Publications
Specialized Free Economic Zones
1. Introduction
Free economic zones are planned investment sites surrounded by fenced areas, where a closed internal processing regime is applied and additional benefits are provided to producers . In free economic zones, all kinds of industrial, commercial and service-related activities approved by the High Planning Council can be carried out . Regulations regarding free economic zones in Turkey are within the scope of the Free Zones Law No. 3218, the Free Zones Implementation Directive and the Circulars of the General Directorate of Free Zones.
Establishing a company in the free economic zones has many operational and administrative advantages. Free economic zones have benefits such as encouraging export-oriented investments and production of the companies, accelerating foreign direct investments and technology inflow into the country, directing businesses to export and developing international trade. Although free zones are located within the borders of Turkey, they are considered to be outside the customs territory in commercial terms, and these zones have their own special conditions and privileges.
2. Who Can Operate in Free Economic Zones?
According to the Free Zones Law numbered 3218, local or foreign real or legal persons may operate in free zones provided that they obtain an operating license from the Ministry of Economy . Investor operators operating in free zones may lease lands, estates and buildings that are privately owned by the Treasury or constitute an easement right on them for up to 49 years. There is no domestic or foreign capital limitation for legal entities to operate in free zones. Individuals can establish a company by using the free zone as the company address .Companies operating in FEZs can also open branches outside FEZs within the borders of Turkey. However, these branches must be related to the activities carried out in FEZs.
For example, a company that produces in a FEZ can open sales and marketing branches in different cities of Turkey. However, these branches must be engaged in activities related to the sale and marketing of the products produced.
3. Which Activities can be Carried Out in Free Zones?
A wide range of activities can be carried out in FEZs, including:
• Manufacturing
• Trading
• Warehousing
• Logistics
• Assembly and disassembly
• Maintenance and repair
• Research and development (R&D)
• Software development
• Financial services
• Offshore banking
• Tourism and recreation
Some FEZs may specialize in certain industries, such as manufacturing, logistics, or tourism. Others may have a more general focus.
FEZs can offer a number of advantages for businesses, such as reduced taxes and tariffs, simplified customs procedures, and access to world-class infrastructure and facilities. This can make them an attractive location for businesses of all sizes and industries.
4. What are the Advantages of Establishing a Company in Free Zones?
4.1 Advantages of Counting Free Zones Outside the Customs Territory of Turkey
The fact that free zones are considered to be outside the Customs Territory of Turkey results in the goods sent from Turkey to the free zone and the goods sent from the free zone to Turkey to be subject to the foreign trade regime. However, foreign trade regime is not applied between free zones and other countries and free zones. Goods sold from Turkey to the free zone are subject to export regime and goods sold from the free zone to Turkey are subject to import regime. As a consequence of this, the provisions of the legislation on customs and foreign exchange obligations, Law No. 4817 on Work Permits of Foreigners, Law No. 4875 on Foreign Direct Investments, Passport Law No. 5682, Law No. 5683 on Residence and Travel of Foreigners in Turkey are not applied in the trade to be carried out from free zones to abroad .
There are many advantages to counting free zones outside the customs territory of Turkey. Some of the most important advantages include:
Increased tax revenue:Free zones can generate tax revenue for the Turkish government through taxes on corporate profits, personal income, and value-added tax (VAT). This revenue can be used to fund public services and infrastructure projects.
Reduced costs for businesses operating in free zones: Businesses operating in free zones can benefit from a number of cost advantages, such as tax breaks and simplified customs procedures. This can help to reduce their operating costs and improve their profitability.
Simplified customs procedures: Free zones typically have simplified customs procedures, which can make it easier and faster for businesses to import and export goods. This can save businesses time and money.
Access to world-class infrastructure and facilities: Many free zones offer world-class infrastructure and facilities, such as modern ports, airports, and transportation networks. This can help businesses to operate more efficiently and effectively.
In addition to the above advantages, counting free zones outside the customs territory of Turkey can also help to:
• Improve the accuracy and reliability of trade statistics
• Facilitate the implementation of trade agreements and other international obligations
• Reduce the risk of smuggling and other illegal activities
Overall, counting free zones outside the customs territory of Turkey is a good practice that can help to improve the efficiency and transparency of trade and investment.
4.2. Advantages in terms of Taxation
The main advantages in terms of taxation for businesses operating in free economic zones in Turkey are:
Exemption from corporate income tax: Manufacturing companies are 100% exempt from corporate income tax over their profits (the regular corporate tax rate in Turkey is 20%).
Exemption from income tax on salaries: Manufacturing companies are 100% exempt from income tax over the salaries of their employees if they sell at least 85% of their production abroad (the regular income tax rate over salaries in Turkey is between 15% to 35%).
Value-added tax (VAT) exemption: Goods and services sold to and from free zones are exempt from VAT.
Customs duty exemption: Goods imported into free zones are exempt from customs duties.
Free profit transfer: Profits generated in free zones can be transferred to Turkey or to other countries without the need for any permission.
These tax exemptions can lead to significant savings for businesses operating in free zones. For example, a manufacturing company that exports 85% of its production could save up to 55% on its overall tax burden by operating in a free zone.
In addition to the above tax exemptions, businesses operating in free zones may also be eligible for other tax incentives, such as:
• Reduced stamp duties and fees
• Exemption from property tax
• Exemption from VAT on logistics services supplied to third countries
The specific tax incentives available to businesses operating in free zones may vary depending on the type of business and the specific free zone in question.
