Engaging Foreign Direct Investment to

Turkish Economy

REPUBLIC OF TURKEY MINISTRY OF ECONOMY

Kiev, Ukraine

June 22, 2015

2

Outline

Foreign Direct Investments

Determinants & Impact

Turkey’s FDI Inflows

Turkey’s FDI Regime: Basic Principles

Structural Reform Agenda

Public-Private Partnership in the Reform Agenda

Turkey’s YOIKK Structure

Investment Advisory Council

Major Success Factors & Achievements

Investment Incentives

Turkey’s Experience Sharing Program

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Foreign Direct Investments

FDI Determinants

Political and economic stability

Market characteristics (size, growth potential)

Costs (labor, transportation, tax system)

Policy framework

Natural resources

Availability of infrastructure

Business support and promotion

FDI Impact

Stimulate capital accumulation

Increase domestic productivity and efficiency

Technology transfer

Improve local management skills and human capital

Increase competition

Promote product and process innovation

Resource-seeking

Market- seeking

Efficiency seeking

Strategic asset seeking

4

0

5000

10000

15000

20000

25000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Mill

ion

USD

FDI Performance…

FDI INFLOWS- TURKEY 2002-2015*: USD 153.8 Billion

* April

4,028

12,539

520 companies with Ukranian capital

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FDI Regime: Basic Principles…

Turkey’s FDI Regime

• National treatment • No pre-entry screening /minimum capital requirements • Right to acquire real estate • Guarantee to free transfer of proceeds, dividends and other financial assets. • Right to employ key expatriate staff • Right to access international dispute settlement

International Agreements

• Bilateral Investment Treaties with 76 countries (94 were signed) • Double Taxation Agreements with 80 countries • Customs Union with the EU

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Structural Reform Agenda

Public sector reform

Financial sector reform

Social security reform

Tax reform

Enhancing the private sector role in the economy

Opening key markets to competition

Improving the investment environment

Privatization

R&D

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Public-Private Partnership in

the Reform Program

COUNCIL OF MINISTERS

Coordination Council for the Improvement of Investment Environment (YOIKK)

Investment Advisory Council (IAC)

Steering Committee

Working Groups for Assesment and Evaluation

Monitoring

Company registration and corporate governance

Employment Input Supply Strategy (GITES) and

Sectoral Licensing

Land for investment, environmental and zoning permits

Taxes and Incentives

Foreign Trade and Customs

Intellectual Property Rights and R&D

Legislation of Investment Climate

Access to Finance Infrastructure

TECHNICAL COMMITTEES

Turkey’s YOIKK Structure...

A strong advocate for regulatory reform since 2001…

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Turkey’s YOIKK Structure...

YOIKK PARTNERS

Public Sector (15 institutions) Private Sector (5 Associations)

Prime Ministry Ministry of Customs and Trade Ministry of Development Ministry of Economy Ministry of Energy and Natural

Resources Ministry of Environment and

Urbanization Ministry of Finance Ministry of Justice Ministry of Labor and Social Security Ministry of Science, Industry and

Technology Ministry of Transport Maritime Affairs

and Communications Capital Markets Board of Turkey Investment Support and Promotion

Agency of Turkey (ISPAT) Scientific and Technological Research

Council Undersecretary of Treasury

Turkish Union of Chambers and Commodity Exchanges (TOBB)

Turkish Exporters Assembly (TIM)

Turkish Industrialists and Businessmen Association (TUSIAD)

Foreign Investors Association (YASED)

Independent Industrialists and Businessmen's Association (MUSIAD)

Chaired by the Prime Minister

Executives of leading multinational firms,

Heads of international institutions (IMF, World Bank, European Investment Bank)

Mr. Jim Yong KIM, President of the World Bank Group attended the last

meeting

TOBB, TUSIAD, YASED, TIM (Top representatives of the Turkish private sector)

Investment Advisory Council of Turkey had 8 meetings so far.

