Transcript The New Incentive Regime

INVESTMENT & TRADE POTENTIAL
OF TURKEY
“INVESTMENT OPPORTUNITIES”
İrfan TOKGÖZ
Deputy General Director
General Directorate of Foreign Investment
12/10/2009
“SALONIKA”
Agenda
I.
THE GLOBAL FINANCIAL CRISIS’ EFFECTS TO TURKEY and MEASURES
AGAINST CRISIS
II.
TURKEY’S ECONOMIC OUTLOOK
III.
FDI REGULATION AND INDICATORS
IV.
THE NEW INCENTIVE SYSTEM IN TURKEY
THE GLOBAL FINANCIAL CRISIS’
EFFECTS TO TURKEY
and
MEASURES AGAINST CRISIS
Global Financial Crisis
Global financial and economic landscape has been shaken by an
unprecedented global crisis
Because the roots of the crisis are in financial system and the economies
and financial markets are globally integrated, the crisis is widespread and
destructive
Large financial institutions failed
Spreads widened
Volatilities increased
All asset prices plummeted
Devastating effects have beaten the forecasts
Derivative market collapsed
The crisis adversely affected financing facilities and foreign demand
Significant slowdown in the economic activity of developing countries
The crisis has posed considerable threats to macroeconomic and financial
stability of many emerging economies
How Turkey Affected
Being an open economy, integrated with the global economic and
financial system, Turkey has also suffered from the crisis like other
countries.
The major effects;
GDP has been declining, it is estimated -6% at the end of 2009.
Unemployment has increased appx. 4 % over last one year period
Declining external demand and decelerating international capital flows.
How Turkey Affected
Fiscal policies and major structural reforms implemented previously in
2002, have helped to minimize the impact of the crisis.
Major structural reforms such as;
 increasing the role of private sector in the economy;
Enhancing the efficiency and resiliency of the financial sector;
Social security reform;
strengthened our macroeconomic fundamentals.
Turkish Banking system weathered the crisis without any need for state
intervention and did not change the guarantee scheme;