Overall, the tax advantages offered by free zones can make them a very attractive location for businesses of all sizes and industries.
4.3. Advantages in terms of Money Transfer
Profits derived from the operations in free zones can be transferred to Turkey and other European Union countries without any authorization. Article 8 of the Free Zones Law numbered 3218 stipulates that goods originating in Turkey, the value of which does not exceed USD 5.000 or its equivalent in Turkish Lira, may optionally not be subject to export processing . This makes it easier to access supplies to be used in the operations. Profits generated in FEZs can be transferred to Turkey or to other countries without any restrictions. This means that businesses can freely repatriate their profits to their home country or to other countries where they have operations.
Businesses operating in FEZs are free to hold foreign currency accounts and to conduct foreign exchange transactions. This can help businesses to manage their foreign exchange risk and to take advantage of favorable exchange rates. FEZs typically have simplified customs procedures, which can make it easier and faster for businesses to transfer money in and out of the zone. This can save businesses time and money.
FEZs typically offer a wide range of financial services, including banking, insurance, and investment management. This can give businesses access to the financial services they need to support their operations.
For example, a manufacturing company that exports its products to multiple countries can use an FEZ to transfer its profits back to its home country quickly and easily.
In addition to the above advantages, FEZs can also help businesses to reduce the costs associated with money transfer. For example, businesses operating in FEZs may be able to negotiate lower foreign exchange rates with banks. They may also be able to take advantage of other financial services, such as export financing and hedging products, which can help to reduce their overall costs.
5. What are the Requirements for Operating in Free Zones?
According to Article 11 of the Free Zones Implementation Circular, real or legal persons wishing to operate in free zones are obliged to obtain an operating license . In order to apply for an operating license, an Operating License Application Form must be filled out, other necessary documents must be attached to this form and the operating license application fee must be deposited into the Free Zones Special Account at the Central Bank of the Republic of Turkey (The operating license fee is USD 5.000). The application for an operating license shall be submitted to the Free Zone Directorate together with the form and its annexes. Upon receipt of the letter of approval from the General Directorate of Free Zones, the company may apply to the Trade Registry Office for incorporation. The company shall be established and start its operations in the free zone in accordance with the provisions of the Turkish Commercial Code.
Operating licenses are granted to lessee companies in the free zone for 20 years for production operations and 15 years for other operations. Investor companies are granted an activity license for 45 years for production operations and 30 years for other operations. After the expiration of the operating license, in order to renew it, the operating license fee must be paid again.
The articles of association of companies wishing to establish and operate in free zones must comply with the Circular No. 1998/4 . The draft articles of association issued in accordance with this circular shall be submitted to the Free Zone Directorate together with other documents when applying for an operating license.
6. What are the Documents Required for Operating License Application?
The Operating License Application Form must be filled out in order to apply for an operating license. The documents that must be attached to the Activity License Application Form are as follows:
· A separate page including information about the applicant and the free zone activity to be carried out,
· Authorization certificate and corporate resolution for signing authority and certificate of authorization and signature declaration of the company representative, if any,
· If the applicant legal entity is an existing company, the Turkish Trade Registry Gazettes and the Chamber of Commerce and/or Industry Registration (For foreign companies, a copy of the certificate of incorporation valid in their own country certified by Turkey's representative in that country),
· If the applicant legal entity is a company to be established in the free zone, the draft articles of association of the company,
· Balance sheets and profit and loss statements for the last three years,
· Original and copy of the bank receipt showing that the Operating License fee has been deposited in the Central Bank of the Republic of Turkey,
· A document showing the amount of foreign currency (if any) brought to Turkey by the applicant in the last three years,
· A permission certificate received from the BRSA-Banking Regulation and Supervision Agency for banks and financial leasing institutions, and from the Undersecretariat of Treasury General Directorate of Insurance for insurance institutions,
· Original and a copy of the filled out Operating License Application Form.
7. What are the Incentives Provided by the Government to Free Zones?
In addition to the tax incentives mentioned above, companies operating in free zones are also provided with rent support, insurance premium employer's share support, interest support, qualified personnel wage support, etc. under certain conditions. These supports depend on the field of activity of the company, whether the company is located in a specialized free zone or not, and whether the company is a free zone operator or not. The Turkish government provides a number of support services to businesses operating in free zones, such as training programs and assistance with finding suppliers and customers. This can help businesses to get up and running quickly and to succeed in the Turkish market.
8. Conclusion
As a result of their advantages, free zones have become an appealing destination for investors in the fields of trade and investment. The advantages offered to companies established in free zones allow them to conduct international trade more efficiently. These advantages make free zones an appealing business environment for companies and contribute to the development of international trade. Hence, the decision to set up a company in a free zone can be an ideal option for investors.
References
1. Free Zones Law, Republic of Turkey Official Gazette, (June 15, 1985), 18785.
2. Free Zones Implementation Regulation published on the Official Gazette dated 10/3/1993 and numbered 21520.
3. Circular dated 19/6/1998 and numbered 1998/4 issued by the Ministry of Trade.
4. https://www.oaib.org.tr, Page 4.
5. Mondaq, Article Named “Serbest Ekonomik Bölgede Şirket Kurma”
https://www.mondaq.com/turkey/corporate-and-company-law/1185770/serbest-bolgede-sirket-kurma
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Nazli
OZKUL |
İrem TOPSAKAL |
Serra YILDIRIM
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