Ar-ge, Yenilik ve Tasarım Projelerinin Denetimleri Yönetici Şirketler Tarafından Yapılabilecek

Some amendments have been made to Law No. 5746 on the Support of Research, Development and Design Activities, by Law No. 7263 published in the Official Gazette No. 31887 dated 03/2/2021 and Law No. 7346 published in the Official Gazette No. 31700 dated 25/12/2021, and our explanations on the subject were included in our Circulars No. 08.02.2021/43 and 27.12.2021/239.

With the Regulation amendment published in the Official Gazette No. 31934 dated 25/8/2022, some changes have been made within the scope of the legal arrangements in the "IMPLEMENTATION AND AUDIT REGULATION ON THE SUPPORT OF RESEARCH, DEVELOPMENT AND DESIGN ACTIVITIES", which regulates the procedures and principles regarding the implementation and audit of Law No. 5746. The said changes are summarized as follows.

• Clinical trials, at least two phases of which were not conducted domestically before the drug manufacturing license, were not considered within the scope of R&D and innovation activities; with the amendment, Phase-3 clinical trials conducted without at least one of the Phase-1 or Phase-2 studies being conducted domestically before the drug manufacturing license will not be considered within the scope of R&D and innovation activities.

• For R&D and support personnel working in technology center enterprises, R&D centers, public institutions and organizations, foundations established by law or using funds or credits from international institutions or public institutions and organizations within the scope of technology development project agreements to support R&D, innovation or design projects, or in R&D and innovation projects supported by international funds or carried out by TÜBİTAK, and in pre-competitive cooperation projects and enterprises benefiting from techno-enterprise capital supports, and for design and support personnel working in design projects supported by the institutions and organizations listed above within the scope of the Law and in design centers; the tax calculated on their wages earned from these activities, after deducting the tax corresponding to the minimum living allowance regulated in Article 32 of Law No. 193 before 1/1/2022 and the minimum wage exemption regulated in paragraph (18) of the first paragraph of Article 23 of Law No. 193 after 1/1/2022, is cancelled by deducting ninety-five percent for those with a doctorate degree and those with at least a master's degree in one of the programs to be supported, ninety percent for those with a master's degree and those with a bachelor's degree in one of the programs to be supported, and eighty percent for others, from the tax accrued on the withholding tax return to be submitted.

• If doctoral graduate personnel in R&D or design centers give lectures at universities in the field of R&D and innovation, and the content of these lectures is documented by the universities to be related to issues such as R&D, innovation, technology, innovation, entrepreneurship, and is approved by the relevant R&D or design center management and reported to the Ministry, or if R&D and design personnel mentor entrepreneurs in technology development zones established under Law No. 4691, and this mentoring activity is documented by the technology development zone management company and approved by the relevant R&D or design center management and reported to the Ministry, the periods corresponding to the mentoring activity and lecture hours are considered within the scope of the income tax withholding incentive, provided that the total does not exceed 8 hours per week. Additionally, within the scope of the income tax withholding incentive, periods spent outside these centers, other than the situations specified in this paragraph, are also considered within the scope of the income tax withholding incentive, provided that they do not exceed twenty percent of the total number of personnel working in R&D or design centers or the total working hours subject to the incentive, and are reported to the Ministry by the relevant R&D or design center management. The President is authorized to increase this rate, set at twenty percent, up to seventy-five percent in regional and/or sectoral areas he/she will determine, or to reduce it back to the legal rate.

• For R&D centers employing R&D personnel with at least a bachelor's degree from programs to be supported, a portion of the monthly wage paid to each such personnel, equivalent to the monthly gross amount of the minimum wage applied for that year, may be covered from the appropriation to be allocated to the Ministry budget for a period of two years, excluding public personnel; to benefit from this support, it is essential that personnel graduated from bachelor's programs in mathematics, physics, chemistry, and biology of higher education institutions to be employed are hired after 1/3/2016 (inclusive), and personnel graduated from other programs to be determined by the Ministry upon the opinion of the Council of Higher Education are hired after 3/2/2021 (inclusive), and that they are employed for the first time in the relevant enterprise.

• In R&D centers or design centers, foreign national R&D or design personnel may be employed within the framework of the International Labor Force Law No. 6735 dated 28/7/2016 and relevant legislation provisions. Work permit applications for foreigners to work under this paragraph shall be made to the Ministry of Labor and Social Security by the enterprises that will employ these persons, and must be finalized in line with the Ministry's favorable opinion.

• R&D centers and design centers are audited by the Evaluation and Audit Commission at least once every three years.

• If deemed necessary by the Ministry, it may assign management companies of technology development zones that have been operating for at least one year to conduct audits of R&D, innovation, and design projects carried out within the scope of this Regulation.

• The maximum period envisaged for the support of pre-competitive cooperation projects has been increased from thirty-six months to forty-eight months.

• In pre-competitive cooperation projects for which the monitoring process has started, progress reports prepared by the project executor in six-month periods from the date of signing the project support agreement are submitted to the Ministry within the month following the end of the period. The application, evaluation, monitoring and audit, payment finalization, suspension, cancellation of pre-competitive cooperation projects, the processes related thereto, support items, matters to be included in the contract, and related works and procedures are specified in the Pre-Competitive Cooperation Projects Implementation Procedures and Principles prepared by the Ministry.

• Expediency and compliance audits regarding R&D, innovation, or design activities carried out within the scope of R&D Centers, Design Centers, and Pre-Competitive Cooperation Projects are conducted by the Evaluation and Audit Commission. If deemed necessary by the Ministry, it may also decide to appoint at least one monitor or Ministry personnel for the monitoring and audit activities of R&D and design centers, regardless of the periods stipulated in this Regulation.

• In the annual corporate tax return to be submitted as of 1/1/2022, two percent of the deduction amount utilized within the scope of Article 3 of Law No. 5746, which is 1,000,000 Turkish Lira or more, is transferred to a temporary account on the liabilities side by corporate taxpayers. The obligation amount to be transferred under this paragraph is limited to 20,000,000 Turkish Lira on an annual basis. It is mandatory that this amount is used to purchase shares of venture capital investment funds established to invest in entrepreneurs resident in Turkey, or to be contributed as capital to venture capital investment partnerships 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 return within the scope of this Law cannot be subject to the R&D deduction utilized in that year. Taxes not collected on time due to this amount are assessed without applying a tax loss penalty. The President is authorized to reduce the amounts and rates in this paragraph, together or separately, to zero, or to increase them up to five times.

The Regulation amendment entered into force on its publication date, effective as of February 3, 2021.