In our opinion, the fact that particularly the renewable resources and investments in natural energy were not included among the major investments, is an important defect.  

The discounted Corporation Tax rates and the SSK incentive applicable for big investments as per regions, are presented in the table provided below

The discounted Corporation Tax application shall be applied as follows: for example, in an investment in the production of chemical substances worth 1.000 million TL to be realized in the 1^st Region, Corporation Tax shall be levied at a rate of 10% instead of 20%.  The 10% tax application shall continue until the amount of saving provided through the application of 10% tax instead of 20%, reaches 30% of the investment total of 1.000 million TL, which is equal to 300.  

The incentives application, which has been determined as Regional and Sectoral Incentive System, envisages the division of Turkey into 4 zones after the completion of the implementation of the relevant legislation and to form a group of provinces in each group (for example Kocaeli, Sakarya, Düzce, Bolu, and Yalova, forms a group of provinces  within the 1^st zone. Similarly, Mardin, Batman, Şırnak, and Siirt forms a group of provinces within the 4^th zone.  There are 6 group of provinces in the 1^st zone, 4 group of provinces in the 2^nd zone, 8 group of provinces in the 3^rd zone, and 8 group of provinces in the 4^th zone, adding up to 26 groups of provinces.)  the system will operate through the giving of incentives to the investments realized in designated areas.

The Incentive Measures to be applied for the regional and sectoral investments, are provided in the following table:

In regional and sectoral incentives, it is noted that during the determination of the sectors, besides the existing facilities as per provinces/groups of provinces, an importance was also laid on the subsidizing of  the new facilities  to be established, and through this way, clusters are attempted to be formed.

Investments in integrated processing facilities in animal husbandry, facilities of  recycling and elimination of  dangerous wastes, are among the incentives that are subsidized in all the regions. Hotel investments are encouraged in the provinces that are included under the 1^st Zone (Istanbul, Tekirdağ, Edirne, Kırklareli, Izmir, Bursa Eskişehir, Bilecik, Kocaeli, Sakarya, Düzce, Bolu, Yalova, Ankara)

In our opinion, the fact that no mention has been made of the sectors of logistics, energy, seedlings, were not mentioned among the regional and sectoral incentives, is a defect.

In our opinion, the authorities acted too choosy among the sectors that were found in the 4^th zone. For example, in the investments to be realized  in the provinces of Mardin, Batman, Şırnak and  Siirt,  only the investments to be realized in 19 sectors were decided to be subsidized. For example, the reason why  investments in glass industry or paper industry, or manufacturing in chemical or plant based products used in pharmaceuticals or in medicine,  or the investments in the field of energy  were not encouraged, needs to be clarified.

On the other hand, regarding the additional incentives in the 4^th zone,  for example, in the field of wooden furniture it does not appear as a realistic option for us for the investors to choose Şırnak as a production base, instead of Trabzon, Kayseri or Manisa,  merely by taking into consideration that  the corporation tax will be applied at 2% rather than 4%, that an investment contribution shall be made at 60% instead of 40%, that the SSK premium employer’s share shall be applied for 7 years instead of 5 years, or be taking into consideration that the interest support will be applied with an additional 2 points in TL loans.  

In our opinion, if the aim is to highlight the differences in the level of development among the regions,  it would have been a more appropriate  action to assume that  all investments realized in the first 3 zones shall be entitled to benefit from incentives, if they are realized in the 4^th zone.

Another  issue regarding the incentives is that, the examples of the incentives regarding exports should be integrated within the incentive system.

Similarly,  we also believe that the opportunities and the probabilities of introducing additional incentives  to the investments to be realized in organized industrial zones should be investigated.

In the event that  in spite of the incentives introduced to the investments  realized in the 4^th zone, no impetus is achieved at the end of a reasonable period of time, particularly the  development agencies should become a part of the activity, al the investors should be contacted  one by one, and studies should be initiated in order to  determine and eliminate their needs and to build up a practical and efficient structure. An investment should not be envisaged merely as the building of a factory plant and the placement of machinery inside that factory plant,  and the investors should be guided during every phase of the investment, from the procurement of raw materials  to be used in the products,  to the procurement of the necessary personnel, from the marketing of the products, to the procurement of financing resources,  which will also entail the building of an active and flexible structure.  

The new incentive structure, shall only be applied to the new investments. The investments that have begun until the end of 2010 shall benefit from the incentives. The investors who do not benefit, or who do not wish to benefit from the new system,  will be allowed to benefit from the opportunities introduced by Law 5084 that is currently in effect, or from the Customs Exemption and the VAT exemption mechanisms that are currently applied.

Please do not hesitate to contact us if you need additional information on the pertinent subject matter.

Sincerely Yours,

Erdikler

Yeminli Mali Müşavirlik Ltd. Şti.