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

strong capital base and liquidity adequacy ratios;
effective risk management practices;
Healthy and profitable balance sheet;
Absence of toxic assets
Measures Against Global Financial Crisis
To stimulate the domestic demand we lowered the VAT and Special Consumption
Tax (SCT) on several items including automobiles, white goods and electronic
devices.
The financial and non financial burdens on employers are reduced and
unemployment insurance payments made by government are widened.
A new investment scheme is announced (To be discussed later)
A new credit guarantee mechanism to support SME’s financing is established
A new and comprehensive R&D Law which aims to accelerate both foreign and
local R&D investments and to develop a more conductive environment for
innovation is adopted.
Monetary policies are implemented by Central Bank.
TURKEY’S ECONOMIC OUTLOOK
Economic Outlook
World’s Biggest Economies
(GDP based on Purchasing Power Parity, Trillion Dollars, 2009E)
Holland
Taiwan
Australia
Iran
Turkey
Indonesia
Canada
Korea
Spain
Mexico
Italy
Brazil
France
Russia
UK
Germany
India
Japan
China
US
0,87
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
Economic Outlook
Favorable Demographics
Demographic Profile (2050 Projections)
Ukraine
13%
51%
40%
Slovak Rep.
13%
50%
38%
Romania
13%
48%
39%
Bulgaria
12%
47%
40%
Europe
15%
Russia
15%
51%
Hungary
14%
Czech Rep.
13%
0%
10%
Source: UN
70
60
39%
58%
0-14 Age
71,5
34%
49%
30%
77,7
80
40%
51%
20%
82,1
32%
48%
18%
Turkey
90
35%
53%
12%
Poland
Turkey: Population Prospects (Million People)
40%
14-60 Age
25%
50%
60%
60+ Age
70%
80%
90%
100%
50
2008(*)
2010(**)
2015(**)
Source: (*) TURKSTAT
(**)UNDP World Population Prospects
Economic Outlook
GDP Growth Rate (Annual Aaverage, %)
7
5,9
6
5,3
5
4,3
4,4
4
3
2
1,5
1
0
1982-1986
1987-1991
1992-1996
Source: TURKSTAT, Treasury
1997-2001
2002-2008
GDP Growth Rate Targets (%)
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
3,5
4,0
5,0
2011
2012
-6,0
2009
2010
Source: SPO “Medium Term Programme-2010-2012 ”
Economic Outlook
Per Capita GDP (USD)
10.436
10.500
9.189
9.500
8.500
7.609
7.500
7.027
6.500
5.779
5.500
4.531
4.500
3.517
3.500
2.500
1.500
2002
2003
Source: TURKSTAT
SPO, 2009 Annual Programme
2004
2005
2006
2007
2008
Economic Outlook
Average Inflation in Periods (%)
80
71,6
70
62,7
60
50
40
30
20
13,3
10
5,3
0
1983-94
Source: TURKSTAT, CBRT
1995-2001
2002-2008
2009 September
Economic Outlook
Annual Exports (Billion USD)
Annual Imports (Billion USD)
225
150
202,0
132,0
200
125
170,1
175
104,3
107,3
85,5
116,8
125
73,5
75
47,3
50
97,5
100
63,2
143,9
139,6
150
100
69,3
75
51,6
36,1
50
25
25
0
0
2002
2003
2004
2005
2006
(*) Annualized as of August 2009
Source: TURKSTAT
2007
2008
2009*
2002
2003
2004
2005
2006
2007
(*) Annualized as of August 2009
2008
2009*
Economic Outlook
Increasingly Open Economy (Billion USD)
Foreign Trade Volume
400
375
350
325
300
275
250
225
200
175
150
125
100
75
50
25
0
334,0
277,4
248,2
225,1
190,3
160,7
116,6
87,7
2002
2003
2004
2005
2006
2007
2008
2009*
Economic Outlook
Current Account Deficit (Billion $)
50
41,5
38,2
40
32,1
30
22,1
20
16,2
14,4
10
7,5
0,6
0
2002
2003
(*) Annualized as of July.
Source: Central Bank of Turkey
2004
2005
2006
2007
2008
2009*
FDI REGULATION AND INDICATORS
FDI FIGURES
Inflows
USD Billion
22,0
22
20,2
20
18,3
18
16
14
12
10,0
10
8
5,8
6
4
3,4
2
1,1
1,7
2002
2003
2,8
0
2001
2004
2005
2006
2007
2008
2009
August
Source: CBRT, 2009
FDI FIGURES
Outflows
USD Billion
4
3,5
3
2,5
2,5
2,1
2
1,5
1,1
0,8
1
0,5
0,5
0,9
0,8
0,5
0,1
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
August
FDI FIGURES
UNCTAD World Investment Report 2009
 Published in September 2009.
 Turkey is ranked 20th in the world, and 9th among
the developing countries in terms of annual volume
of FDI inflow in 2008.
 Relaxed regulatory framework, improved business
climate and robust economic growth were stated as
the reasons behind the success of Turkey in
attracting high amounts of international direct
investment.
IMPROVEMENT OF BUSINESS ENVIRONMENT

Main Principles of International Direct Investment Regime
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
No Pre-entry Screening Requirement
No Minimum Capital Requirement
National Treatment
Guarantee to Transfer Proceeds
Key Expatriate Personnel Employment
Protection Against Expropriation
International Dispute Settlement
IMPROVEMENT OF BUSINESS ENVIRONMENT
 Coordination Council for the
Improvement of Investment Climate
(YOIKK)
 Investment Advisory Council (IAC)
IMPROVEMENT OF BUSINESS ENVIRONMENT
The Coordination Council for the Improvement of the
Investment Environment (YOIKK)
 The Reform Program for the Improvement of the Investment
Environment for Turkey, aiming to increase international
competitiveness of Turkey as an investment location, is
implemented and monitored by the Coordination Council for
the Improvement of the Investment Environment (YOIKK).
 YOIKK serves as an effective and analytic communication and
cooperation platform for public and private sector
representatives working through 12 Technical Committees.
 YOIKK Steering Committee, which was established in 2005,
has made 26 meetings so far.
IMPROVEMENT OF BUSINESS ENVIRONMENT
REFORM ON INVESTMENT ENVIRONMENT & STRUCTURE
Coordination Council for the Improvement of
Investment Environment (CCIIE)
Investment
Advisory
Council
Steering Committee
Location of Investment
Foreign Trade &
Customs
Licensing
Taxes & Incentives
Company
Establishment
Employment
Intellectual Property
Rights
Foreign Direct
Investment Legislation
Research &
Development
Corporate Governance
Investment Promotion
SMEs
IMPROVEMENT OF BUSINESS ENVIRONMENT
INVESTMENT ADVISORY COUNCIL 2008 : RECOMMENDATIONS
 Improve education and training, geared to private sector needs.
 Enhance dialogue between industry and universities to promote entrepreneurship,
leadership and management skills
 Accelerate energy sector reforms, including automatic cost recovery pricing,
diversification, deregulation and privatization
 Move forward with labor market reforms that further enhance flexibility while
protecting workers
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Improve infrastructure, transportation and information/communication technology
Strengthen the implementation of legislation on intellectual property rights
Improve public administration practices
Strengthen measures to reduce informality
Encourage the growth of SMEs
Enact the new commercial code to improve corporate governance
and accounting standards
THE NEW INCENTIVE SYSTEM IN TURKEY
The New Incentive Regime
Goals ...

