Incentives on Research and Development (R&D) and Design Activities in Turkey

1. Amendments on Turkish R&D Legislation

Law on Supporting Research and Development Activities numbered 5746 is the main legislative act regulating R&D activities in Turkey. The Law had been adopted on 28/2/2008 published on March 3, 2016 at Official Gazette numbered 26814. During the period of 2008-2016 the law had been amended several times, but general principles of the Law were reserved. However the last and the main amendment of the Law was made by Regulation on Application and Control for Supporting Research, Development and Design Activities, which had been published on August 10, 2016 at Official Gazette numbered 29797.
It is need to be underlined that the design activities are also taken under the scope of R&D legislation, so the companies performing design activities in accordance with provisions of the Regulation and which have taken Design Centre Certificate could also benefit from incentives.

2. Definition of Design Activity

According to article 4, paragraph 1, item (o) of the Regulation on Application and Control for Supporting Research, Development and Design Activities, which has been issued in Official Gazette dated 10 August 2016 numbered 29797, the design activity is defined as follows;
“All innovative activities which; have the potential of creating added value and competitive advantage, and have the quality of increasing, developing, improving and diversifying the functionality of a product or/and products in industrial area or in the other field approved by the Cabinet”.
Resulting from the 1/8/2016 dated and 2016/9094 numbered Decree of Council of Ministers, “cinema movies, video and television shootings production activities and post-shooting activities” are also considered as design activities so long as they have the capacity to create added value and competition advantage and also directed to increase, improve and differentiate the functionality of product(s).

3. Definition of R&D Activity

Regarding the definition of R&D activities, article 4, paragraph 1, item (a) of the Regulation, determines the following “Research and Development Activity (R&D): creative studies, environment friendly product design or hardware activities conducted on a systematic basis so as to enrich knowledge made up of research and development, knowledge of culture, human and society, and to make use of this in order to design new processes, systems and applications, as well as activities with experimental, scientific and technical content and original outputs, which provide scientific and technical improvement in its field, focus on scientific and technological uncertainty.”

4. Activities are not considered as R&D and design

Before enlighten the tax exemptions and incentives, we should define activities that are not considered as R&D and Design Activities in accordance with article 5 and 6 of aforementioned Regulation in order to avoid possible misunderstandings.

In this regard, activities that are not considered as R&D in brief could be explained as following:
a) Marketing activities, surveys or sales promotions,
b) Quality control,
c) Researches in social sciences,
d) Oil, natural gas and mine exploration and drillings,
e) Clinical trials after the drug production permit,
f) Usage of processes not invented as part of a R&D and innovative activity,
g) Stylistic changes not intended for R&D and innovative activity,
h) Ordinary and repetitive software related activities not include the technological and scientific progress,
i) Costs of research related to establishing and organizing,
j) Transfer of direct or embedded technology not in the scope of R&D project.

 By the way, activities that are not considered as design might be explained as follow:

a) Marketing activities, surveys or sales promotions,

b) Quality control,

c) Usage of processes not invented as part of a R&D and innovative activity,

d) Transfer of direct or embedded technology not in the scope of R&D project,

e) Design activities that includes improper use of emblems and signs,

f) Design activities against public order or public decency.

b) Tax exemptions and incentives

The Regulation amended the R&D legislation also from the part of tax exemptions on wages. Incentives provided by the Regulation as are follow:

1. Incentive on Income Tax Withholding: For the promotion of quality of personnel employed in R&D centres, different rates of tax exemptions will be introduced for the employees with doctorate diploma, master’s degree and bachelor's degree. In this regard, employees with PhD degree and employees with a master’s degree from basic sciences (mathematics, physics, chemistry and biology) are free of income tax in amount of 95%, employees with master’s degree and undergraduates of basic sciences (mathematics, physics, chemistry and biology) will also be benefiting from wage incentives in amount of 90%. Even the wages earned by R&D and design centres’ personnel for the works conducted out of these centres will be subjected to withholding tax incentive provided that these works are related to the activities conducted in such centres. Also, academicians, who are employed to conduct projects under university–industry cooperation programs, will be exempt from income tax.

2. Customs Duty Incentive: For ensuring the completions of R&D projects in shortest time and with lowest cost possible, overseas purchases within the scope of the project will be free of duty, and exempt from stamp tax and legal fee.

3. Stamp Tax Incentives: All documents issued in relation to R&D activities are free of Stamp Tax.

4. Insurance Premium Incentive: Insurance Premium of the employees that are benefiting from the Incentive on Income Tax Withholding, would be paid by the Ministry of Finance in the rate that are calculating from the amount of income tax incentives.

5. Permanent work permit for foreign R&D personnel: According to recently enacted International Workforce Law No. 6735 Article 8, paragraph 6; "Work permit applications lodged by foreign nationals who wish to work as R&D personnel in the companies that own R&D Center Certificate in the scope of Law on Supporting  Research and Development Activities, No. 5746, may be accepted upon favourable opinion of Ministry of Science, Industry And Technology

6. Purchase order: Enterprises that are established to conduct their R&D and design activities based on purchase order contracts will be deemed as R&D centres.