Before giving detailed information about the free trade zones of Turkey, I believe it will be beneficial to describe what free trade area is, because this term is usually mixed up by the term free trade area. Free trade area can be thought as a trade bloc, in which there are no import quatas, tariffs and similar kind of practices limiting trade in a way. Countries have to sign a free-trade agreement to be a member and benefit from the free area.
On the other hand, free trade zones occur inside of a country aiming to increase trading activities in that zones by giving some incentives and providing tax exemptions. These free zones are beneficial for both developments of the cities where they are set up and accordingly for the whole economy. We can list the objectives of incentives and tax exemptions in these zones as following (Deloitte, 2006)*:
- Increasing export-oriented investment and production,
- Accelerating the inflow of foreign capital and technology,
- Procuring the inputs of the economy in an economic and orderly fashion,
- Increasing the utilization of external finance and trade possibilities
(* Deloitte, (2006), Free Trade Zones of Turkey, Finding the Right Path to Improve Your Business)
Currently there are more than 21 free trade zones in Turkey, majority of which are located in Marmara Region. There may occur a question at this point: “Why Marmara Region?” In addition to having one of the major ports of export, Marmara region is convenient because of high-quality labor capital, geopolitical position and etc. Moreover, Justice and Development Party, which has been governing Turkish Republic more than 10 years, wants to make Istanbul one of the biggest finance centers of the world. Many of the free trade zones are close to Istanbul, which seems to ease this aim.
The popularity of these zones has started to increase for a few years. Turkey has attaining more and more importance in its region, similarly, in financial terms it is also gaining power. It has become one of the top economies among developing countries, and currently it has the highest growth rate among EU countries. Recent financial crisis in Greece, Spain, Italy and Portugal affected all of the European Union members and many firms operating in these wounded countries decided to move their production facilities to Turkey because of its convenience. The trend towards moving facilities to Turkey has also fastened after Fitch, one of the credit rating agencies, increased Turkey’s grade to investable level.
What Makes These Trade Zones Appealing?
The government has many incentives for the companies which wants to set up a facility in these trade zones. The main advantages can be listed as follows:
- Companies are totally exempt from Income Tax (15-35%) and Corporate Tax (20%)
- Companies selling at least 85% of their products abroad are totally exempt from income tax payable over salaries of employees
- Free Trade zones are considere to be outside of customs border; so no Customs Duty and Value Added Tax is applied on the goods entering the zone
- Due to the Custom Union Agreement between EU and Turkey, goods produced in Turkey are in free circulation in EU
- Companies can easily and freely transfer their profits and earnings to Turkey or any other country
- Infrastructure services like electricity, water, gas and telecommunication are provided exempt from Vale Added Tax
- Companies are free to bring their second hand machinery without any age limitation to the Free Trade Zones
- The faulty products can easily be returned to their origin by just issuing an invoice
- Companies can keep their stock duty free for an unlimited period of time
- Exceptional access to big and growing Turkish Market without limitations
- No restriction for the price and quality of the goods
Foreign investors can set up either a corporation or a limited liability company in these trade zones. For some kind of services such as banks, holdings, special financial intitutions, insurance companies etc., a permission from Ministry of Industry and Commerce is required.
In the light of this information, one can easily say that Turkey will improve its position in the world trade, and it has many opportunities and advantages for the companies which want to set up a facility in Turkey.
- free trade zones in turkey