To diminish regional development discrepancies

To ensure sectoral clustering

To prioritize economies of scale criterions in
investments and to support technology and R&D
based large scale investments
The New Incentive Regime
Incentive Measures
1.
2.
3.
4.
5.
6.
Customs Duty Exemption
VAT Exemption
Reduced Corporate/Income Tax Rate
Support for Employer’s Contribution for
Social Security
Interest Rate Support
Land Allocation
The New Incentive Regime
Incentive Measures
1- Customs Duty Exemption
Exemption of Customs Duty for imported machinery and
equipment
2- VAT Exemption
VAT exemption for both imported and domestically
procured machinery and equipment
The New Incentive Regime
Incentive Measures
3- Reduced Tax Rate

Reduction of Corporate Tax Rate at a rate within a range
from 25% to 90%

Percentage of support for investments changing from
10% to 70%


Practice of a reduced corporate or income tax rate until
the cumulative reduction is reached to a certain
percentage of investment amount
Applies only to earnings pertaining to supported
investment
The New Incentive Regime
Incentive Measures
4- Support for Employer’s Contribution for Social
Security
Payment of employer’s share for social security
contribution by Treasury
5- Land Allocation
For the projects that satisfy certain conditions, free
allocation of land
The New Incentive Regime
Incentive Measures
6- Interest Rate Support
For the credits that are used by the investor within the
scope of the Incentive Certificate

3 to 5 points of interest for TL denominated loans

1 to 2 points of interest for foreign currency
denominated loans
The New Incentive Regime
The Structure...
Regional
Large
System
Scale Investments
General
System
The New Incentive Regime
REGIONS GROUPED ACCORDING TO THEIR
SOCIO-ECONOMIC DEVELOPMENT RANKING
1st
2nd
3rd
4th
Degree Developed Level 2 Regions
Degree Developed Level 2 Regions
Degree Developed Level 2 Regions
Degree Developed Level 2 Regions
The New Incentive Regime
Regional System

Potentials of the regions

Economies of scale

Positive
list
approach
(like
mining,
manufacture of food and beverages, paper,
machinery etc.)
The New Incentive Regime
Regional System
Customs Duty Exemption
VAT Exemption
Reduced Corporate/Income Tax Rate
Support for Employer’s Contribution for Social
Security
 Interest Rate Support (3rd and 4th Regions)
 Land Allocation




The New Incentive Regime
FOR INVESTMENTS STARTING
AFTER 31.12.2010
FOR INVESTMENTS STARTING
BEFORE 31.12.2010
INCENTIVE MEASURES
REGION
I
REGION
II
REGION III
REGION IV
REGION
I
REGION
II
REGION
III
REGION
IV
REDUCED TAX RATE
Percentage of Support Ratio (%)
20
30
40
60
10
15
20
25
Tax Reduction Ratio (%)
50
60
80
90
25
40
60
80
2 YRS
3 YRS
5 YRS
7 YRS
-
-
3 YRS
5 YRS
SUPPORT FOR
EMPLOYER’S
CONTRIBUTION ON
SOCIAL SECURITY
INTEREST RATE SUPPORT
TL Denominated Loans (points)
-
-
3
5
-
-
3
5
Foreign Currency Denominated
Loans (points)
-
-
1
2
-
-
1
2
FOR ALL THE INVESTMENTS THAT
UTILIZE FROM REGIONAL
INCENTIVE SYSTEM
FOR ALL THE INVESTMENTS THAT
UTILIZE FROM REGIONAL
INCENTIVE SYSTEM
VAT EXEMPTION
FOR ALL THE INVESTMENTS
FOR ALL THE INVESTMENTS
CUSTOMS DUTY
EXEMPTION
FOR ALL THE INVESTMENTS
FOR ALL THE INVESTMENTS
LAND ALLOCATION
The New Incentive Regime
Large Scale Investments
GOALS:

