Establishing A Foreign-Invested Manufacturing Production Line In Turkey

By Selin Aksoy, Kulat & Co, Istanbul  

Introduction

Turkey is a very important manufacturing centre for the production sector due to its potential to conduct business with lower operational costs and its proximity to major markets. In addition, government incentives and tax advantages offer important opportunities for investors who want to invest in the region.

Developing trade corridors between West and East have assisted Turkey become an export manufacturing hub with access to Europe as well as markets in the Middle East, Central Asia, and South Asia, and this will only increase as routes such as the INSTC and others from the Caspian Sea continue to develop.

This has meant that foreign investment capital in Turkey in 2021 reached US$233 billion. The number of foreign invested businesses in Turkey, has risen from 5,600 in 2002, to 75,000 in 2021. That is also reflected in Turkey’s GDP growth, which reached 11% last year, and has also meant that Turkey has become the industrial centre of the region. Turkey’s strategic location makes it possible for investors to access a potential market with a population of 1.3 billion, a total GDP of US$26 trillion and foreign trade of US$8 trillion.

Others have spotted the trends. For example, Turkey is now the second largest light commercial vehicle manufacturer in Europe and has become the second largest steel producer among 28 EU countries and the eighth largest steel producer in the world. It is now ranked 15th globally in automotive production.

Choosing A Suitable Location

Turkey has different types of special zones for specific types of manufacturing, with these subject to differing tax treatments. Understanding these are important when looking at the establishment options. However almost all zones have at least one tax incentive. The important thing is to choose the right zone according to your production sector.

Turkey has four different types of Special Economic Zones, classified as “Organized Industrial Zone”, “Small Industrial Zone”, “Free Trade Area” and “Teknocity” (Teknopark) as Hi-tech zones. We discuss these as follows:

• Organized Industrial Zones: 

Organized Industrial Zones offer advantages to their investors in areas such as customs tax, corporate tax, SSI employer share support, and related incentives. In addition, there are important discounts such as real estate tax exemption, discounted land allocation and fee exemption for companies within the OIZ. In addition to these advantages, investors also benefit from the following advantages:

• Property tax exemption for five years from the completion of the facility construction
• Low water, gas and communication costs
• Solid waste tax exemption in case the OIZ does not benefit from municipal services

• Small Industrial Zones: 

Small Industrial Zones can also offer significant tax and surcharge exemptions:

• Property tax exempt
• Environmental cleaning tax (50% discount)
• Building Construction Mortar and Occupancy Permit Fee exempt
• Corporation tax exempt
• VAT exempt

• Free Trade Zones 

Free Trade Zones offer enhanced trade opportunities for manufacturers in terms of tax incentives. The earnings of free zone users operating within the scope of the Operating License for Production, from the sale of the products they manufacture, are exempt from Income or Corporate Tax.

Wages paid to the personnel employed by businesses based in the FTZ, and who export at least 85% of the FOB value of the products produced in the free zones are exempt from income tax. This rate can be reduced to 50% by the Council of Ministers. Transactions and issued papers of free zone users engaged in production activities in relation to activities carried out in free zones are exempt from stamp duty and fees.

• Tekno Cities and Tekno Parks (Hi-Tech Zones) 

The Definition of the International Association of Science Parks and Areas of Innovation (IASP) are that Technoparks are an organisation managed by specialised professionals, whose main aim is to increase the wealth of its community by promoting innovation and the competitiveness of its associated businesses and knowledge-based institutions.

To enable these goals to be met, a Tekno Park or City stimulates and manages the flow of knowledge and technology amongst universities, R&D institutions, companies and markets; it facilitates the creation and growth of innovation-based companies through incubation and spin off processes; and provides other value-added services together with high quality space and facilities.

Projects within Tekno Parks in Turkey are exempt from the following taxes and fees:

• Corporate Tax
• Wage Stamp Duty
• Income Tax
• VAT
• Insurance Premium Support

Manufacturing Establishment Procedures

In order to open a business, an application is made to the Tax Office at the establishment stage. It is vital that investors seek professional advice at this initial step as mistakes made in not recognizing available tax incentives can be very difficult to later include following the business license application.

If the business to be established afterwards is a sole proprietorship, it can be optionally registered with the chamber of commerce or the chamber of commerce. However, if the business will be a subsidiary of a capitalized parent company, it is obligatory to apply for the chamber of commerce. Social Security applications will need to be made for personnel. For the Workplace License, permission will be obtained from the municipality.

Generally, when investing in one of the regions listed above, the administrative procedures for establishing your first production facilities should be done in accordance with the requirements of the local Industrial Zones Board (Board) in the applicable province in Turkey. Therefore, although conditions may vary from region to region, the following fees and taxes are likely to arise in general:

• VAT for each month
• Insurance Premium for employees for each month
• “Social security organization for artisans and the self-employed” Premium for each month
• Quarterly or monthly Withholding
• Provisional Tax every three months
• One Annual Income Tax or Corporate Tax per year
• Legal book certifications once a year
• Membership fees for a professional chamber per year
• Monthly Financial Accounting Fees

In conclusion, a manufacturing business in Turkey offers great opportunities for investors from the point of access for European Market and advantages in terms of tax and costs. To discuss investments in manufacturing in Turkey please contact our offices in Istanbul at turkey@dezshira.com.

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