MEMORANDUM

A.   Tax Practices in Businesses Operating in Turkish Free Zones

In this section, the tax incentives in force regarding the activities of the enterprises operating in free zones in the region are explained. The tax practices applied in free zones in accordance with the provisions of the Corporate Tax Law, Income Tax Law and Value Added Tax Law and other financial legislation are explained in detail below.

1.      Income Tax and Corporate Tax Practices in Free Zones

The free zone users that obtained operating license other than “production” after 06/02/2004 do not enjoy income or corporate tax exemption.

The earnings of taxpayers who started to operate in free zones as of 06.02.2004 will be subject to income or corporate tax.

2.      Value Added Tax Practices in Free Zones

Value Added Tax (VAT) is defined as "transaction tax" in the tax literature, and the definition of a transaction or transaction in simple terms can be expressed as the delivery of goods or service performance.

According to the VAT General Implementation Communiqué regarding the situation of enterprises operating in free zones: export deliveries and services related to these deliveries are exempt from VAT. Therefore, goods sold from Turkey to free zones are subject to the export regime and are exempt from value added tax (VAT).

B.   Advantageous of Turkish Free Zones in General

1. Opportunity to Benefit from Tax Advantages for Manufacturer Users

• Until the end of the taxation year including the date Turkey becomes a full member of the European Union, the earnings of the manufacturer users, generated through the sales of the goods they produced in the free zones, are exempted from the income or corporate taxes.
• The wages of the workers employed by the users that export at least 85 percent of the FOB value of the goods they produce in the free zones are exempted from income tax. The Council of Ministers can reduce this rate to 50 percent.
• The transactions and arranged documents related to the activities carried out in the zones by the manufacturer users are exempt from stamp duties and fees.

The free zone users that obtained “operating license” other than “production” before 06/02/2004, the income or corporate tax exemption continues during the validity period of the Operating License.

The free zone users that obtained operating license other than production after 06/02/2004 do not enjoy income or corporate tax exemption.

2. Opportunity of Medium- and Long-Term Planning

The validity period of an operating license:

• 15 years for tenant users.
• 20 years for manufacturer tenant users.
• 30 years for users who build their own working premises (investor users).
• 45 years for manufacturer-investor users.

Building plots and buildings on Treasury owned land can be leased or granted easement until 49 years for the investor users.

3. Opportunity to Transfer Profits

The revenue and earnings from free zone activities can be freely transferred to Turkey or abroad without any permission.

4. Facilitation of Foreign Trade

Since the goods sold from Turkey to free zones are subject to export regime, free zone users can buy goods and services from Turkey without paying value added tax. On the other hand, trade between free zones and third countries is not subject to foreign trade regime.

Moreover, upon request, goods of Turkish origin in value less than 5000 US $ or its equivalent in Turkish Lira can be exempted from export procedures.

5. Trade Facility Free from Customs Duty Procedure

The goods in free circulation can be sent to Turkey or to the EU countries from the free zones without any customs duty payment. Moreover, no customs duty is applied on the goods of third country origin at the entrance into the free zones and exit to the third countries.

6. Easy Access to EU Countries

Since free zones are part of the Turkey-EU Customs Territory, the goods in free circulation can be sent to the EU Countries by an A.TR certificate. Customs duties for the goods of third country origin are also not paid at the entry into the free zones. However, the goods of third country origin that are not in free circulation can be sent to the EU countries by an A.TR certificate, only after the customs duties are paid over the rates determined in the Common Customs Tariff.

7. Equal Treatment

The incentives and advantages provided in the free zones are available to all firms regardless of their origin.

8. No Time Limitation

The goods can remain in the zones without any time limit.

9. Managing Trade Activities According to Market Demands and Conditions

In the Turkish Free Zones, unless the manufacturers demand, any authority regarding prices, quality and standards granted to public institutions and agencies by laws or by other legislation is not valid. Also, legislative provisions pertaining to customs and foreign exchange obligations are not applicable in the zones.

10. Inflation Accounting Opportunity

Every payment in the Turkish Free Zones is done with Convertible Currencies.

11. Access to Domestic and Foreign Markets

In contrast to most of the free zones in the world, sales to the domestic market except for consumer and risky products are allowed.

12. Reduced Bureaucratic Procedures and Dynamic Management

During application and operation process bureaucracy is minimized. Professional private sector companies manage free zones.

13. Strategic Location

Turkish Free Zones are close to the EU and Middle East Markets, adjacent to the major Turkish Ports on the Mediterranean, Aegean and Black Sea and have easy access to international airports and highways.

14. Competitive Infrastructure Standards

Infrastructure of the Turkish Free Zones is competitive with international standards.

15. Supply Chain Management

Turkish Free Zones, particularly for the companies which manufacture for export, offer supply chain management opportunities in providing intermediate and raw materials.

C.   Comparison

In this section, there will a comparative study between a Conventional LLC in Turkey and LLC in Turkish Free Zones. Since the tax regime and general advantageous are explained above here the comparison will be basic.