Law No. 4691 on Technology Development Zones and Law No. 5746 on Research

With the Law No. 7263 published in the Official Gazette dated February 3, 2021, certain amendments were made to the Technology Development Zones Law No. 4691 and the Law on Supporting Research, Development and Design Activities No. 5746.

Accordingly;

• Within the scope of Law No. 4691, if entrepreneurs operating in the Technology Development Zone do not submit a new project within the conditions determined by the regulation as of the completion date of their projects and do not submit the information and documents they are obliged to submit to the management company within the framework of the relevant legislation on time, the contract shall be deemed terminated. Termination is a reason for eviction.
• As of January 1, 2022, income and corporate taxpayers whose exempted earnings on the annual tax return within the scope of Law No. 4691 amount to 1,000,000 Turkish Lira or more shall transfer two percent of this amount to a temporary account on the liabilities side. The obligation for the amount to be transferred is limited to 20,000,000 Turkish Lira on an annual basis. It is mandatory for this amount to be used for purchasing shares of venture capital investment funds established to invest in resident entrepreneurs in Turkey, or to be contributed as capital to venture capital investment trusts or other entrepreneurs operating in incubation centers within the scope of this Law, by the end of the year in which the temporary account is created.
• If the said amount is not transferred by the end of the relevant year, twenty percent of the amount of earnings exempted on the annual tax return within the scope of Law No. 4691 cannot be subject to the income and corporate tax exemption utilized in that year. Taxes not collected on time due to this amount shall be assessed without applying a tax loss penalty.
• The period for the exemption of earnings obtained by management companies within the scope of the application of Law No. 4691 and the earnings of income and corporate taxpayers operating in the Zone, exclusively derived from software, design, and R&D activities in this Zone, from income and corporate tax has been extended until December 31, 2028.
• The tax exemption granted to the wages of R&D, design, and support personnel working in the Technology Development Zone within the scope of Law No. 4691, related to these duties, has been abolished; until December 31, 2028, the income tax calculated on the wages of R&D, design, and support personnel working in the Zone, related to these duties, after applying the minimum living allowance, shall be deducted from the tax accrued on the withholding tax return to be submitted and thus cancelled. Papers issued regarding wages within this scope are exempt from stamp duty. Therefore, it is considered that those who earn wage income within the scope of Law No. 4691 in 2021 should take into account the provisions of Article 86 of the Income Tax Law regarding whether to file an annual return for their wage income. The number of support personnel who will benefit from incentives related to income tax withholding and the employer's share of insurance premiums cannot exceed ten percent of the number of R&D and design personnel. For Zone companies with a total personnel count of up to fifteen, this rate shall be applied as twenty percent.
• Within the scope of Law No. 4691, the time spent by relevant personnel outside the Zone, provided it does not exceed twenty percent of the total working hours subject to the income tax withholding incentive in enterprises located in the Zone, shall also be considered within the scope of the income tax withholding incentive. This rate, set at twenty percent, may be increased up to fifty percent by the President.
• The period for the regulation allowing capital supports provided by income and corporate taxpayers to be used in financing projects within the scope of Law No. 4691 to be deducted in determining commercial earnings and corporate earnings, provided they do not exceed ten percent of the declared income or corporate earnings and twenty percent of equity, has been extended from December 31, 2023, to December 31, 2028. Additionally, the upper limit for the amount that can be deducted has been increased from 500,000 TL to 1,000,000 TL. On the other hand, if the capital supports provided by income and corporate taxpayers for use in financing projects within this scope do not remain in the relevant companies for at least four years from the transfer, or if the shares are sold or the invested capital is partially or fully withdrawn, taxes not assessed on time due to the deduction shall be collected together with default interest.
• The wage exemption granted to R&D, design, and support personnel working within the scope of Law No. 5746 has been abolished; for R&D and support personnel working within the scope of the Law, and for design and support personnel working in design projects supported by institutions and organizations specified in the Law and in design centers, the portion of their wages earned in return for these activities shall be deducted from the tax accrued on the withholding tax return to be submitted and thus cancelled: ninety-five percent for those with a doctorate or at least a master's degree in one of the program areas to be supported, ninety percent for those with a master's degree or a bachelor's degree in one of the program areas to be supported, and eighty percent for others.
• Pursuant to the provision of paragraph 13 added to Article 3 of Law No. 5746; support budget may be transferred from the budget of the Ministry of Industry and Technology to venture capital funds for the purpose of supporting technology, technological production, and innovation activities. The portion of capital supports provided by income and corporate taxpayers to companies benefiting from venture capital funds to which resources are transferred within the scope of venture capital support, or from investments of funds in which these funds invest, not exceeding ten percent of the declared income or corporate earnings and twenty percent of equity, shall be deducted in determining commercial earnings pursuant to Article 89 of Law No. 193 and corporate earnings pursuant to Article 10 of Law No. 5520. The amount of deduction to be made within this scope cannot exceed 1,000,000 Turkish Lira annually. The President is authorized to reduce these rates and the monetary limit by up to half or increase them by up to four times. If the capital supports provided by income and corporate taxpayers to companies that have received support through venture capital do not remain in the relevant companies for at least four years from the transfer, or if the shares are sold or the invested capital is partially or fully withdrawn, the provisions of Article 4/4 of the Law shall apply.
• As of January 1, 2022, corporate taxpayers whose R&D and Design deduction amount utilized on the annual tax return is 1,000,000 Turkish Lira or more shall transfer two percent of this amount to a temporary account on the liabilities side. The obligation for the amount to be transferred is limited to 20,000,000 Turkish Lira on an annual basis.
• It is mandatory for this amount to be used for purchasing shares of venture capital investment funds established to invest in resident entrepreneurs in Turkey, or to be contributed as capital to venture capital investment trusts or entrepreneurs operating in incubation centers within the scope of Law No. 4691, by the end of the year in which the temporary account is created. If the said amount is not transferred by the end of the relevant year, twenty percent of the amount deducted on the annual tax return within the scope of Law No. 5746 cannot be subject to the R&D deduction utilized in that year. Taxes not collected on time due to this amount shall be assessed without applying a tax loss penalty.
• The law amendments entered into force as of their publication date.