VIII. Meeting October 31, 2013

VII. Meeting May 11, 2012

VI. Meeting June 10, 2010

V. Meeting June 18, 2008

IV. Meeting June 11, 2007

III. Meeting June 29, 2006

II. Meeting April 29, 2005

I. Meeting March 15, 2004

Investment Advisory Council...

Transforming to high value-added and productive economic activities, Sustaining productivity gains by enhanced infrastructure, Supporting the internationalization and growth of SMEs, Enhancing the healthcare system, Access to land for investment, Labor market improvements, Effectiveness of judicial system, Strengthening the technological aspects in public procurement procedures, Ease of doing business.

Recommendations of the last IAC Meeting

Investment Advisory Council...

The achieved progresses regarding each recommendation are presented in each year’s IAC Report.

The reports can be downloaded at http://www.yoikk.gov.tr/detay.cfm?MID=270

Political ownership

Strong coordination between public and private sector

Benchmarking

Close monitoring and evaluation of the progress

Transparency and public awareness www.yoikk.gov.tr (both in Turkish and English)

Major Success Factors…

FDI Law

Simplification of Business Start-up Procedure

Investment Support and Promotion Agency of Turkey

Reduced Corporate Income Tax

Employment Package

Law on Enhancing Research and Development

New Investment Incentive System

Enhanced Credit Guarantee System

Liberalization of Railway Transportation

Establishment of Istanbul Arbitration Center

Major achievements…

Regional Scheme

Priority Investments

Strategic Scheme

Large Scale Scheme

General Scheme

Investment Incentives System

Incentives to promote private sector led growth

Support Measures General

Investment Regional

Investment Large Scale Investment

Strategic Investment

VAT Exemption

Customs Duty Exemption

Tax Deduction

Social Security Premium Support (Employer’s Share)

Interest Support

Land Allocation

VAT Refund

Only For Region 6 (The Least Developed Region)

Income Tax Withholding Support

Social Security Premium Support (Employee’s Share)

VAT Exemption

Customs Duty Exemption

Tax Deduction - 15–55 % 25–65 % 50 %

Social Security Premium Support (Employer’s Share)

- 2–12 years

2–12 years

7 years

Interest Support - 3-7% for TL 1-2% for FX

- 5% for TL 2% for FX

Land Allocation -

VAT Refund - - -

Only For Region 6 (The Least Developed Region)

Income Tax Withholding Support 10 years 10 years 10 years 10 years

Social Security Premium Support (Employee’s Share)

- 10 years 10 years 10 years

Support Measures

Turkey-Regional Investment Incentive Scheme Regional Incentives Map

Investment Incentives System

Turkey’s Experience Sharing Program...

The Program is designed for all parties:

In the process of or considering reform in investment climate

Thinking hands on experience would contribute their efforts

Supporting knowledge transfer between public institutions of different countries

Willing to create fruitful partnerships to design platforms handling issues on investment environment

Seeking to catch up the innovative mentality to attract more FDI in the upcoming years

Turkey's Experience Sharing Program on Investment Climate Reforms

Turkey’s Experience Sharing Program...

• The member countries of Islamic Development Bank (IDB),- 2011, 2012,2013

• Tunisian Delegation, 2012, 2014

• Palestine Delegation, 2012

• The member countries of Economic Cooperation Organization (ECO), 2011

• Turkish Republic of Northern Cyprus, 2011

• Yemen Delegation, 2010

• Kyrgyz Delegation, 2008

• Iraq Delegation, 2008

Turkey's Experience Sharing Program on Investment Climate Reforms

Republic of Turkey

Ministry of Economy

General Directorate of Incentive Implementation and Foreign Investments

Website: http://www.yoikk.gov.tr/index.cfm?dilSecim=2

E-mail: yoikk1@ekonomi.gov.tr

Phone: +90 312 212 8446

Fax: + 90 312 212 8916

For more information

REPUBLIC OF TURKEY MINISTRY OF ECONOMY

Engaging Foreign Direct Investment to

Turkish Economy

REPUBLIC OF TURKEY MINISTRY OF ECONOMY

Kiev, Ukraine

June 22, 2015