production (except greenhouse production, mushroom cultivation and forage crops cultivation in integrated animal husbandry investments), Animal husbandry investments except integrated animal husbandry investments encouraged within the context of regional investments and conditionally encouraged animal husbandry investments.

29. 29 THANK YOU FOR YOUR ATTENTION Saadet DENİZ Head of International Relations Department General Directorate of Incentives and Implementation e-mail: saadet.deniz@hazine.gov.trsaadet.deniz@hazine.gov.tr Website: http://www.treasury.gov.trhttp://www.treasury.gov.tr