Turkey has announced new regulations to improve the investment environment.
The Law Amending Certain Laws for the Purposes of Improvement of the Investment Environment (Yatırım Ortamının İyileştirilmesi Amacıyla Bazı Kanunlarda Değişiklik Yapılmasına Dair Kanun – the “Improving Law“) and the Law on Supporting Investments on a Project Basis and Amending Certain Laws and Bylaws (Yatırımların Proje Bazında Desteklenmesi ile Bazı Kanun ve Kanun Hükmünde Kararnamelerde Değişiklik Yapıl-masına Dair Kanun – the “Project-Based Law“) have come into force, with the objective of improving the investment climate in Turkey.
The Improving Law
The Improving Law numbered 6728, which was announced in the Official Gazette number 29796 on 9 August 2016 and thus became effective, brings changes, inter alia, to the Execution and Bankruptcy Law (Icra ve Iflas Kanunu), Cheque Law (Çek Kanunu), Commercial Code (Ticaret Kanunu) and in several tax laws (Vergi Kanunlari). The focus of the first part of this article, however, is on the Commercial Code and tax laws.
Amendments to the Commercial Code
The most important changes in the Commercial Code are as follows:
- notarisation of signature circular is no longer required, if executed before the Trade Registry office director or vice-director;
- notarisation of the articles of association is no longer required, if executed before the Trade Registry office director or vice-director;
- Incorporation costs of a joint stock or limited liability company have been reduced by the abolition of certain notarial fees, even if the articles of association are notarised; and
- The timeframe for the liquidation process is reduced from one year to six months.
Amendments to several tax laws
The Improving Law amends a number of tax laws, including the Income Tax Law (Gelir Vergisi Kanunu), Real Estate Tax Law (Emlak Vergisi Kanunu), Value Added Tax Law (Katma Değer Vergisi Kanunu), Corporate Income Tax Law (Kurumlar Vergisi Kanunu) and Stamp Tax Law (Damga Vergisi Kanunu), which is expected to incentivise investment in Turkey.
- Corporate Income Tax Law Under the amended Corporate Income Tax Law, “regional headquarters” or “management centres” operating under a permit granted by the Ministry of Economy are exempt from the Corporate Income Tax. In this context, the Improving Law also offers payroll tax exemptions for the employees working in these regional headquarters or management centres.
- Stamp Tax Law The most significant change is the abolition of stamp duty on share purchase agreements on shares of joint stock companies (anonim şirket) and limited liability companies (limited şirket). Before the entry into force of the Improvement Law, each executed original copy was subject to stamp duty either for a fixed fee or at a rate of 0.948 %. In sizeable M&A transactions, stamp duties could easily reach the capped amount of approximately EUR 550,000 (which is the applicable cap for 2016 and re-evaluated on an annual basis) per original of such share transfer documents. Under the Improvement Law, however, stamp duties are no longer applicable to such documents.
In addition, documents relating to transfer of loans provided by banks and the receivables arising from them are also exempt from stamp tax.
The Project-Based Law
The Project-Based Law numbered 6745, which was announced in the Official Gazette number 29824 on 7 September 2016 and thus became effective, consists of 82 articles. Without doubt, the most significant article is Art. 80, which aims to enhance the investment environment, speed up and ease investment by eliminating bureaucratic barriers by authorising the Council of Ministers on the implementation of certain investments. Accordingly, investment projects could benefit from the following supports:
- corporate income tax discount up to 100 %;
- investment contribution up to 200 %;
- corporate income tax exemption for profits for up to 10 years;
- income tax withholding;
- exemption from custom duties;
- grant of a free easement right for 49 years in case of investment in immovables belonging to the Turkish Treasury; or free transfer of ownership in and to such immovable, in the case of completion of the investment and anticipated employment for at least five years;
- coverage of the employer’s social security premiums of up to 10 years;
- coverage of energy usage expenses up to 50 % for up to 10 years;
- financial support in interest or rates arising from loans used to finance the initial investment;
- salary support for qualified employees for up to 20 times the gross monthly mini-mum wage for up to five years; and
- state’s partnership of up to 49 % of the total shares providing a public offer or direct sale to an investor within 10 years.
The new regulations are likely to attract both domestic and foreign investors, which is why a boost of the Turkish economy is anticipated.