Improvement of Technology and R&D Capacity

Improvement of Competitiveness
The New Incentive Regime
Large Scale Investments
1- CHEMICAL PRODUCTS
2- REFINED PETROLEUM PRODUCTS
3- TRANSIT PIPE LINE TRANSPORTATION SERVICES
4- AUTOMOTIVE OEM
5- RAILWAY AND TRAM LOCOMOTIVES AND/OR RAILWAY
CARS
6- HARBOURS AND HARBOUR SERVICES
7- ELECTRONICS
8- MEDICAL, HIGH PRECISION AND OPTICAL EQUIPMENT
9- PHARMACEUTICALS
10- AIRCRAFT AND SPACE VEHICLES
11- MACHINERY
12- MINING INVESTMENTS
The New Incentive Regime
Large Scale Investments
The Incentive Measures for Large Scale Investments:





Customs Duty Exemption
VAT Exemption
Reduced Corporate/Income Tax Rate
Support for Employer’s Contribution for Social
Security
Land Allocation for Investors
The New Incentive Regime
LARGE SCALE
INVESTMENTS
INCENTIVE MEASURES
FOR INVESTMENTS STARTING BEFORE
31.12.2010
FOR INVESTMENTS STARTING AFTER
31.12.2010
REGION I
REGION II
REGION III
REGION IV
REGION I
REGION II
REGION III
REGION IV
Percentage of Support Ratio (%)
30
40
50
70
25
30
40
45
Tax Reduction Ratio (%)
50
60
80
90
25
40
60
80
2 YRS
3 YRS
5 YRS
7 YRS
3 YRS
5 YRS
REDUCED TAX RATE
SUPPORT FOR EMPLOYER’S
CONTRIBUTION ON
SOCIAL SECURITY
-
-
LAND ALLOCATION
FOR ALL THE LARGE SCALE
INVESTMENTS
FOR ALL THE LARGE SCALE
INVESTMENTS
VAT EXEMPTION
FOR ALL THE LARGE SCALE
INVESTMENTS
FOR ALL THE LARGE SCALE
INVESTMENTS
CUSTOMS DUTY
EXEMPTION
FOR ALL THE LARGE SCALE
INVESTMENTS
FOR ALL THE LARGE SCALE
INVESTMENTS
The New Incentive Regime
General System
Customs
VAT
Duty Exemption
Exemption
FDI by Greece Investors

The number of companies including Greek capital who are doing business in
Turkey as of October 2009 is 378, while the total number of companies with
foreign capital is 22.821.

The amount of the foreign capital committed by the direct investors as of
October 2009 is USD 152 billion, of which USD 1.3 billion is invested by Greek
investors. The major operations were in bank acquisitions in 2006-2008

43 Incentive certificates have been issued and estimated amount of USD 200
million

The Agreement between Turkey and Greece on the Reciprocal Promotion and
Protection of Investments was signed on January 20, 2000 and entered into
force on November 24, 2001.
Some Useful Websites
www.treasury.gov.tr (Undersecretariat of Treasury)
www.investinturkey.gov.tr (Investment Portal of Turkey)
www.hazine.gov.tr/iro.htm (Investor Relations Office)
www.tcmb.gov.tr (Central Bank)
www.maliye.gov.tr (Ministry of Finance)
www.dpt.gov.tr (State Planning Organization)
www.tuik.gov.tr (Turkish Statistical Institute)
www.bddk.org.tr (Banking Regulation and Supervision Agency)
www.foreigntrade.gov.tr (Undersecretariat of Foreign Trade)
www.spk.gov.tr (Capital Markets Board)
www.ise.org (Istanbul Stock Exchange)